One size may not fit all

THIS WEEK'S TOPIC: As a business leader, do you support the idea of a global minimum corporate tax rate?

Yeoh Oon Jin Executive Chairman PwC Singapore

As a business leader, I am not in favour of a global minimum corporate tax rate. I believe that focusing on finding an economically sound and principled framework that offers a holistic and robust solution in the longer term should be the basis of any reform, rather than being overly fixated on a minimum rate. A tax system that is aligned with value creation will be more sustainable in light of technological advancements and changes in business models. Such a system will minimise distortion of capital flows and sub-optimal allocation of scarce resources, and will go further in helping to achieve the objectives of curbing base erosion while promoting fairness in cross-border digital taxation.

Sandra Lee Chief Executive Officer BMS Group Asia

A global minimum corporate tax rate is a logical next step in the battle against base erosion and profit-shifting. If it were to be implemented, its success would depend on whether participating jurisdictions are aligned on matters such as definitions, thresholds and avoidance of double taxation, among other things. Achieving such an alignment could be difficult due to the sheer number of jurisdictions involved and their respective interests. Further, many multinationals are already dealing with an extremely complicated international taxation system and the tax risk environment has never been more challenging. It would therefore be vital to ensure that a new system does not add more complexity and uncertainty.

Ben King Country Director Google Singapore

International tax reform is not an easy task, but remains a critical one. As the world economy seeks to recover from the pandemic and countries face new fiscal challenges, an agreed solution is needed more than ever to ensure a better distribution of tax income that in turn will promote more cross-border trade and investment. If governments work together, more taxes can be paid where products and services are consumed, in a coordinated and mutually acceptable way. Corporate income tax is an important way companies like ours contribute to the countries and communities we operate in, and we strongly support the development of a comprehensive international tax framework for how multinationals are taxed that people find reasonable and appropriate.

Alain Esseiva Chief Executive Officer Alpadis Group

I believe that tax rates are best left to individual nations to manage and set for themselves. Competition between countries comes in many forms - including through tax rates - and so the ability to create a competitive advantage through taxation should be allowed. I do understand why some countries would push for a global minimum corporate tax rate, especially in the globalised world that we live in. However, as mentioned, there are many ways to create a competitive advantage, such as establishing a safe and stable business environment, investment into education and infrastructure, among other things. Low taxes are just one of many reasons companies choose to make a country their home, and there is no guarantee that a global minimum tax rate will benefit those that are pushing hardest for it.

Ong Pang Thye Managing Partner KPMG in Singapore

A discussion on a global minimum tax rate is more than just about the bottom line. The amount of additional tax revenue that could come in is estimated at US$100 billion. Countries that benefit from the minimum tax, especially the developed economies, will have more funds to channel towards uplifting individuals facing social and income inequalities as well as to build infrastructure to strengthen economies and save jobs. However, there might be challenges in harmonising rules across uneven economies, especially if the proposed global minimum rate is set at a high level. This could lead to fiscal policy challenges for developing nations looking to offer incentives that can attract foreign investments to stimulate economies and generate new employment opportunities. One possibility is to peg the agreed minimum tax at around 12.5 per cent - this should allow some flexibility for developing economies to use fiscal policy as an economic lever.

Lawrence Loh Director, Centre for Governance and Sustainability NUS Business School

Imposing a minimum corporate tax rate may actually backfire. It makes countries levying such taxes even less competitive as the costs of doing business will increase. These costs may be passed to the final consumers who will make fewer purchases. Corporate revenues will be hit. Collectively, the economy can weaken and this may result in even less taxes collected from corporations and even individuals. In the long term, if the companies cannot optimise their taxes globally, they may well move their entire operations totally away from the countries of origin. The minimum corporate tax rate will be "lose-lose" for all. Instead of increasing taxes, how about trying tax incentives?

Victor Mills Chief Executive Singapore International Chamber of Commerce

The old saying that there are only two certainties in life - death and taxes - has wrung hollow when it comes to corporate taxes in recent decades, particularly if you are a government. Too many companies have taken advantage of tax arbitrage to avoid paying higher rates of tax in countries where they derive income. This unfettered capitalism is unjust, unequal and does not make for good corporate citizenship or happy communities. Companies should be given the choice: either pay a global minimum tax rate everywhere, or pay the full corporate tax rate in the countries where they derive income.

Max Loh Managing Partner, Singapore and Brunei Ernst & Young LLP

Corporate tax is a significant cog in overall fiscal policy as governments balance revenue and spend to, inter alia, drive economic growth, employment, social development and price stability. While there are concerns over leakage with unduly low corporate tax rates, healthy competition can encourage better outcomes such as spurring innovation and economic growth. The key is finding the right balance. Many developing and small countries necessarily use tax incentives to attract foreign direct investments, given their lack of resources and talent to compete with large developed nations. Having a global minimum corporate tax rate thwarts those ambitions somewhat. Accordingly, certain carve-outs and exceptions to the global minimum tax rate may be warranted in relation to non-harmful tax incentives that are granted on a targeted basis. Ultimately, it is not as simple as winning a "race to the bottom" in terms of tax rates; tax is important, but just one of many factors that investors consider in capital allocation decision-making.

David Kuo Co-founder The Smart Investor

A global minimum corporate tax rate has been proposed to stop countries from unfairly attracting foreign capital by creating tax-havens. It is hoped that it would prevent a 30-year race to the bottom on corporate tax rates. The Organisation for Economic Co-operation and Development (OECD) suggests a rate of 12.5 per cent; the US prefers 21 per cent. But who's to say that either is right? Why should any jurisdiction, particularly those that use tax dollars prudently, be made to pay the price for those that are profligate? To paraphrase Winston Churchill: To think you can make a man richer by putting on a tax is like a man thinking that he can stand in a bucket and lift himself up by the handle.

Shahzad Nasim Executive Chairman Meinhardt Group

It is paradoxical that countries that otherwise profess "free markets doctrine" are pushing to impose a global minimum corporate tax. This is clearly designed to level the playing field for themselves.

There is no such thing as "one size fits all". Such impositions will certainly not help the corporate sector to recover from the deleterious aftermath of Covid-19 that is lasting longer than anyone thought it would.

There is little logic in trying to impose a global minimum corporate tax on countries that have developed successful business models that are nimble, efficient and work for them, only to serve the interests of those that, instead of trying to be more competitive themselves, are forcing others to become less competitive. What is the future for free markets then?

Chia Tek Yew Vice-Chairman of Singapore Oliver Wyman

A global minimum corporate tax rate will not be the silver bullet to prevent a race to the bottom or relocation of companies to offshore locations. From a tax angle, corporates look at the effective tax rates in play - this could be the corporate tax adjusted for tax reliefs, research and development (R&D) grants, and other government incentives to attract foreign investments. However, it is also clear that corporates are attracted by non-tax factors such as political stability, clarity of long-term governmental positions on matters such as taxation and labour laws, protection of intellectual property, availability of funding, human capital and talent, and so on. It is fortunate that the Singapore government has developed and maintained our competitiveness in both tax and non-tax factors such that the impact of any externally imposed global minimum corporate tax rate would, I believe, be manageable.

Jeffery Tan Group General Counsel Chief Sustainability Officer Jardine Cycle & Carriage

A global minimum tax rate is key to levelling the current differing tax playing field across jurisdictions. The aim is to have a fair sharing of the burden of financing government - essentially giving all governments a fair shake at corporate tax revenues in an internationalised economy. To achieve this desired outcome, international cooperation and transparency in reporting and monitoring corporate incomes will be essential.

The challenge is in the details and implementation. It is a highly technical and complex area that requires several key issues to be resolved, including overcoming resistance from tax havens and corporate behemoths and, in particular, how best to keep a check on exploitation of new loopholes that will certainly emerge.

Achieving the objective will require global cooperation and collaboration. It will, in effect, be a boost to multilateralism on a challenge that has eluded a solution for decades.

Veronica Shim Founder & CEO Envysion Wealth Management

The idea of a global minimum corporate tax is more of a political issue, and begs the question of whether the countries supporting it have gotten their fiscal policies right. There are many wrinkles that need to be addressed - and there is also no such thing as a truly global policy. For one, developing countries will not support the idea, which will create incentives for companies to set up base in these countries such that the overall tax burden will be offset by the benefits and market potential. Implementation and enforcement will not be easy and will merely serve to drive up costs, not only for the companies but the governments as well. A better way forward would be to relook at the overall schemes and current fiscal policies, and to determine the environment that will incentivise companies to operate and pay their fair share of tax.

Frankie Chia Managing Partner BDO LLP

There is still a long way to go for the G-20 and OECD countries, let alone all the world's economies, to agree on a workable global minimum tax rate. With increasing digital globalisation, it is critical for the global economy to implement sustainable tax systems where multinationals pay their fair share of tax in the respective countries in which they operate; a fair and equitable system must evolve and stay relevant with economic trends. A flat minimum tax rate may not be the best solution. For instance, family offices have chosen to situate their bases in Singapore for its stable financial and political environment as well as competitive tax regime. Regardless of changes to the tax regime, Singapore should capitalise on its head start by developing and promoting its non-tax factors to remain competitive and attractive to multinationals.

Mark Billington Managing Director International ICAEW

The rise of globalisation and intangible capital in recent times has made taxing multinational corporations (MNCs) increasingly difficult and complex. While a corporate global minimum tax rate would not be a panacea for all harmful tax practices including corporate tax avoidance and evasion, it is critical in helping economies capture revenues which are lost to tax havens. This puts a strap on under-the-table tax-minimising strategies and delivers more sustainable finances to governments, as they recover from the adverse effects of the pandemic. Amid an accelerated digital future, the OECD needs to work closely with its members to agree on an approach for taxing cross-border digital services while also looking into potential alternatives or reforms that balance companies' incentives for growth. It will not only make it easier for businesses to comply with these rules, but also hold them accountable to a set of holistic and standardised profit reporting requirements.

Dileep Nair Independent Director Thakral Corporation Limited

Taxes are normally anathema to business. Perspicacity, though, shows that taxes are an essential part of the economy with corporate taxes forming a major portion of government revenue to fund social programmes and public investments. So long as they are kept at a reasonable level, taxes can actually encourage the development of the private sector and the formation, as well as functioning of businesses. However, to lure MNCs that are a source of foreign direct investment (FDI), nations embark on a "beggar-thy-neighbour" tax competition. This hurts developing countries in particular. Having a global minimum rate as recommended by the United Nations (UN) panel of experts is therefore sensible. The crux, of course, is setting the rate. Hopefully, with leadership from the major economies and an enlightened mood of cooperation, some agreement can be reached.

Maren Schweizer Chief Executive Officer Schweizer World Group

It is an idea whose time has not come. In economic theory, it might work; in the real world, it might not. A global minimum tax rate could empower countries seeking to undermine the liberal international order. Certain countries will likely fight tooth and nail to stay out of any global minimum tax regime.

Firstly, we should not risk achievements in multilateralism. Members of a trade deal benefit from growing numbers of joining countries as the accessible market size increases. However, with a global minimum tax, the economic benefit to any one country staying out grows as more countries join. Non-members could potentially outcompete via lower taxes.

Secondly, many member states of the OECD have federal systems, where regional and local governments impose taxes on corporations to no small extent. This fiscal federalism typically reflects political federalism and one country's foundational political compromises. A uniform global tax at whatever level would query long-settled constitutional questions about the balance of power between central and sub-national governments.

Vadim Berman Chief Executive Officer Tisane Labs

As a chief executive officer (CEO), I believe that profitable businesses must give their fair share. The trouble is, a global minimal tax is likely a pipe dream. Who is going to enforce it? The OECD only includes a limited number of countries. There is certainly an advantage to being a part of it, but if it comes with strings attached like this, nobody will want to join. And there is no guarantee even existing members will comply. What happens if they do not? Are they are going to be kicked out, or reprimanded?

In the unlikely case that the OECD decides to define the minimum corporate tax, it will be a godsend for offshore tax havens, and countries that are generally less attractive in terms of doing business.

Jessica Cutrera Managing Partner Capital Company

I am in favour of a global standard for corporations. The usefulness of a minimum corporate tax relies heavily on how those tax dollars are utilised by governments, which is impossible to monitor and control. Clear and measurable standards for listed companies across multiple markets is a more effective method of improving governance, social responsibility and ethical behaviour. Globally there are many characteristics which can be almost universally agreed upon as best practices for companies. Issues such as child labour, dangerous working conditions and certain types of environmental impact can be targeted through a thoughtful set of global standards.

Mario Singh Chief Executive Officer Fullerton Markets

Three reasons why I think such an idea will fail:

Firstly, countries are not all cut from the same cloth. For example, one with abundant natural resources such as Australia would have different views and policies compared to countries with scarcely any natural resources like Singapore. The problem deepens for developing countries, where a global minimum tax rate would hinder their ability to woo foreign investments.

Secondly, the proposed idea is to discourage MNCs from shifting profits to lower-tax countries. In reality, I do not foresee that creative accounting practices from companies would stop because of a global tax rate. In fact, such a move might even exacerbate the situation.

Finally, a desirable outcome from a global minimum tax must be the network effect, where things get easier as more countries join in. In practice, countries outside the network can actually tip the scales in their favour because of lower tax rates, thereby weakening the network effect.

Hence, I think that countries should have the flexibility of pursuing tax policies that best suit their needs as a nation, especially post-pandemic.

Lim Soon Hock Managing Director PLAN-B ICAG

A global minimum corporate tax rate makes sense from the standpoint of tax equalisation across borders. Companies may in fact be better off when their home countries have a higher corporate tax rate than the global minimum. The issue is what the right levels and complexity of implementation are. Until these are resolved, a global minimum corporate tax rate remains ideal, and under-tapped by governments to fund the new challenges of climate change and recovery from the Covid pandemic, while being outstripped by increasing cross-border digital services and e-commerce.

The launch of Central Bank Digital Currencies by more countries will be a boon for faster implementation of the global minimum corporate tax when OECD and G-20 countries can reach a consensus on the rate.

David Leong Managing Director PeopleWorldwide Consulting Pte Ltd

The complexity of the varied tax structures and frameworks in many countries, particularly the US, have provided leeways for tax avoidance and exposure. Owing to lower tax receipts, these countries suffer national budget deficits in unsustainable ways. Hence it is understandable that the OECD is acting out of their own interests in coordinating tax talks with 140 countries to narrow and hopefully curb tax base erosion.

Low-tax regimes such as Singapore are a magnet for overseas businesses to gravitate towards and any tax avoidance or re-routing on the part of businesses originating from US or the OECD countries would not impact Singapore directly. It may in fact incentivise businesses to shift their tax residency to Singapore.

Implementation of a unified minimum tax code may end up in some forms of accounting entanglements if these businesses operate in various tax jurisdictions.

A global minimum tax rate will impact, to a smaller degree, those whose tax residencies are in lower-tax regimes such as Singapore than businesses situated in US or OECD countries. What finally works is the efficiency, effectiveness and simplicity of tax revenue collection built on a transparent framework. An imposed additional layer of minimum global tax rate may not end up better if countries have not improved on the tax receipt and collection process.

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