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Tax competition within Europe has forced corporate tax rates down to levels well below the rest of the world, according to an international survey by KPMG, the professional services firm. corporate tax rates in the European Union stood at 25 per cent in 2005, compared with an average of 28 per cent for the Organisation of Economic Co-operation and Development countries, 28 per cent for Latin America and 30 per cent in the Asia Pacific region.

Last year, the average European tax rate fell by 0.28 per cent to 25.04 per cent in 2005, as a result of rate cuts in six EU member states including France, Greece and the Netherlands.

The average rate in the Asia-Pacific region was unchanged, while the regional average for Latin America fell very slightly, by less than a tenth of a percentage point.

Tax competition between EU member states has increased as a result of the accession of 10 new members to the EU in 2004 and efforts by the EU judicial system to remove barriers to the free movement of capital, KPMG said. Loughlin Hickey, global head of tax, said: “It is much easier now to transfer people, manufacturing and services within the European region.”

Other parts of the world were facing less competition because borders were less permeable, he said. Nonetheless, the global trend was stable or declining tax rates. The majority of the 86 countries surveyed had either kept their tax rates unchanged since 2004 or had reduced them.

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FT.com / World - EU tax competition drives down corporate rates