The Global Minimum Tax and its Potential Impact on Multinational Business Planning in Singapore


Singapore is a well-known magnet for global hubs, alongside Hong Kong, Ireland and Switzerland, with many multinational companies (MNEs) choosing Singapore as a base for the region.

Eligible Multinationals are offered generous and accessible incentive programs that allow them to reduce their operating costs or improve their capabilities in Singapore.

In anticipation of the proposed implementation of an overall minimum tax rate of 15% under Pillar Two by 2023, multinational companies subject to Pillar Two and operating in Singapore are awaiting Singapore’s response to Pillar Two in order to so they can assess the potential impact on their business, model the options available and plan ahead.

In the second half of 2021, the international tax system underwent significant changes. A detailed implementation plan has been published by the Organization for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on BEPS (IF) in response to the high-level political agreement on the reallocation of a share of global residual profits to market countries (first pillar) and the implementation of global minimum tax rules (second pillar).

Under this plan, the first pillar will be introduced through a multilateral convention (MLC) while the second pillar will be implemented through national legislation based on the “model rules” published on 20 December 2021 supplemented by a detailed commentary on the rules. Both measures are expected to come into force by 2023.

There have been European Union (EU), United Kingdom (UK) and Swiss orientations/developments towards Pillar Two. More specifically, on December 22, 2021, the European Commission published a proposal for a Council Directive aimed at ensuring an overall minimum level of taxation for multinational groups in the Union. The directive comprises the main method of implementing the second pillar in the EU.

In January 2022, the UK’s HM Revenue & Customs launched a consultation process on the implementation of the second pillar in the UK, with a particular focus on the UK application of the “model rules” as well as a series of broader implementation issues.

The Swiss government has also approved the implementation of the second pillar from 2024. These rules have been drafted to indicate that regardless of what other governments do (for example, whatever the Singapore government can do in terms of tax incentive programs in Singapore), if the effective tax rate (ETR) of a multinational group is less than 15% in a particular jurisdiction, the ultimate parent entity located in one of the countries that has implemented model rules will be affected.

According to Lawrence Wong, Minister of Finance, there are about 1,800 multinational companies in Singapore that meet the 750 million revenue threshold under the second pillar and most of them will have a group ETR below 15. %.

Singapore has yet to comment on the second pillar or announce how it plans to update existing tax regulations. There has also been little comment on Singapore’s commitment to following international standards, which creates uncertainty for Singapore’s business environment.

In an article published last October, the Economic Development Board (EDB) said that the overriding objective of any forward-looking adjustment is to continue to ensure that tax results fairly reflect profits attributed to economic substance and activities. of value creation in Singapore. In a similar vein, the Inland Revenue Authority of Singapore (IRAS) said the government is committed to its proven track record of reducing business compliance efforts and will consult with businesses throughout throughout the policy and implementation process of the two-pillar solution.

Due to the ongoing pandemic, it is difficult to predict what the new normal will be like and what changes it will bring. With the implementation of the second pillar in 2023, multinationals have even more reason to be anxious.

As Singapore prepares its budget statement to be delivered on February 18, multinationals would appreciate clarification on how Singapore will make changes to its tax system (particularly tax incentive schemes) or introduce new non-tax measures in response to the second pillar.

A number of potential areas where guidance is needed for businesses include expected changes to the tax regime for taxation (eg a minimum tax rate, forms of cash incentives, etc.) and non-tax incentives (eg wage incentives, reduced regulatory compliance burdens, etc.) to encourage investment, as well as a roadmap for the transition period for businesses in Singapore.

Multinationals should start assessing the potential impact of the second pillar by February or March if they have not already done so. The assessment should cover both the financial and operational aspects of multinationals across the world and explore all possible scenarios to understand if and to what extent pillar two would affect their business. Multinationals could then visualize the impacts, discuss with relevant stakeholders and develop appropriate response strategies.

Any multinational in doubt as to its financial and operational viability in Singapore – whether it has a Singapore-based head office or is a tax-incentivized company – should seek advice from its tax advisers and, if necessary, ask for a one-on-one discussion. with relevant government agencies for advice on unclear areas and ways to mitigate any potential negative impact.

The next budget could be a way for tax and finance professionals to earn clarity on Singapore’s response to the second pillar and help facilitate business planning and financial impact assessment while considering all the pros and cons of the Two Pillar / Pillar Two solution. It could also be a good opportunity for Singapore to present its plans to continue to encourage investment..

This article is written by Avik Bose and Anh Pham, respectively transfer pricing partner and principal of Deloitte Singapore Tax & Legal. The opinions expressed are their own.


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