A KPMG report provides insight into the changing tax environment facing family businesses globally
While the family business collaborates to boost the world economy and represents the majority of GDP and global jobs, it has some difficulties.
One of them is related to those who try to keep their business within the family group and transfer it to the next generation. In this context, a multitude of challenges can be faced, including the complex tax regulations generally applicable to the transfer of this class of organizations.
A recent report by KPMG Private Enterprise provides a detailed perspective on the varied and changing tax environment that family businesses face around the world, while providing valuable information on how families can better prepare for their business transition. towards the next generation.
The report details the different tax treatments in 54 countries, taking as an example the intra-family transfer of a company valued at 10 million euros.
“While taxes on the transfer of a family business tend to be higher in large and developed economies – and with complex requirements to qualify for an exemption – those in emerging economies can also face a challenging tax burden.“warns the report.
Tax rates by region
The report details the different tax treatments in 54 countries
Of the 54 countries studied, 15 have an inheritance / wealth tax applicable to the intrafamily transfer of a company worth 10 million euros, while 16 have a gift tax applicable to a lifetime transfer.
In the USA there is one of the tax rates highest in the world. However, American families can potentially benefit from a $ 10 million exemption (adjusted for inflation), but scheduled to expire after 2025.
“France, Ireland, the Netherlands, Spain and the United Kingdom have the highest tax rates among the countries surveyed in Europe for the transfer of a family business worth € 10 million per death, but taxes are substantially reduced through exemptions “, he says.
In South America, most of the surveyed countries do not have exemptions available. Only Argentina and Colombia have total or partial exemptions for the transfer of a family business. However, conditions could change in the short term as a result of the effects of the pandemic.
With regard to Argentina, Emiliano Martín, leading partner of Private Enterprise KPMG Argentina, believes that “in the face of a framework of economic instability enhanced by the effects of an unprecedented pandemic, family businesses have the need to develop strategies aimed at greater production and management efficiency such as permanent monitoring of cash flows and cost containment, targeting of financial and economic resources in the main activity and integration with the main clients and suppliers. The key strategy is the execution of a correct tax planning that allows family businesses to achieve a profitability scheme “.
As for the Asia-Pacific region, South Korea stands out as having one of the highest tax burdens in the world for transfer. By contrast, China currently does not impose any gift or inheritance tax.
Succession and transfer taxes
Of the 10 countries with the highest GDP, six (Brazil, Canada, France, Germany, the United States and the United Kingdom) have taxes that apply to both inheritance and lifetime transfers, while four (China, India , Italy and Russia) do not have any gift or inheritance tax on the transfer of a family business.
While they exist tax breaks In most of the jurisdictions analyzed that can reduce the tax burden for families who decide to transfer their business, many of them are under increasing scrutiny, and families must be prepared for the change.
“In the South American region, following the results of the study, most countries apply some tax burden to the transfer of family businesses (Argentina, Colombia and Uruguay have partial exemptions). The reality of the region, as a whole for the purposes of the current pandemic and the need for governments to increase their budget, highlight the urgency of families (who own companies or must manage some wealth) to transfer their business before the environment and conditions change “, commented Jubran Coelho , leading partner of the Private Enterprise area of KPMG in South America.
For his part, Marcus Vinicius Gonçalves, KPMG’s leading tax partner in the region, said that “in South America, there is potential for changes in family businesses. In the case of Brazil, for example, the economy and families have historically benefited from a low tax rateBut that may be about to change with federal tax reform planned for 2021, which could end up affecting family businesses. “