Singapore has given the thumbs up to an international plan that aims to clamp down on tax avoidance by multinational firms. The Republic says if the plan is soundly implemented, it will help foster free and fair economic competition.
Singapore agrees with the main principle of the plan - that profits should be taxed where substantive economic activities generating the profits are performed and value is created, the Ministry of Finance (MOF) said in a statement yesterday.
The blueprint set out by the Organisation for Economic Cooperation and Development (OECD) focuses on a practice known as base erosion and profit shifting (BEPS).
DOUBLE TAXATION WORRY
There is still concern that countries are taking uncoordinated actions to address these tax practices. This is where double taxation can occur.
MR CHRIS WOO, PwC Singapore tax leader
This is when companies channel their profits into a jurisdiction where they have little economic activity, just so they can benefit from that location's tax rates, which may be lower than the rates levied in the places where their operations actually take place.
Inadvertently, Singapore has come into the spotlight as foreign governments stepped up their pursuit of tax revenues in recent years.
Taxmen in Australia and the United States, for example, have accused firms such as Google, Microsoft and BHP Billiton of shifting their profits here to take advantage of Singapore's tax regime and save on their overall tax bill.
The MOF reiterated yesterday it does not condone such practices. "Our tax policies support substantive economic activities, so as to create skilled jobs and business innovation, and build new capabilities in Singapore."
Singapore's tax treaties include provisions that guard against treaty abuse and provide for exchange of information upon request, in line with international standards.
Nonetheless, the MOF noted that the BEPS project should not inadvertently end up stifling competition for substantive economic activities, raising taxes worldwide and impeding global growth.
Finance Minister Heng Swee Keat said BEPS recommendations should be consistently applied across all tax jurisdictions to ensure a level playing field.
PwC Singapore tax leader Chris Woo said another concern is a possible rise in double taxation - when companies are taxed by two jurisdictions on the same pot of profits.
"There is concern that countries are taking uncoordinated actions to address these tax practices. This is where double taxation can occur."
Singapore firms going abroad can expect more uncertainty, he added, as the BEPS plan will likely be interpreted and enforced differently by tax authorities worldwide.
And this will lead to more tax disputes and increased compliance burdens, such as additional reporting and disclosures, he said.
EY Singapore partner Tan Bin Eng said, however, that Singapore's economy could come out a winner.
" With BEPS, it is more important than ever that taxpayers wanting to seek a tax incentive in Singapore will have to ensure that their operations in Singapore are business- driven and they are able to meet the stringent conditions required as part of the incentives."
KPMG Singapore's regional partner for alternative investments, Mr Simon Clark, agreed. "More companies will gravitate away from 'post-box' jurisdictions whose sole advantage is for tax planning. Singapore, with its... significant economic infrastructure, offers them real economic advantage."