Budget 2022: a chance to brace for global minimum tax

ON Dec 20, 2021, the Organisation for Economic Cooperation and Development (OECD) released model rules to guide governments around the world with the implementation of a reform to the international tax system. Specifically, these rules define the scope and mechanism of the so-called Global Anti-Base Erosion (GloBE) rules under Pillar Two of the Base Erosion and Profit Shifting Project (BEPS) 2.0 project, which will ensure that multinational enterprises (MNEs) are subject to a minimum of 15 per cent effective tax rate from 2023.

Tax incentives have long been central to Singapore's strategy of attracting large-scale investments into the country to drive economic growth and job creation. The tax incentives can mean that MNEs end up paying an effective tax rate in Singapore below the global minimum tax rate of 15 per cent.

However, even with the latest GloBE rules from OECD, it is not all gloom ahead. KPMG does not expect these tax rules to lead to an exodus of MNEs from Singapore. Firstly, Singapore's competitiveness goes beyond tax incentives to include non-tax factors such as its strategic location, ease of doing business, rule of law, connectivity to key Asia-Pacific markets, and skilled workforce. Secondly, GloBE rules will apply globally, so businesses will be subject to a minimum tax of at least 15 per cent, regardless of where the profits are being recognised. Thirdly, the GloBE rules only apply to MNEs with a revenue of 750 million euros (S$1.1 billion) and above, so the tax incentives will remain applicable for groups below the threshold. Fourthly, tax incentives will continue to remain relevant for certain "excluded entities", such as specified investment funds, and activities that are out of scope, such as international shipping.