David Sandison, Singapore Practice Leader & Head of Tax, Grant Thornton Singapore shares commentary on this development from a Singapore perspective.
On 5 June 2021, the top economic officials from the Group of Seven (G7), the world’s advanced economies, reached a deal to back a global minimum corporate tax of 15%, aimed at making large multinational companies pay more of their income to governments.
In the communiqué, the G7 finance ministers and central bank governors shared: "We strongly support the efforts underway through the G20/OECD Inclusive Framework to address the tax challenges arising from globalisation and the digitalisation of the economy and to adopt a global minimum tax. We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises.
"We will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies. We also commit to a global minimum tax of at least 15% on a country by country basis. We agree on the importance of progressing agreement in parallel on both Pillars and look forward to reaching an agreement at the July meeting of G20 Finance Ministers and Central Bank Governors."
David Sandison, Singapore Practice Leader & Head of Tax, Grant Thornton Singapore shared his commentary on this development from a Singapore perspective. Excerpts below:
On whether the global minimum corporate tax is good for Singapore:
There is no doubt that a targeted 15% minimum rate gives Singapore more flexibility when set against its headline corporate tax rate of 17% than previously seemed to be the case when the US were proposing 21%. However, it is of little help in the context of the array of tax incentives it provides, which can offer rates well below that.
I think you could say the deal is “less negative” than previously proposed plans, which would effectively remove any tax incentives Singapore may offer.
I can’t see where any notion of positive creeps into the equation. But if we are looking for any negatives from what happened over the weekend it is that this initiative is now in danger of being steamrollered through by the “big boys”, without due consideration of the consequences, subtleties, or complexities (and there are many, many of these that have yet to be thought through), and of turning into unmitigated shambles.
On how policymakers in Singapore and the region are likely to respond:
At a simplistic level, it is likely to mean that the tax incentives we have grown up with may soon be a thing of the past. It simply does not make sense to be offering reduced tax rates to businesses from the countries that adopt this practice, if it means that they then help themselves to what Singapore otherwise would have in the absence of the incentive. So, if company A pays 5% tax on its Singapore profits, it will (or its head office - or someone – will) pay an additional 10% tax “back home”. Logically, Singapore and other Southeast Asian economies that offer incentives will be largely compelled to start charging full corporate tax rates and taking it all. I am not sure where that gets anyone.
If each country moves towards a 15% tax rate, the home country will not have any extra to collect. So, depending on how things play out, the countries pushing for the minimum might not really achieve the supposed objective of increasing their tax base.
On what this means for businesses in Singapore:
It is not clear what direct impact this would have on businesses that do not qualify for tax incentives.
But businesses that have just signed up for incentives may find the benefit short-lived. It is unlikely that global minimum tax will contain any grandfathering provisions that allow the incentive period to run its course before those profits get taxed at home. Other businesses will, of course, be affected if this causes any reduction in the presence of multinational businesses and, as a result, in the extensive ecosystem of SMEs in Singapore that support them.
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