Singapore will change its corporate tax system in line with a global consensus on the new rules proposed by the Group of Seven (G-7) industrialised countries, said Finance Minister Lawrence Wong.
The Republic will also participate in the process of building that consensus, and consult businesses and experts locally before any changes are made, he said in a Facebook post yesterday.
Mr Wong was responding to a proposed minimum global corporate tax rate of at least 15 per cent agreed by the G-7 finance ministers last Saturday. The landmark agreement may go on to form the basis of a worldwide deal.
The aim of the tax is to discourage multinationals from shifting their profits and tax revenues to low-tax countries such as Singapore, where the corporate tax rate stands at 17 per cent, compared with 21 per cent in the United States.
The move may hit large overseas profits of global companies, especially big technology companies like Google, Amazon, Facebook, Apple and Microsoft that have significant operations based out of low-tax jurisdictions.
Mr Wong said the G-7 proposals involve fundamental changes to international tax rules.
"They will mean allocating more taxing rights of the largest and most profitable multinational enterprises to where their customers are; and implementing an internationally agreed minimum effective corporate tax rate for large multinational enterprises wherever they operate," he said.
What one knows for sure is that the international rules for corporate taxation will change, and all jurisdictions will need to adjust their tax systems and rules, he said.
"As for the revenue impact, it will depend on the parameters being set, the rules to be made, and crucially, how different governments and businesses respond to them."
Singapore will continue to support a multilateral consensus-based solution that is anchored on sound economic principles, promotes tax certainty, and ensures a level playing field across all jurisdictions, the minister said.
He stressed, however, that "the new rules should not inadvertently weaken the incentives for businesses to invest and innovate. Otherwise, countries will all be worse off, fighting over our share of a shrinking revenue pie".
The Republic will ensure its tax system is compatible with international norms, while managing the administrative and compliance burden on businesses here, he said.
"As and when a global consensus is reached, the Ministry of Finance and the Inland Revenue Authority of Singapore will make any necessary changes to our corporate tax system, in close consultation with businesses and tax professionals."
While it is too early to say what these changes mean for Singapore, the overall competitiveness of the Republic has never been based on taxation alone, Mr Wong said.
"Trust, reliability and integrity are ultimately what makes Singapore an attractive place for substantial economic activities. We will continue to strengthen these attributes, to create good jobs and opportunities for all Singaporeans."
Financial experts said that if taxation was the sole consideration, then a 15 per cent global minimum tax could hurt Singapore's competitiveness.
Still, it is unlikely that the global tax will trigger a mass exodus of multinationals from an established global hub that offers more than an attractive tax regime, they said.
Mr Ajay Kumar Sanganeria, partner and head of tax at KPMG, said: "Singapore's strategic geographic location, regional and global connectivity and a business environment based on a strong rule of law are critical ingredients for attracting global businesses."
Mr Wong said the G-7 proposals will be further discussed at other international platforms, including the Organisation for Economic Cooperation and Development-led Inclusive Framework on Base Erosion and Profit Shifting, of which Singapore is a member, as well as at the Group of 20 (G-20) finance ministers' meeting hosted by Italy next month.
Singapore is not a G-20 member, but it has been invited to attend, and it will share its views and contribute to the broader debate. If a consensus is reached, detailed rules will need to be hammered out over several months, Mr Wong said.