Speaker 1: In budget 2023 Finance Minister Lawrence Wong announced that Singapore
Speaker 1: would implement a 15% tax rate for some of the
Speaker 1: world's largest corporations on or after the first of january
Speaker 1: 2025 it's to fall in line with a global minimum
Speaker 1: corporate tax rate, part of pillar two of the base
Speaker 1: erosion and profit shifting initiative, Orb eps for less of
Speaker 1: a mouthful, it's a global framework for the reform of
Speaker 1: international tax rules.
Speaker 1: So why does this matter for Singapore and Singaporeans? And
Speaker 1: could it impact the city states attractiveness to foreign investment
Speaker 1: from the money mine team? To break this all down
Speaker 1: for us here, Tax head at close, Singapore Silva set
Speaker 1: the scene for us. What is babs and how did
Speaker 1: it come to be? So
Speaker 2: babs basically refers to tax strategies employed by multinational enterprises
Speaker 2: to basically shift profits from high tax jurisdiction
Speaker 2: To a low tax jurisdiction or to a no tax jurisdiction.
Speaker 2: The focus on baps started in 2008 after the global
Speaker 2: financial crisis, when countries felt that they need to increase
Speaker 2: their tax revenue. The G-20 countries at that point in time,
Speaker 2: I felt that the way to increase tax revenue is
Speaker 2: to focus on tax avoidance.
Speaker 2: There was a slew of measures from 2008 to combat
Speaker 2: profit shifting,
Speaker 2: and the most recent manifestation is what the Finance Minister
Speaker 2: spoke about in the budget this year of the global
Speaker 2: minimum tax.
Speaker 2: So global minimum tax is an initiative to get the
Speaker 2: consensus of countries to tax the profits of multinational enterprises.
Speaker 2: So
Speaker 1: Key to this is a domestic top up tax, which
Speaker 1: Singapore plans to implement from January 1, 2025. Could you
Speaker 1: explain to us why that's needed?
Speaker 2: The global minimum tax only applies to a multinational enterprises
Speaker 2: that have a global turnover of €750 million so it's
Speaker 2: not across the board.
Speaker 2: The global minimum tax, in terms of the mechanism is
Speaker 2: a bit complex, but I can give a very simple example.
Speaker 2: So let's say a multinational enterprise that is based in
Speaker 2: a foreign country and they set up a subsidiary in Singapore.
Speaker 2: Let's say we give tax incentive to the subsidiary in
Speaker 2: Singapore in order for it to do further investment in Singapore.
Speaker 2: And due to the tax incentive, let's say the subsidiary
Speaker 2: has effective tax rate of about 5%. So the 5%
Speaker 2: effective tax rate is well below the 15% minimum tax.
Speaker 2: If Singapore does not take steps to impose the minimum
Speaker 2: tax of 15% on this subsidiary. What it means is
Speaker 2: that the country where the parent company is located can
Speaker 2: actually do a top up tax. So when we say
Speaker 2: a top up tax, what it means is that
Speaker 2: It's a difference between 15%, which is the minimum tax
Speaker 2: and the effective tax rate in Singapore 5%. So in
Speaker 2: this case the top will be 10%.
Speaker 2: So if Singapore does not take steps to impose the
Speaker 2: minimum tax, what it means is that we are giving
Speaker 2: up our taxing rights to a foreign country, which is
Speaker 2: why the finance minister mentioned that the global minimum tax
Speaker 2: would be implemented in Singapore in 2025.
Speaker 1: Singapore is planning to implement Pillar two in 2025, that's
Speaker 1: a year behind some other jurisdictions. Why is that? So
Speaker 2: why wait and see approach is because while the implementation
Speaker 2: plan for the global minimum tax has been released, but
Speaker 2: there's still a little bit of uncertainty, like for example,
Speaker 2: will the U. S. Adopt global minimum tax?
Speaker 2: They're also developing countries, there are feeling that maybe the
Speaker 2: global minimum tax might not benefit them as much, There's
Speaker 2: a little bit of uncertainty as well. So while european
Speaker 2: countries have kind of said, yeah, they'll go ahead with
Speaker 2: the implementation but there's a bit of uncertainty respect to
Speaker 2: other countries. So, I think from a Singapore perspective, taking
Speaker 2: a wait and see approach is also good.
Speaker 1: Here's what we've been speaking about so far, Beeps refers
Speaker 1: to a global movement to crack down on tax avoidance
Speaker 1: by some of the world's largest corporations. A major component
Speaker 1: of that is a global corporate minimum tax rate of 15%.
Speaker 1: This only affects companies which have an annual turnover of
Speaker 1: more than €750 million. So we are talking corporate Giants,
Speaker 1: Singapore will implement the global minimum tax rate from 2025
Speaker 1: Civil Singapore is known for tax incentives for multinationals to
Speaker 1: invest here, could this affect how they view Singapore as
Speaker 1: a place to invest,
Speaker 2: when you look at the global minimum tax, the concern
Speaker 2: is that tax incentives will no longer be effective,
Speaker 2: No longer attractive because there is a minimum tax of 15%. Now,
Speaker 2: I would like to see in a more positive light
Speaker 2: because even with tax incentive, we're already competing with a
Speaker 2: lot of countries because other countries are also providing tax
Speaker 2: incentive and sometimes it's like a race to the bottom,
Speaker 2: where am I pro
Speaker 2: riding a better tax incentive than another country. So with
Speaker 2: global minimum tax, basically taking tax out of the equation
Speaker 2: and we are competing on non tax factors, which is
Speaker 2: actually I think is favorable to Singapore because we have
Speaker 2: the strong fundamentals, very good infrastructure, the talent pool, we
Speaker 2: have stability and on top of that safety, I think
Speaker 2: it's a very, very big consideration. The pandemic has demonstrated
Speaker 2: to the world, not only the government, but the people
Speaker 2: as well have worked together
Speaker 2: and Singapore is really a very, very safe place to be,
Speaker 2: not only to live to work, but also to invest,
Speaker 2: to locate the companies and use Singapore as a launchpad
Speaker 2: to the region. So these are really good factors that
Speaker 2: are working in our favor.
Speaker 2: Now, what is important is that Singapore continue this path,
Speaker 2: continue to be competitive, We need to continue to upscale,
Speaker 2: the skills of the employees because at the end of
Speaker 2: the day, when foreign investors come into Singapore, they are
Speaker 2: looking for certain skill sets, they need the talent.
Speaker 2: So as long as we continue to invest in those areas,
Speaker 2: I'm pretty optimistic that we will continue to attract foreign
Speaker 2: investments to
Speaker 1: That end. What have you seen in budget 2023? That
Speaker 1: would help Singapore in the form of these non-tax incentives
Speaker 2: it's again tied to the global minimum tax, right? Because
Speaker 2: we will not be able to use tax incentives as
Speaker 2: a tool before you go into that. Maybe, you know,
Speaker 2: just a qualifier,
Speaker 2: It doesn't mean tax incentives are useless because the global
Speaker 2: minimum tax impacts companies that has a global turnover of
Speaker 2: €750 million. There a lot of companies that fall outside
Speaker 2: that school and Singapore is well positioned to attract those companies.
Speaker 2: Growing companies startups, we can still give tax incentive to
Speaker 2: these companies to be based in Singapore. It is kind
Speaker 2: of a recalibration. Who do we want to give tax incentives?
Speaker 2: What kind of tax incentives we want to give.
Speaker 2: It's not like the death of tax incentive. Tax incentives
Speaker 2: will continue but it will just be refocused recalibrated. Now
Speaker 2: when we look at the budget, it is really creating
Speaker 2: that conducive environment. So if you're saying we want to
Speaker 2: attract investments and we don't want to use tax incentives
Speaker 2: to attract the investment. Now we need to have the
Speaker 2: right environment and in this case we need companies that
Speaker 2: are investing in
Speaker 2: there are people, we need companies that are innovating because
Speaker 2: if you look at the ecosystem as a whole, when
Speaker 2: a foreign companies setting up operations here, they are not
Speaker 2: working in silo, they are part of the ecosystem. They
Speaker 2: need support from smes as well. Smes could be like
Speaker 2: their subcontractors, they could be their vendors and so on.
Speaker 2: When you have smes with the right capabilities with the
Speaker 2: right talent, innovating, productive
Speaker 2: that is going to really help in kind of telling
Speaker 2: the foreign companies we have the right ecosystem when you
Speaker 2: come in, it's plug and play. So I think that's
Speaker 2: what the budget is trying to achieve.
Speaker 1: We've been speaking about beeps the international framework that's trying
Speaker 1: to get big companies to pay their fair share of
Speaker 1: tax in the places where they operate as part of this.
Speaker 1: Singapore will introduce a domestic top up tax. This could
Speaker 1: result in higher tax revenue for Singapore though, we don't
Speaker 1: know for sure yet if that's actually going to happen.
Speaker 1: What it does mean though is that the competition for
Speaker 1: foreign investments won't just be about tax incentives, non-tax factors
Speaker 1: will become more important and that's likely to work in
Speaker 1: Singapore's favor. Also, the framework only applies to companies that
Speaker 1: have an annual turnover of more than €750 million. There's
Speaker 1: lots of companies out there that fall under this threshold.
Speaker 1: So tax incentives could still come into the picture for
Speaker 1: such enterprises.
Speaker 1: So there'll be quite a bit of recalibration ahead. And
Speaker 1: this also means that innovation becomes even more important because
Speaker 1: it will sharpen that competitive edge.
Speaker 1: And that's the five things you need to know about
Speaker 1: how new rules on corporate tax will affect Singapore. I've
Speaker 1: been speaking to Siva Kumar, head of tax at Crow.
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