MOF consults industries on tax system changes

Singapore ensures that it will safeguard taxing rights and will seek to minimize the compliance burden for businesses in the adjustment.

Singapore will implement adjustments in its corporate tax system once consensus is fully reached and in consultation with its industry, Finance Minister Lawrence Wong said, adding that they cannot determine yet its impact to the country’s fiscal position.

In a Parliamentary Reply, Wong said it is “too early to work out the exact impact of the tax proposals.”

“The final number of affected MNEs (multinational enterprises), as well as the extent of the impact, depends on the design of the specific rules which are still being actively discussed at the IF (inclusive framework). As some of the tax proposals can only be effected through a multi-lateral instrument, there will be a need for an international consensus to be fully reached before the changes can be implemented,” he said.

Wong said that Singapore has been actively involved in international discussions as part of the IF on base erosion and profit shifting tackling two major tax changes. The IF platform, to ensure wider international consensus include more than 130 jurisdictions.

“Singapore has been actively involved in these international discussions as part of the IF. The IF has been discussing two major tax changes,” he said in a reply to questions on the implications of the Group of Seven agreement on the global minimum corporate tax rate.

The first tax proposal or Pillar 1 is about the re-allocation of taxing rights of the largest and most profitable multinational enterprises from where they conduct their substantial activities to where their customers are.

The Pillar 2, meanwhile, will subject MNEs to a minimum effective tax rate of 15% at the MNE group level, with global revenues above €750m, in every jurisdiction where they operate. This will “limit the effectiveness of tax incentives as a tool to encourage larger MNEs to invest in Singapore,” he said, adding that there were about 1,800 MNE groups that would meet the criteria.

Wong said they will only be able to determine “with high degree of confidence” the impact of the proposals on Singapore’s fiscal position once the IF have agreed on the detailed design and elements of the pillars. The impact will also depend on how the companies and other governments respond to international development.

“What we can say for certain is that when a consensus is fully reached, Singapore will adjust our corporate tax system as needed, in consultation with the industry,” he said.

The adjustments will be guided by three principles which are: abiding by internationally agreed standards, safeguarding taxing rights, and seeking to minimize compliance burden for businesses.

Wong added that the “best response” to the tax changes is to “continue strengthening our overall competitiveness,” adding that the government has been investing and will continue to do so in enterprise capabilities, including innovation and digitalization and skills of workforce.

He also said that they will continue providing “a conducive regulatory environment for businesses, especially for new and innovative activities, as well as a good ecosystem and infrastructure for such activities to scale up across the region.”

“The latest proposals to change international corporate tax rules will not be the first or last challenge we will face.  The key is for us to stay agile and nimble, and respond innovatively to the key global trends affecting our economy,” he said. 

“We must continually work hard to strengthen our value proposition, build new advantages and seek new opportunities. This way, we ensure Singapore’s continued economic success and ultimately a good future for our people,” he added.