Budget 2022: Singapore studies “top-up” corporate tax in response to new global minimum tax rate

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GLOBAL TAX CHANGES

Discussions to overhaul international tax rules and increase taxes paid by big business have been underway since 2013, but accelerated last year.

In November 2021, more than 140 countries and jurisdictions, including Singapore, approved an agreement brokered by the Organization for Economic Co-operation and Development to overhaul global corporate tax rules and tackle so-called base erosion and profit shifting (BEPS) issues.

The new fiscal pact comprises two main pillars.

The first pillar seeks to reallocate the profits of the largest and most profitable multinationals from where business is conducted to where their consumers are.

“International discussions are ongoing on how to determine which jurisdictions will return profits to reallocate to markets under Pillar 1 and how much each will return,” Wong said.

“Given our small domestic market and the extent of business conducted here by multinationals, Singapore will lose tax revenue under Pillar 1,” he added.

The second pillar aims to set a minimum corporate tax rate of 15% for multinational enterprise groups with an annual global turnover equal to or greater than €750 million, in order to limit profit shifting to low-tax jurisdictions.

“This means that if such a multinational were to have an effective tax rate of less than 15% in Singapore at the group level, other jurisdictions such as its home jurisdiction may levy the difference up to 15%,” said said Mr. Wong. Explain.

Currently, the headline corporate tax rate in Singapore is 17%, but the effective tax rate for many companies may be lower than this rate, or even the proposed headline minimum, due to tax incentives given to those who are considered beneficial for the economic development of the country, according to experts. said.

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