Canada has the third lowest tax cost for businesses among 10 countries studied by KPMG for a special report.

The report assesses the general tax competitiveness of 102 cities in 10 countries, focusing on 35 major cities with populations greater than 2 million, comparing the tax burden faced by companies, including income tax, capital tax, sales tax, property tax, miscellaneous local business taxes and statutory labour costs.

Mexico and the Netherlands came in first and second in the country rankings, and Canada was third, followed by Australia, the United States, the United Kingdom, Japan, Germany, Italy and France.

“Canada has done well in reducing its federal corporate tax rates,” says Greg Wiebe, KPMG’s Canadian managing partner, tax.

In the report’s 35 major city rankings, Vancouver was fourth, Montreal sixth and Toronto seventh. The top three cities are located in Puerto Rico and Mexico.

The report compares the total tax cost between countries and cities using a Total Tax Index score for each location expressed as a percentage of total taxes paid by corporations in the U.S.. A lower score is better since it means lower tax costs for businesses.

By this measure, Vancouver, with a score of 75.2, compares favourably with Seattle, its natural U.S. counterpart, scored at 107.1.

A similar advantage is shown for Toronto (85.4) and Montreal (83.2) compared to cities in the U.S. eastern corridor, such as New York City (109.2) and Philadelphia (101.9).

Although not included on the 35 large international cities list, other Canadian cities such as Calgary (69.3) and Halifax (66.6) also compare favourably with their U.S. counterparts, such as Houston (104.1) or Boston (102.1), respectively.

Montreal’s top rank for R&D among international cities reflects the province of Quebec’s commitment to developing its R&D sector,” says Bruno Desautels, tax partner in KPMG’s Montreal office.

The report also compares tax costs between industries, which vary widely. In a breakdown by business sectors, Canada comes third in manufacturing, scoring well at 87.1 compared to 100 for the U.S., with Vancouver, Toronto and Montreal placing in the top 10 cities. For the services business sector, Canada ranks second behind Mexico and, again, the three major Canadian cities studied place in the top 10.

The greatest variations in industry tax costs between countries are in the R&D industries, due to intense competition between countries to attract more R&D business by offering more generous incentives. In this industry, Canada comes second after the Netherlands, and Montreal, Vancouver and Toronto rank first, second and third among the large international cities:

“These rankings reflect Canada’s tax policy in this area and its efforts to enhance its R&D incentives,” says Greg Wiebe. “Despite these good results, there’s still room for improvement. A recent KPMG survey found that the R&D program needs to be administered more effectively to ensure that companies can benefit from it.”