Singapore's tax laws are starting to come under scrutiny again. This time, the low corporate tax rate of 17 per cent is raising eyebrows in the West.
After the global financial crisis of 2008, cash-strapped developed economies began hunting wealthy people who were evading taxes by hiding their money in offshore bank accounts.
Now, these governments are turning their focus to multinational corporations.
Developed nations want to tighten rules on firms shifting revenues and profits to low-tax centres such as Singapore, Ireland and Bermuda even if they have no substantial operations there.
The idea is to avoid paying high tax back home in Europe or the United States where corporate rates can be 30 per cent or more.
Singapore enacted policy changes quickly so it could more easily share information on individual tax evaders, but experts said it is unlikely much will change in the local corporate tax regime.
Many multinationals set up here as a base for their whole regional operations, they said.
"Often when multinationals come to Singapore and negotiate for tax incentives, they are expected to bring in substantial business operations and activities first before they can enjoy incentives," noted PwC Singapore international tax partner Abhijit Ghosh.
The Ministry of Finance (MOF) warned: "We must guard against new forms of protectionism masquerading as tax harmonisation. We should avoid converging on high taxes globally as this would only hurt growth and jobs."
Mostly, MNCs use perfectly legal accounting tools to keep tax payments to a minimum. Such methods allowed Apple's Singapore entity to book US$14.9 billion (S$18.6 billion) in revenue for the year to September 2012.
A recent Reuters report noted that this is higher than what Apple would have earned had Singapore's entire 5.3 million population each bought an iPhone 5S, an iPad Air and a MacBook Pro.
But in US Senate testimony in May, Apple denied using "tax gimmicks" and said it uses its foreign cash to invest and expand abroad.
Apple added it served shareholders by "keeping these funds overseas where they can be deployed efficiently to fund international operations at a lower cost".
Last year, a British Parliament report said Starbucks had not paid British taxes in four years, partly by transferring some funds to a Dutch sister company in royalty payments. It ignited a public furore and Starbucks agreed to pay £10 million (S$20 million) in British corporation tax this year.
The Organisation for Economic Cooperation and Development (OECD) is launching an action plan to tackle efforts to move funds abroad to avoid high taxes.
The plan aims to develop a new set of standards to prevent "double non-taxation" by calling for closer international cooperation and more transparency in data and reporting requirements.
The MOF supports the plan, but added: "We also believe that low tax rates, especially if they are the result of underlying competitiveness and fiscal prudence, are not harmful unless they lead to artificial income allocation without economic substance."
KhattarWong tax partner Ban Su Mei said that even as Singapore lends support to this plan, it should still "robustly defend its territorial ownership of any profits" made from legitimate work done within its shores.
"The success of a product very often comes on the back of many tangible and intangible contributions - research and development, marketing and branding, treasury functions, complex logistics management, proprietary intellectual property and so on, for which sufficient attribution needs to be given to the entity which is providing such input."
Ernst & Young's regional global tax desk leader Jonathan Stuart-Smith said the plan might eventually benefit Singapore too if everyone operates under the same rules, especially as rising numbers of home-grown firms are investing overseas.
As for companies operating here, KPMG Singapore's head of transfer pricing Geoffrey Soh said it will become even more vital to keep good records to show the returns they book in Singapore reflect local value creation.
Drew & Napier's director of tax and private client services Ong Ken Loon agreed, saying: "Increased transparency on the conditions for tax incentives could perhaps lay to rest the suspicions that Singapore is engaging in harmful tax practices."
