Countries Looking To Tax Incentives To Stay Competitive: Survey

Governments are expanding their use of tax incentives to maintain their country’s international appeal to businesses, alongside the adoption of anti-base erosion and profit shifting measures, according to a survey from EY.

EY’s survey of tax policy professionals in 50 countries found that, “While the long-term trend for countries to pursue a low-rate, broad-base business tax strategy remains strong in 2017, implementation of the G20/OECD’s Base Erosion and Profit Shifting (BEPS) recommendations and draft legislation introduced by the European Commission are now compelling governments to seek alternative means of tax change to drive competition.”

Of the 50 countries surveyed, 30 percent intend to invest in broader business incentives to stimulate or sustain investment, with new or improved business incentives being offered in 27 percent more countries than in 2016. And 22 percent of countries plan to introduce more generous research and development (R&D) incentives in 2017, with new or improved R&D incentives now being offered in 83 percent more countries than last year.

Chris Sanger, EY Global Tax Policy Leader, said: “Governments are increasingly adopting incentives as a pragmatic means to compete amid coordinated change across the tax landscape. Incentives can encourage and sustain business investment, allowing governments to respond to the dual pressures of continued weak economic growth and the introduction of new measures and legislation in response to tax reform in Europe and globally.”

EY reported that 8 of the 50 countries have laws in place that will drive lower corporate income tax (CIT) rates this year. Seven of those are based in Europe, indicating that countries there are anticipating that there will be greater tax competition from prospective company domiciles centered on headline rates, with the BEPS recommendations’ focus on substance.

The survey reveals that the number of countries forecasting an increasing business tax burden continues to rise, with 22 percent expecting an overall increase in the CIT burden in 2017. With countries continuing to respond to BEPS-related transparency and disclosure requirements (BEPS Action 13), the survey finds that increasing tax enforcement and new transfer pricing rules were the main sources of tax burden-increasing changes among respondents.