By Doug Connolly, MNE Tax
In a November 1 reply to a parliamentary question about potential revenue gains under the OECD global tax deal, Singapore’s Minister for Finance Lawrence Wong suggested that such estimates are not so simple and, moreover, the agreement presents some challenges for countries like Singapore.
Wong noted that Singapore will adjust its corporate tax system to comply with the global minimum tax so that taxing rights do not pass to another jurisdiction through top-up tax provisions in the deal. This could result in some increase in tax revenues. However, the amount is not easy to estimate, because “much of the group-level data needed for ascertaining the impact of Pillar 2 are not present in our current corporate tax returns.”
In addition, potential gains under the global minimum tax in Pillar 2 of the agreement would have to be weighed against the impact of the profit allocation rules under Pillar 1 – which the Minister expects will have an adverse revenue impact in Singapore. Because the Pillar 1 provisions would shift the taxation of a portion of profits from where economic activity is conducted to where the markets are, “Singapore will suffer corporate tax revenue losses.”
The magnitude of such losses under Pillar 1 also is not yet clear, Wong explained. Details of the deal remain to be finalized. In addition, it remains to be seen how companies alter their business decisions in response to the changes.
Furthermore, Wong added, even if the two pillars of the agreement did result in net revenue gains, Singapore would have to use those resources to remain competitive in the new international tax landscape. Notably, in this respect, the tax incentives that Singapore has used to attract investment in the past would have to be modified to comply with the 15% minimum effective rate under Pillar 2.
Doug Connolly
Doug Connolly is Editor-in-Chief of MNE Tax. He has more than 10 years of experience covering tax legal developments, previously working with both a Big Four firm and a leading legal publisher. He holds a law degree from American University Washington College of Law.
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