Singapore’s tax jurisdiction largely in line with OECD’s tax proposals: Experts

The proposals are aimed at preventing aggressive tax planning by multinationals. However, experts warn that the risk of double taxation may increase.

SINGAPORE: Tax experts have said that Singapore’s tax jurisdiction is broadly in line with new tax proposals announced on Monday (Oct 5) by the Organisation for Economic Co-operation and Development (OECD). The proposals are aimed at preventing aggressive tax planning by multinationals.

Up to US$240 billion (S$341 billion) worth of tax revenues are estimated to be lost each year by tax authorities worldwide, accounting for up to 10 per cent of global corporate income tax revenues. This is due to multinational firms shifting profits to low-tax jurisdictions.

To put an end to such tax avoidance, the OECD Base Erosion and Profit Shifting (BEPS) Action Plan was initiated in 2013. The final 15 proposals were announced on Monday, broadly aimed at ensuring that profits are taxed where the economic activity took place.

Tax experts said Singapore’s tax jurisdiction is already largely in line with the recommendations, and that sufficient measures have been taken to ensure tax incentives are appropriately extended to multinational firms.

Mr Luis Coronado, a partner at EY, noted: “The level of people that move here, the level of spend, the type of high value and key decisions being made here, supported by functions, assets and risks … if the transfer pricing set up and the substance is correct, it does not really make a change from what we have already been doing in Singapore.

“What it does bring is, there will be more reporting expected. In the past, we were perhaps only focused on one country’s view, but now we are expected to be presenting more details on value chains, more details on how we carry out our business.”

In a statement on Tuesday, the Finance Ministry said its policies support economic activities that create skilled jobs and new capabilities in Singapore.

Singapore’s Minister for Finance, Mr Heng Swee Keat, said: “Cross-border tax issues require coordinated international solutions. To maintain a stable pro-growth global environment for investment while minimising opportunities for tax arbitrage, BEPS recommendations should be consistently applied across all state and non-state tax jurisdictions to ensure a level playing field.

“Singapore supports an inclusive monitoring mechanism that is conducted in a fair, open and objective manner with participation on an equal footing by all relevant tax jurisdictions.”

However, some tax experts have warned that companies may face a higher risk of double taxation, where profits are taxed in more than one jurisdiction. They said it is a likely result of greater transparency and reporting as required by the new proposals.

Mr Chris Woo, tax leader at PwC Singapore, explained: “BEPS is all about each country saying ‘I want my fair share of profits and tax collections’, and they set out various guidelines trying to eliminate certain practices which are unfair, certain practices which can result in non-taxation of certain income.

“But in that zeal to pursue such profits, countries would then feel motivated to pursue it further. So therein lies that risk there for Singapore, where one country may interpret it differently from Singapore.”

The final proposals will be discussed by G20 Finance Ministers at their upcoming meeting on Thursday in Peru.