Oh Canada: What if Amazon picks an international location for HQ2

By Leia Klingel Industries FOXBusiness

Amazon will rule retail: Flickinger

Strategic Resource Group Managing Director Burt Flickinger discusses his outlook for Amazon.

Amazon received 238 applications from cities and regions in 54 states, provinces, districts and territories across North America interested in becoming home to the ecommerce giant’s second headquarters (HQ2). With Amazon saying HQ2 will bring thousands of jobs, and billions of dollars in investment, it will be a fierce competition.

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The problem with this competition is the playing field isn’t even. With Canada, Mexico, and the United States all in the running, it is officially an international battle, and one that the United States has a disadvantage.

Canada and Mexico have a major competitive advantage over the U.S.: significantly lower business costs. In their proposal request detailing what they will be looking for when determining a location for HQ2, Amazon said: “A stable and business-friendly environment and tax structure will be high-priority considerations for the Project.”

According to KPMG’s Competitive Alternatives 2016 report, and its Focus on Tax report, the U.S. lags its North American cousins when it comes to business costs, including tax costs.

In KPMG’s comparison of total tax costs, including corporate income taxes, capital taxes, sales taxes, property taxes, miscellaneous local business taxes, and statutory labor costs in 10 countries, Canada ranked first, Mexico was fourth, and the U.S. was seventh.

“The U.S. has the highest corporate income tax rate in the world, at 35%. And, if you add onto that state and local taxes, this is a real competitive disadvantage when it comes to global site searches,” Larry Cusack, national leader of the State and Local Tax practice of KPMG LLP, told FOX Business regarding corporate tax rates.

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He added that in searches that are not talent specific, the corporate tax rate is generally a “very important” factor.

Last Thursday, the U.S. House of Representatives passed a budget, clearing the way for lawmakers to pass comprehensive tax reform. Of the measures being considered, is reducing the corporate tax rate down to 20%, although Donald Trump has pushed for a corporate tax rate as low as 15%.

John Wonfor, National Tax Office Leader BDO Canada LLP, told FOX Business that Canada’s corporate tax system is “much better” than the U.S. tax system. He added that “Canada is nervous about U.S. tax reform. Canada has a better tax environment for business than the U.S. under current tax rules in both countries. U.S. tax reform could change that. Canada wants to remain a competitive place to do business, and tax is a big part of this.”

In their HQ2 RFP, Amazon noted that in choosing a location that it has a preference for: “Metropolitan areas with more than one million people, a stable and business-friendly environment, urban or suburban locations with the potential to attract and retain strong technical talent, and communities that think big and creatively when considering locations and real estate options.”

According to George Tobjy, tax managing director in KPMG’s Global Location & Expansion Services, when it comes to business site selection there are so many factors to consider: growth, research, and talent, are all important considerations, and that the U.S. is “very competitive” when it comes to these factors.

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Amazon said they expect to invest over $5 billion in constructing its HQ2 and that it could include as many as 50,000 high-paying jobs.

FOX Business reached out to Amazon, and they declined to comment.