Apple tax clawback raises questions on Singapore firms in EU

An Apple logo is seen in the window of an authorised apple reseller store in Galway, Ireland on Aug 30, 2016.
An Apple logo is seen in the window of an authorised apple reseller store in Galway, Ireland on Aug 30, 2016. PHOTO: REUTERS

The European Commission's (EC) decision to demand tech giant Apple pay a €13 billion (S$19.7 billion) tax bill to Ireland has raised concerns over how Singapore firms operating in the bloc will be affected.

The European Union (EU) prohibits member states from giving tax benefits to selected companies. This goes against Ireland's practice of attracting multinationals with favourable tax agreements to generate jobs and investment.

Singapore firms could be targeted by the EC under state aid rules if their subsidiaries within the EU receive illegal state aid, said Ms Dominique Lombardi, a partner with Rajah & Tann. "Separately, EU competition laws will apply to Singapore companies whether established in or outside EU, if, for instance, they enter into anti-competitive agreements which distort competition within the EU."

Mr Chris Humphrey, executive director of the EU-Asean Business Council, agreed. "The ruling concerns allegations of unfair state subsidies and is an anti-competition issue. So long as companies and the authorities abide by the law in the EU, there should not be any issues for them," he said.

Mr Chris Woo, tax leader at PwC Singapore, said Singapore is not part of the EU but it remains to be seen if companies could be affected if they are perceived to be enjoying tax incentives such that they pay less tax in non-EU states.

RESPECT THE LAW

The ruling concerns allegations of unfair state subsidies and is an anti-competition issue. So long as companies and the authorities abide by the law in the EU, there should not be any issues for them.

MR CHRIS HUMPHREY, executive director of the EU-Asean Business Council.

The process often involves companies artificially shifting profits to low- or no-tax locations. The curbs on these practices could impact the way businesses operate across jurisdictions.

While the EU's Apple ruling does not appear to have had an immediate impact on Singapore companies or the tax regime here, Mr Woo said it is too early to assess any possibility that Singapore's sovereign rights to use its tax system to attract real economic activity may be affected if there is any perceived unfair competition. "If certain countries are not adopting measures in accordance with (EU rules on profit shifting), whether or not they can blacklist them remains to be seen," he said.

But Mr Woo added that Singapore already follows international tax norms and supports initiatives proposed by the OECD (Organisation for Economic Co-operation and Development) to counter tax abuse and the artificial shifting of profits.

"Tax authorities globally are scrutinising where to tax a global transaction that spans several countries. As more transactions go cross-border, where should the profits be taxed? We will see more competition for taxes on the same profit," he said.

The Apple decision has created uncertainty in the EU, said Mr Mahesh Kumar, international tax partner at Withers Khattarwong. "Singapore stands to potentially benefit from the EC's decision and other developments including Brexit. While Singapore is not a tax haven, it has a competitive, stable and transparent tax regime, which appeals to multinationals."

A version of this article appeared in the print edition of The Straits Times on September 05, 2016, with the headline 'Apple tax clawback raises questions on S'pore firms in EU'. Print Edition | Subscribe