Author: Laura Ignacio

Source: Gazeta Mercantil, 18/12/2007

São Paulo, December 18, 2007 - In Latin America, foreign investors prefer a higher tax burden than bureaucracy. This is one of the results of a survey carried out by KPMG, in November, in Mexico, during the Ibero-American Tax Summit. Entrepreneurs from 87 multinationals, from 21 different countries, answered 12 audit questions. The survey, which had already been carried out in 2006, revealed that 49% of entrepreneurs believe that the reduction of bureaucracy in countries in Latin America is the factor that would have the greatest impact in order to encourage foreign investments.

Lower tax rates were the factor mentioned by 17%; more tax incentives, by 15%; greater investments in education and the improvement of labor standards, by 14%; and government investments in infrastructure, by 6%.
And businessmen say they do not believe that tax reforms underway in the region can improve this situation. Of the total, 78% responded that they do not believe that these reforms will simplify tax obligations. “Bureaucracy harms new foreign investors, especially in the case of Brazil, because the cost of managing and complying with tax legislation is high. Other than the risk of paying tax and still being assessed ”, comments the partner of KPMG in the area of ​​international taxation, Marienne Shiota Munhoz.

Of those surveyed, 60% say that Latin American countries make up an attractive market for investments. So much so that, despite the bureaucracy and high tax burden, the survey shows that 20% plan to invest in 2008 in Brazil; 23% in Mexico; 16% in China; 8% in India; 7%, in Argentina; 6% in Chile; and 4% in Eastern Europe. Only 17% said they had no plans to invest in foreign countries next year.

For KPMG's international taxation partner, Roberto Haddad, the tax aspect causes companies to change countries or invest less in a particular country. “More and more we see large companies wanting to set up distribution centers and tax aspects will play a very important role in this decision. Brazil, for example, has a lot of labor, a good location, but a tax burden and bureaucracy ”, says Haddad.

Haddad explains that Mexico made a recent tax simplification with a reduction in the export rate. Lawyer Luís Edurado Schoueri, from Lacaz Martins, Halembeck, Pereira Neto, Gurevich and Schoueri Advogados, agrees that the bureaucracy and lack of consideration for the taxes paid are the factors that most bother the taxpayer. "It is bad to pay tax and even worse to pay tax", criticizes the tax-lawyer when referring to the expenses to control compliance with so-called accessory obligations. "Mexico still has a good and closer relationship with the United States, compared to the other countries in Latin America," he says.

Analyzing the 2006 results and comparing with 2007, it is clear that the concern about bureaucracy has increased. According to Haddad, in 2006, 28% of respondents pointed out lower rates as an important factor and this year it was 17%. Already less bureaucracy, last year, was a factor pointed out by 34% of entrepreneurs. This year, 49% mentioned this factor as the main problem in Latin America.
The independence of the judiciary was the answer of 38% of respondents to the question: Which of the following institutions do you think is most important for greater economic security for investors? Efficient tax administration came in second with 30% of responses. Independence from the central bank came in third with 17%. Good financial standards were the answer indicated by 9%; more modern banking system, by 4%; efficient police, by 2% and a representative group of entrepreneurs, by 1%.

Brazil is the country with the greatest chance, among Ibero-American countries, of becoming a powerful economic leader in the region, says the survey. Of the interviewees, 47% indicated the country. Mexico was the option of 34%; Spain, 7%; Chile, 5%; Venezuela, 3%; and Colombia and Argentina, of 1% of entrepreneurs.
For Schoueri, for Brazil to have this power, the ideal would be a tax reform that would simplify the tax system and end the incidence of several taxes on equal bases of calculation.