This could potentially increase our tax revenues depending on how it affects firm decisions and investment decisions.
BALANCING INTERNATIONAL TAX RULES
Singapore has found it necessary to register with BEPS 2.0. As a member of the OECD Inclusive Framework, she believes that a rules-based approach can close cross-border tax loopholes and create a level playing field around the world.
A world without global tax consensus risks countries taking unilateral measures that impose greater tax burdens and distort incentives, especially on technology companies with a global presence.
This race to tax the digital economy is becoming increasingly important with the emergence of internet companies and digital platforms.
However, the result was an increase in taxes on digital services with different rules and requirements for deduction. In addition, new regulations are being enacted to combat base erosion. For example, Australia’s constraint denies some tax deductions for Australian borrowers.
As part of the 2020 Mexico tax reform, some related party payments that are subject to an effective tax of less than 22.5 percent are also non-deductible.
READ: Comment: The global minimum tax reflects the interests of rich countries, may not generate income for others
In such a dynamic tax environment, with countries regularly introducing uncoordinated individual tax rules, multinational corporations will struggle to keep up with ever-changing tax rules.
The OECD has understood this and has therefore formulated BEPS 2.0 as a way of avoiding the spread of unilateral tax measures and tax uncertainties. They want to minimize the global cost of tax compliance and tackle double taxation that the existing rules do not eliminate.
The use of tax incentives was key to Singapore’s strategy of attracting large investments to fuel economic growth and job creation. With tax incentives, multinational corporations could pay an effective tax rate that is lower than the total corporate tax rate.
However, Singapore has made various adjustments to its tax incentive programs over the years to ensure that they set high qualification standards that take substance and transparency into account.
READ: Comment: The global minimum corporate tax rate is upon us and will change the way Singapore attracts MNCs
Tax incentives such as the Pioneer Certificate Incentive and the Development and Expansion Incentive, which encourage companies to expand their skills and undertake new or expanded activities, require significant business commitments in terms of headcount and local business spending needs.
The good news for Singapore is that the proposed 15 percent global minimum tax will facilitate competition based solely on tax rates. Currently, multinational corporations can achieve similar tax results by locating in jurisdictions such as Ireland (12.5 percent), Hungary (9 percent) and Dubai (0 percent).
In addition, under the second pillar, a formulaic spin-off of substances is being considered, excluding an amount of at least 5 percent of the book value of property, plant and equipment and wages from the low-taxed profit.