Singapore two pillar solution - Introduction
The global wave of the two-pillar solution to address base erosion and profit shifting (which all the cool kids are calling BEPS 2.0) has reached Singapore.
Singapore will implement Pillar 2 of BEPS 2.0 in 2025, which will require multinational enterprises (MNEs) with local operations to top up their effective tax rate (ETR) in Singapore to 15%.
Many MNEs with Singapore operations currently benefit from tax incentives and enjoy an ETR lower than the upcoming 15%.
It is unclear whether existing incentives and exemptions will continue to apply, and whether Singapore's territorial basis of taxation will change.
As the full effects of BEPS 2.0 are expected to be felt in 2025 or later, Singapore has chosen a cautious approach to delay implementation until then, giving itself time and a chance to learn from the experiences of other countries before determining the best way forward.
The implementation of Pillar 2 is crucial for Singapore, as it is an opportunity to increase revenue and fortify its fiscal position.
Under Pillar 1, Singapore is expected to lose revenue when profits are reallocated to the countries where markets are located. With a small domestic market, Singapore has to give up taxing rights to bigger markets and receives very little in return.
However, Pillar 2 presents a chance for Singapore to generate more corporate tax revenue, assuming that existing economic activities are retained.
The key to Singapore's continued success is staying competitive in attracting and retaining investments.
The use of tax incentives may become obsolete or significantly compromised once the effects of BEPS 2.0 are felt.
Singapore has signaled that it will seek to reinvest and strengthen non-tax factors to remain competitive.
Whatever additional corporate tax revenue can be generated from BEPS 2.0 will be reinvested to maintain and enhance its competitiveness. Together with the intended implementation of Pillar 2, Singapore will also review and update its broader suite of industry development schemes.
A lack of detail?
The lack of details and the delayed implementation of Pillar 2 suggest that policymakers are looking for more information to guide their decisions. If there are additional delays internationally, it is likely that Singapore will adjust its implementation timeline.
Singapore has assured companies that it will continue to engage them and give them sufficient notice ahead of any changes to its tax rules or schemes.
Singapore two pillar solution - Conclusion
MNEs that may be affected should actively participate in public consultation exercises before the implementation of Pillar 2 in 2025.
Those who currently benefit from an existing tax incentive should consider reaching out early to the relevant authorities if they are concerned about the implications of the new rules.
If you have any queries relating to the Singapore two pillar solution, or Singaporean tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.