Help to be given to guide businesses on corporate tax reform
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Singapore will implement two new top-up taxes for MNEs with annual group revenue of at least €750 million (S$1.1 billion) in at least two of the preceding four financial years.
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SINGAPORE – Businesses will get help to cope with challenges arising from the introduction of a global minimum effective tax rate of 15 per cent, said Second Minister for Finance Indranee Rajah in Parliament.
She was responding to MPs who spoke on Oct 14 about providing more support to businesses as the debate continued on Oct 15.
Singapore will implement two new top-up taxes, announced at Budget 2024,
The domestic top-up tax (DTT) will apply to the Singapore entities of a large MNE group, and will be payable if the group’s effective tax rate in Singapore is below 15 per cent.
Meanwhile, the multinational enterprise top-up tax (MTT) will apply to large MNE groups that are parented in Singapore. If the effective tax rate of the MNE group’s entities in any foreign jurisdiction is below 15 per cent, the tax will be imposed to top up the rate to 15 per cent.
The taxes ensure that Singapore is aligned with the international implementation of the Base Erosion and Profit Shifting (BEPS 2.0) framework, a global initiative that aims to address tax avoidance.
Ms Indranee said that if Singapore does not impose these taxes, affected MNE groups would have to pay the taxes to other jurisdictions that have imposed rules under BEPS 2.0.
“Hence, it is in Singapore’s interest to impose the (domestic top-up tax and multinational enterprise top-up tax), so that we can collect the tax, rather than cede it to other jurisdictions,” she said.
The proposed Multinational Enterprise (Minimum Tax) Bill, which seeks to implement the two new top-up taxes, mainly targets MNEs. However, the effects could trickle down to smaller firms, said Mr Yip Hon Weng (Yio Chu Kang) during the debate on the Bill.
“If MNEs choose to relocate or scale back operations in Singapore, it could hurt small and medium-sized enterprises (SMEs) that rely on these larger corporations for business,” said Mr Yip.
“If MNEs do shift their operations due to this new tax regime, we must equip our SMEs to respond effectively. Government-SME partnerships and incentives for innovation within local industries will be key to help these businesses thrive.”
MPs also flagged the need to help businesses cope with increased compliance costs and administrative challenges.
Mr Yip said registration and record-keeping requirements could be challenging for smaller entities with fewer resources, including local subsidiaries of MNEs.
Citing similar concerns, Mr Don Wee (Chua Chu Kang GRC) said clear guidance and streamlined processes will be crucial to ensure smooth compliance and avoid stifling business operations through excessive bureaucracy.
Noting that the Bill allows for a 15-month filing period after the financial year-end, which aligns with international norms, he asked whether grace periods or additional guidance would be offered to entities facing exceptional circumstances.
Responding to the compliance and administrative concerns on Oct 15, Ms Indranee said the Government will ensure there is appropriate guidance for businesses when it is time for implementation.
Mr Wee also sought clarification on how the Government plans to ensure that exclusions do not inadvertently open doors to aggressive tax planning. While the Bill includes joint ventures where the parent holds at least 50 per cent of the ownership interest, certain investment and insurance entities are excluded from the domestic top-up tax, he noted. “Could this exclusion incentivise certain entities to exploit the system and avoid paying their fair share of the top-up taxes?” he asked.
Nominated MP Usha Chandradas asked how the new rules would affect Singapore’s existing tax treaty network. She also sought clarification on the potential impact on Singapore, given that the United States and China – two of Singapore’s key trading partners – have yet to implement the minimum effective tax rate under BEPS 2.0.
On the potential revenue impact of DTT and MTT, Ms Indranee said that additional revenue is expected in the short term after its implementation, and the Government will invest the revenue wisely to enhance competitiveness. However, she said that it remains to be seen whether the revenue gains can be sustained.
The use of the additional revenue was another area of discussion among the MPs, with some suggesting that it be used for areas such as healthcare.
While Ms Indranee agreed it is important to support Singapore’s healthcare, she said it would be too late to wait for gains from the DTT and MTT. The Government has already planned ahead by making structural revenue-raising moves, including the GST increase, to fund this expenditure, she noted.
Ms Indranee had said on Oct 14: “We plan to reinvest the additional revenues from DTT and MTT to enhance our overall business environment, in areas such as upskilling our workforce, growing a vibrant innovation ecosystem, and providing quality infrastructure and connectivity.”
On Oct 15, she said that foreign direct investments, and raising productivity and innovation, will continue to be important areas for Singapore.
“It’s not one or the other... We must have an array of economic strategies to grow our economy. At the same time, we will continue to invest in our workers and local enterprise ecosystem, which form the backbone of our economy,” she added.
