The recently released report titled ‘KPMG Global Family Business Tax Monitor’ compares the impact of tax regimes on family businesses. It is based on the findings of 42 countries, including India that undertook a taxation review on two scenarios for a family business valued at €10 m. The report explored the effects taxation can have on the transfer of the business to family members upon inheritance and as a lifetime transfer (on retirement). Each participating country was given two case studies and a questionnaire to complete providing details on how their country would tax each event.
Through inheritance, 26 out of 42 countries impose no tax or a tax below €1 million for a family business valued at €10 million, among them 13 impose no tax, and; on retirement, 22 countries impose no tax or a tax below €1 million for a family business valued at €10 million, among them 11 impose no tax.
The report concludes that while tax regimes around the world vary greatly, even between neighboring jurisdictions, in general, countries are supporting and encouraging investment and growth in family businesses, with low tax liabilities for the transfer of businesses to the next generation upon retirement or inheritance. Where tax is due, various mechanisms exist allowing for payments to be diminished or deferred.
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 unfavorable tax policies may influence a business to relocate impacting the government’s local economic growth. Similarly while tax considerations often do not drive the decision about the right time to pass the business on; but for many, it is one of the key aspects to be taken into consideration.