Out-Law / Your Daily Need-To-Know

Singapore bullish about impact of international tax changes

Out-Law News | 23 Aug 2021 | 10:12 am | 2 min. read

Planned global tax changes will not diminish Singapore’s chances of attracting international businesses to set up operations in the city state, according to the chair of the Singapore Economic Development Board (EDB).

Dr Beh Swan Gin reportedly rejected the suggestion that the impact the proposed Global anti-Base Erosion Rules (GloBE) regime would have on countries’ scope to offer tax incentives would harm Singapore’s competitiveness. He cited the ability of businesses to raise capital, access digital technology and skills, and protect their intellectual property as major factors that he believes will continue to attract businesses to Singapore after GloBE is implemented, according to the Business Times.

"If indeed there is a global multilateral effort where such tax incentives are no longer offered, we are not concerned at all because we are quite comfortable and confident that over the past five, six decades of development, Singapore has built up very strong value propositions that can attract companies to come," Dr Beh said.

“I can't think of one country that does not offer tax incentives. So actually, it has not been a differentiator for a long time,” he said.

The GloBE reforms envisage a levelling of the playing field in respect of corporate tax rates imposed globally. A minimum 15% tax rate could be set for multinationals regardless of where they are headquartered or the jurisdictions in which they operate. However, countries will not be forced to operate the GloBE regime and countries operating with corporate tax rates lower than 15% currently will not be required to increase their rate to at least 15%. Instead, parent companies in jurisdictions which decide to apply the rules will be subject to a top up tax, the income inclusion rule, to the extent that their subsidiaries have paid tax in another jurisdiction at less than 15% or deductions can be denied on payments to group members in low tax jurisdictions.

In a further attempt to make the rules more acceptable to developing countries, it has been agreed that the GloBE rules will include a ‘substance’ carve out which will exclude an amount of income that is at least 5%, or in the transition period of 5 years, at least 7.5%, of the carrying value of tangible assets and payroll. This is so that the rules will not apply to incentives offered by countries on tangible investments in their countries such as establishing factories.

Tax expert Valerie Wu of Pinsent Masons MPillay, the Singapore joint venture partner of Pinsent Masons, the law firm behind Out-Law, said: “Thanks to the substance-based approach underlying Singapore’s tax incentives, multinational companies that have set up presence in Singapore have largely done so for strategic reasons other than our competitive tax rates – with factors such as the business-friendly environment, rule of law and talent pool, to name a few, serving to attract them. Nevertheless, with the ambitious objectives and timeline of BEPS 2.0, there will likely be a certain level of calibrated tweaking of Singapore’s corporate tax regime – this is an important space to watch in the leadup to the OECD’s target implementation timeline of 2022/2023.”

The GloBE regime forms the second of a two ‘pillar’ international tax agreement reached by 130 countries in June. BEPS 2.0, as it has become know, has since been endorsed by the G20.