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  • Tag Archive: OECD

    1. Singapore two pillar solution or BEPS 2.0

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      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. 

      Pillar talk

      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.

      Pillar fight

      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.

    2. Irish Finance Bill 2022: Pillar Two changes for R&D & KDB regimes

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      IntroductionIrish Finance Bill 2022

      The Irish Finance Bill 2022 provides for changes to:

      • the Research and Development (R&D) tax credit; and
      • Knowledge Development Box tax regime

      Both changes are to reflect the OECD’s Pillar Two model rules and the EU’s draft Pillar Two Directive.

      Ireland’s R&D regime

      Ireland has an attractive R&D tax credit for qualifying expenditure on R&D activities. This includes certain expenditure on plant and machinery and buildings.

      The credit is currently 25% of the allowable expenditure.

      The mechanics of the regime are that the tax credit can be offset against the claiming company’s current and prior year corporation tax liability. In addition, any excess credit may be:

      • carried forward against future corporation tax labilities of the company;
      • or claimed as a payable credit in three instalments over a period totalling 33 months

      Pillar and post?

      The OECD Pillar Two model rules and the EU draft Pillar Two Directive introduce the concept of a “qualified refundable tax credit” (QRTC).

      Going forward, the R&D tax credit regime in Ireland will need to be consistent with QRTC requirements.

      In order to qualify as a QRTC require, the tax credit to be paid as cash (or available as cash equivalents) within four years of the date on which the taxpayer is first entitled to it.

      How does a QRTC interact with the Global Minimum Corporate Tax Rate?

      A tax credit that qualifies as a QRTC will be treated as income and not as a reduction in taxes paid. This is important when it comes to calculating the relevant effective rate of tax rate for the purposes of the global minimum corporate tax rate.

      Irish Finance Bill 2022 proposals

      The Finance Bill proposals seek to revise the R&D tax credit so that it is consistent with the QRTC criteria. This will include providing that the credit is fully payable in cash or cash equivalents.

      The new proposals under the Finance Bill measures provide that the first instalment of the R&D tax credit should be equal to the greater of:

      • €25,000 or, if lower, the total amount of the credit claimed; or
      • 50% of the value of the credit claimed, with the balance of the credit being refunded in the subsequent two periods.

      The cap on payable credits linked to the corporation tax/payroll tax payments will no longer apply.

      A consequence of the change is that companies that could have obtained the full value of the credit in a current year versus their corporation tax liabilities, will now instead see that benefit spread over three years.

      In addition, to ensure alignment with the Pillar Two rules, the R&D credit should be paid within the four-year period. This includes where there is an open investigation by the tax authority.

      Knowledge Development Box (“KDB”)

      The Finance Bill also provides for Pillar Two related changes to Ireland’s KDB.

      The KDB is a form of patent box regime and provides for a 50% reduction of qualifying income. This results in an effective tax rate of 6.25% for the taxpayer in respect of the qualifying income.

      However, the requirements are relatively strict and it is understood that uptake has been limited

      The Finance Bill measures provide that the KDB trading expense deduction is reduced from 50% to 20% of qualifying income. This results in a new effective rate of 10% as opposed to the existing 6.25% on qualifying income.

      If you have any queries about the Irish Finance Bill 2022, or Irish 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