24 countries from the Americas were chosen for TMF Group’s Financial Complexity Index for 2017.
We’ll look in depth at the top three systems from the region in this article and have added another dimension to the analysis by looking at the overall and parameter specific performance in the World Bank’s Doing Business report of these countries.
We’ve already seen some challenges on the tax and accounting front that the country imposes on entities operating within their framework in the second article of this series. These mostly relate to the multi-level and multi-rate tax system making it difficult for even well-intentioned companies to ensure full compliance.
Brazil is not an easy place to do business either. The country ranks a low 123 among 190 nations evaluated for the Doing Business survey. And supporting the TMF Group’s assessment on a complex tax structure is the country’s rank of the ‘paying taxes’ parameter in the Doing Business survey, where it ranks 181 – placing it among the bottom 10.
As far as future developments in its tax system are concerned, the Complexity Index report observes that it could become even more complex in the short-term referring to the move to a more controlled automatic tax reporting system. But it remains positive about the longer-term implications of some initiatives like eSocial.
A major reason which makes Colombia’s tax system difficult is the wording of its tax rules, which allows for different interpretations, according to the 2017 Financial Complexity Index report. The report also noted that though Colombia transitioned to IFRS in 2016, some differences between accounting and tax books remain.
Further, requirement of adherence to strict rules like keeping commercial documents for 20 years and tax ones for five years add to the complexity of the system.
Among the three countries from the Americas in the top 10 most complex global tax and accounting systems, Colombia is the best place to do business, ranking 53 among 190 nations. In fact, the country is the second best in the world on the ‘getting credit’ parameter. However, ‘enforcing contracts’ and ‘paying taxes’ remain challenging areas for the country and both are detrimental to conducting business.
The Complexity Index report outlines that the country is continuing to undertake tax reforms. Starting this year, the number of declarations required to be submitted have been reduced. Further improvements will make the country stand out, especially in Latin America.
Double-taxation issues plague Argentina due to tax collection being spread across multiple jurisdictions of the national, provincial, and municipal governments.
The Complexity Index report highlighted that even though several firms have moved to the IFRS regime, companies which are regulated by entities other than the National Value Commission (CNV), like financial institutions and insurance companies, are not permitted to apply the standards.
Meanwhile, according to the Doing Business report, ‘paying taxes’ is the parameter that the country has fared quite poorly in, ranking 178th among 190 countries.
The Complexity Index report anticipates reforms to the tax system, specifically regarding possible reductions in taxes on salaries and banking.