WEBVTT - 5 things you need to know about BEPS

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<v Speaker 1>In budget 2023 Finance Minister Lawrence Wong announced that Singapore

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<v Speaker 1>would implement a 15% tax rate for some of the

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<v Speaker 1>world's largest corporations on or after the first of january

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<v Speaker 1>2025 it's to fall in line with a global minimum

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<v Speaker 1>corporate tax rate, part of pillar two of the base

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<v Speaker 1>erosion and profit shifting initiative, Orb eps for less of

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<v Speaker 1>a mouthful, it's a global framework for the reform of

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<v Speaker 1>international tax rules.

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<v Speaker 1>So why does this matter for Singapore and Singaporeans? And

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<v Speaker 1>could it impact the city states attractiveness to foreign investment

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<v Speaker 1>from the money mine team? To break this all down

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<v Speaker 1>for us here, Tax head at close, Singapore Silva set

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<v Speaker 1>the scene for us. What is babs and how did

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<v Speaker 1>it come to be? So

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<v Speaker 2>babs basically refers to tax strategies employed by multinational enterprises

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<v Speaker 2>to basically shift profits from high tax jurisdiction

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<v Speaker 2>To a low tax jurisdiction or to a no tax jurisdiction.

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<v Speaker 2>The focus on baps started in 2008 after the global

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<v Speaker 2>financial crisis, when countries felt that they need to increase

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<v Speaker 2>their tax revenue. The G-20 countries at that point in time,

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<v Speaker 2>I felt that the way to increase tax revenue is

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<v Speaker 2>to focus on tax avoidance.

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<v Speaker 2>There was a slew of measures from 2008 to combat

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<v Speaker 2>profit shifting,

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<v Speaker 2>and the most recent manifestation is what the Finance Minister

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<v Speaker 2>spoke about in the budget this year of the global

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<v Speaker 2>minimum tax.

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<v Speaker 2>So global minimum tax is an initiative to get the

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<v Speaker 2>consensus of countries to tax the profits of multinational enterprises.

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<v Speaker 2>So

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<v Speaker 1>Key to this is a domestic top up tax, which

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<v Speaker 1>Singapore plans to implement from January 1, 2025. Could you

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<v Speaker 1>explain to us why that's needed?

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<v Speaker 2>The global minimum tax only applies to a multinational enterprises

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<v Speaker 2>that have a global turnover of €750 million so it's

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<v Speaker 2>not across the board.

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<v Speaker 2>The global minimum tax, in terms of the mechanism is

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<v Speaker 2>a bit complex, but I can give a very simple example.

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<v Speaker 2>So let's say a multinational enterprise that is based in

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<v Speaker 2>a foreign country and they set up a subsidiary in Singapore.

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<v Speaker 2>Let's say we give tax incentive to the subsidiary in

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<v Speaker 2>Singapore in order for it to do further investment in Singapore.

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<v Speaker 2>And due to the tax incentive, let's say the subsidiary

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<v Speaker 2>has effective tax rate of about 5%. So the 5%

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<v Speaker 2>effective tax rate is well below the 15% minimum tax.

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<v Speaker 2>If Singapore does not take steps to impose the minimum

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<v Speaker 2>tax of 15% on this subsidiary. What it means is

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<v Speaker 2>that the country where the parent company is located can

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<v Speaker 2>actually do a top up tax. So when we say

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<v Speaker 2>a top up tax, what it means is that

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<v Speaker 2>It's a difference between 15%, which is the minimum tax

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<v Speaker 2>and the effective tax rate in Singapore 5%. So in

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<v Speaker 2>this case the top will be 10%.

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<v Speaker 2>So if Singapore does not take steps to impose the

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<v Speaker 2>minimum tax, what it means is that we are giving

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<v Speaker 2>up our taxing rights to a foreign country, which is

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<v Speaker 2>why the finance minister mentioned that the global minimum tax

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<v Speaker 2>would be implemented in Singapore in 2025.

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<v Speaker 1>Singapore is planning to implement Pillar two in 2025, that's

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<v Speaker 1>a year behind some other jurisdictions. Why is that? So

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<v Speaker 2>why wait and see approach is because while the implementation

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<v Speaker 2>plan for the global minimum tax has been released, but

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<v Speaker 2>there's still a little bit of uncertainty, like for example,

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<v Speaker 2>will the U. S. Adopt global minimum tax?

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<v Speaker 2>They're also developing countries, there are feeling that maybe the

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<v Speaker 2>global minimum tax might not benefit them as much, There's

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<v Speaker 2>a little bit of uncertainty as well. So while european

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<v Speaker 2>countries have kind of said, yeah, they'll go ahead with

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<v Speaker 2>the implementation but there's a bit of uncertainty respect to

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<v Speaker 2>other countries. So, I think from a Singapore perspective, taking

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<v Speaker 2>a wait and see approach is also good.

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<v Speaker 1>Here's what we've been speaking about so far, Beeps refers

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<v Speaker 1>to a global movement to crack down on tax avoidance

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<v Speaker 1>by some of the world's largest corporations. A major component

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<v Speaker 1>of that is a global corporate minimum tax rate of 15%.

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<v Speaker 1>This only affects companies which have an annual turnover of

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<v Speaker 1>more than €750 million. So we are talking corporate Giants,

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<v Speaker 1>Singapore will implement the global minimum tax rate from 2025

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<v Speaker 1>Civil Singapore is known for tax incentives for multinationals to

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<v Speaker 1>invest here, could this affect how they view Singapore as

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<v Speaker 1>a place to invest,

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<v Speaker 2>when you look at the global minimum tax, the concern

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<v Speaker 2>is that tax incentives will no longer be effective,

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<v Speaker 2>No longer attractive because there is a minimum tax of 15%. Now,

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<v Speaker 2>I would like to see in a more positive light

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<v Speaker 2>because even with tax incentive, we're already competing with a

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<v Speaker 2>lot of countries because other countries are also providing tax

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<v Speaker 2>incentive and sometimes it's like a race to the bottom,

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<v Speaker 2>where am I pro

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<v Speaker 2>riding a better tax incentive than another country. So with

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<v Speaker 2>global minimum tax, basically taking tax out of the equation

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<v Speaker 2>and we are competing on non tax factors, which is

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<v Speaker 2>actually I think is favorable to Singapore because we have

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<v Speaker 2>the strong fundamentals, very good infrastructure, the talent pool, we

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<v Speaker 2>have stability and on top of that safety, I think

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<v Speaker 2>it's a very, very big consideration. The pandemic has demonstrated

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<v Speaker 2>to the world, not only the government, but the people

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<v Speaker 2>as well have worked together

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<v Speaker 2>and Singapore is really a very, very safe place to be,

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<v Speaker 2>not only to live to work, but also to invest,

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<v Speaker 2>to locate the companies and use Singapore as a launchpad

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<v Speaker 2>to the region. So these are really good factors that

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<v Speaker 2>are working in our favor.

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<v Speaker 2>Now, what is important is that Singapore continue this path,

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<v Speaker 2>continue to be competitive, We need to continue to upscale,

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<v Speaker 2>the skills of the employees because at the end of

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<v Speaker 2>the day, when foreign investors come into Singapore, they are

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<v Speaker 2>looking for certain skill sets, they need the talent.

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<v Speaker 2>So as long as we continue to invest in those areas,

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<v Speaker 2>I'm pretty optimistic that we will continue to attract foreign

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<v Speaker 2>investments to

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<v Speaker 1>That end. What have you seen in budget 2023? That

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<v Speaker 1>would help Singapore in the form of these non-tax incentives

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<v Speaker 2>it's again tied to the global minimum tax, right? Because

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<v Speaker 2>we will not be able to use tax incentives as

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<v Speaker 2>a tool before you go into that. Maybe, you know,

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<v Speaker 2>just a qualifier,

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<v Speaker 2>It doesn't mean tax incentives are useless because the global

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<v Speaker 2>minimum tax impacts companies that has a global turnover of

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<v Speaker 2>€750 million. There a lot of companies that fall outside

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<v Speaker 2>that school and Singapore is well positioned to attract those companies.

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<v Speaker 2>Growing companies startups, we can still give tax incentive to

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<v Speaker 2>these companies to be based in Singapore. It is kind

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<v Speaker 2>of a recalibration. Who do we want to give tax incentives?

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<v Speaker 2>What kind of tax incentives we want to give.

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<v Speaker 2>It's not like the death of tax incentive. Tax incentives

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<v Speaker 2>will continue but it will just be refocused recalibrated. Now

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<v Speaker 2>when we look at the budget, it is really creating

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<v Speaker 2>that conducive environment. So if you're saying we want to

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<v Speaker 2>attract investments and we don't want to use tax incentives

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<v Speaker 2>to attract the investment. Now we need to have the

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<v Speaker 2>right environment and in this case we need companies that

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<v Speaker 2>are investing in

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<v Speaker 2>there are people, we need companies that are innovating because

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<v Speaker 2>if you look at the ecosystem as a whole, when

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<v Speaker 2>a foreign companies setting up operations here, they are not

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<v Speaker 2>working in silo, they are part of the ecosystem. They

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<v Speaker 2>need support from smes as well. Smes could be like

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<v Speaker 2>their subcontractors, they could be their vendors and so on.

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<v Speaker 2>When you have smes with the right capabilities with the

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<v Speaker 2>right talent, innovating, productive

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<v Speaker 2>that is going to really help in kind of telling

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<v Speaker 2>the foreign companies we have the right ecosystem when you

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<v Speaker 2>come in, it's plug and play. So I think that's

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<v Speaker 2>what the budget is trying to achieve.

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<v Speaker 1>We've been speaking about beeps the international framework that's trying

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<v Speaker 1>to get big companies to pay their fair share of

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<v Speaker 1>tax in the places where they operate as part of this.

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<v Speaker 1>Singapore will introduce a domestic top up tax. This could

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<v Speaker 1>result in higher tax revenue for Singapore though, we don't

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<v Speaker 1>know for sure yet if that's actually going to happen.

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<v Speaker 1>What it does mean though is that the competition for

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<v Speaker 1>foreign investments won't just be about tax incentives, non-tax factors

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<v Speaker 1>will become more important and that's likely to work in

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<v Speaker 1>Singapore's favor. Also, the framework only applies to companies that

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<v Speaker 1>have an annual turnover of more than €750 million. There's

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<v Speaker 1>lots of companies out there that fall under this threshold.

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<v Speaker 1>So tax incentives could still come into the picture for

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<v Speaker 1>such enterprises.

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<v Speaker 1>So there'll be quite a bit of recalibration ahead. And

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<v Speaker 1>this also means that innovation becomes even more important because

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<v Speaker 1>it will sharpen that competitive edge.

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<v Speaker 1>And that's the five things you need to know about

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<v Speaker 1>how new rules on corporate tax will affect Singapore. I've

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<v Speaker 1>been speaking to Siva Kumar, head of tax at Crow.

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<v Speaker 1>Singapore Money. Mind is every saturday at 10:30 p.m. on

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<v Speaker 1>Mediacorp c n a. You can also catch us at

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<v Speaker 1>sienna dot asia on youtube.