KPMG’s Global Family Business Tax Monitor

KPMG’s Global Family Business Tax Monitor

KPMG’s Global Family Business Tax Monitor highlights importance of supportive tax regimes for growth of family businesses

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KPMG’s Global Family Business Tax Monitor

(DUBLIN, 19 April 2016) A report by KPMG has found that while tax regimes vary globally, in general, countries are supporting and encouraging investment and growth in family businesses. KPMG’s Global Family Business Tax Monitor finds that low tax liabilities generally arise in advanced economies on the transfer of family businesses to the next generation upon retirement or inheritance due to the impact of tax reliefs or exemptions in national laws, notwithstanding the tax burden on gifts or inheritances being significantly higher in such economies.

Key findings of the KPMG report include:

  • Generally, countries are supporting and encouraging investment and growth in family business;
  • While several higher tax and lower tax countries are geographically adjacent to each other, this poses an interesting dilemma for business owners in relation to potential relocation;
  • Despite the fact that family businesses often have strong geographic roots and tend to be committed to ‘giving back’ to their local communities, governments need to consider that unfavourable tax policies may influence a business to relocate impacting the government’s local economic growth;
  • Although generous in nature, the exemptions and reliefs are often complex and could be simplified.

Colin O’Brien, Partner and Head of Private Irish Business at KPMG in Ireland said: “The importance of family-owned businesses cannot be overlooked as they generate over 70 per cent of global GDP annually. Succession planning is an essential process for family businesses. Tax considerations don’t drive the decision to pass on the business to the next generation but tax is one of the fundamental aspects which needs to be taken into account. Longevity is fundamental to family business and tax policy aimed at promoting that longevity is welcomed.”

Tim Lynch, Partner at KPMG in Ireland, added: “From a gift and inheritance tax perspective, family businesses here in Ireland are treated similarly to family businesses in advanced economies globally. Whilst Irish gift and inheritance tax burdens could be described as being relatively higher, Irish reliefs from those taxes in passing on the family business are quite competitive. Given the importance of family businesses in contributing to the Irish economy, these reliefs are essential and any measures aimed at simplifying the complex rules should be encouraged.”

Other findings include:

  • Families should think through their approach and timing of business transition well in advance. By being prepared, families can ensure they understand and, where relevant, qualify for all exemptions and reliefs available. Lack of timely preparation may cost them a considerable sum or even put the ongoing ownership of the business at risk;
  • The difference in tax treatment of inheritance and retirement transfers may impact considerably on family’s attitude and the owners’ decisions about when to transfer the family business;
  • While from a tax perspective, it may be more beneficial to transfer the business to the family members on inheritance rather than during the owner’s lifetime, this can lead to the younger generation feeling frustrated that they do not ‘own’ the business they are working to help grow. Balancing the need for the older generation to retain ownership, while the younger generation runs the business may require tact and compromise from both sides.

ENDS

Notes to editors

Full details of the KPMG Global Family Business Tax Monitor: Comparing the impact of tax regimes on family businesses can be found here.

For more information, please contact:
Paul Gray, Communications Manager
KPMG Ireland
paul.gray@kpmg.ie
(01) 700 4728

Methodology

The Global Family Business Tax Monitor is based on the findings of 42 countries which undertook a taxation review on two scenarios for a Family Business valued at €10m. The Monitor has explored the effects taxation can have on the transfer of the business to family members upon inheritance and as a lifetime transfer (on retirement). The 42 countries engaged in the study are: Australia, Austria, Belgium, Bosnia & Herzegovina, Brazil, Canada, China, Croatia, Cyprus, Czech Republic, Estonia, Finland, France, Germany, Greece, India, Ireland, Isle of Man, Italy, Jamaica, Japan, Jordan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Netherlands, Norway, Pakistan, Poland, Portugal, Senegal, Serbia, Slovakia, South Africa, Spain, Sweden, Switzerland, Turkey, UK, USA.

About KPMG in Ireland

KPMG in Ireland employs 2,200 people across its audit, tax and advisory services from offices in Dublin, Belfast, Cork and Galway. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. 

About KPMG International

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 155 countries and have 174,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

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