![]() ![]() Unsurprisingly, Singapore has chosen a cautious approach to delay the implementation until then, giving itself time and a chance to learn from the effects and experiences of other countries before determining the best way forward. ![]() But as the new rules will be implemented progressively around the globe, the full effects are expected to be felt in 2025 or later. It is certain, however, that MNEs will be reviewing their existing and new investments in light of Pillar 2. Therefore, in a post-BEPS world, it appears that Singapore will strive to ensure that the opportunity under Pillar 2 can be realized to fortify its fiscal position.Īt this juncture, it is unclear how other governments will react to the impending change in international taxation. On the other hand, with a DTT to top up the ETR of affected MNEs to 15%, there is a reasonable opportunity for Pillar 2 to bring about higher revenue for Singapore, assuming that existing economic activities are retained. Consequently, it is expected that Pillar 1 will result in a loss of revenue for Singapore when implemented. With a small domestic market, Singapore is disadvantaged by having to give up taxing rights to bigger markets and receiving very little in return. Under BEPS 2.0, Pillar 1 seeks to reallocate profits to the countries where the markets are located instead of where economic activities are conducted. Its unwavering commitment to safeguard the country’s reserves as a key strategic asset means that revenue must be raised from other ways, such as corporate income tax. Even though the economy is gradually recovering, Singapore continues to be in a tight fiscal position. Importance of Pillar 2 to Singaporeĭuring the pandemic, Singapore had to draw on past reserves to cope with the unexpected disruptions of COVID-19. In this LawFlash, we highlight our high-level observations and analysis to help guide affected MNEs prepare for the new dawn. Every country has unique circumstances and considerations that spur different responses. With scant details provided locally and international developments on BEPS 2.0 yet to be settled, many are naturally anxious facing an uncertain road ahead. These are common questions asked by those concerned. What lies in store? Will existing incentives and exemptions continue to apply? Will Singapore’s territorial basis of taxation change? While Singapore’s corporate tax rate stands at 17%, many MNEs with Singapore operations benefit from tax incentives and enjoy an ETR lower than the upcoming 15%. When this happens, a domestic top-up tax (DTT) will be implemented to top up the MNE groups’ effective tax rate (ETR) in Singapore to 15%. In the recent budget, the Minister for Finance announced that Singapore intends to implement Pillar 2 of BEPS 2.0 in 2025, as part of the broader international move to align minimum global corporate taxes for large MNE groups. It is now certain that multinational enterprises (MNEs) with local operations will be affected and must begin to plan for changes in international taxation, if not already ongoing. The global wave of the two-pillar solution to address base erosion and profit shifting, commonly known as BEPS 2.0, has formally washed ashore in Singapore.
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