How can companies in Singapore seize new opportunities in the post BEPS 2.0 climate?

Over the past two years, the Organisation for Economic Co-operation and Development (OECD) has been working on its Base Erosion and Profit Shifting (BEPS) 2.0 initiative. The framework, which aims to address the tax challenges arising from digitalisation, comprises two pillars: Pillar One concerns the allocation of taxing rights between jurisdictions, while Pillar Two seeks to implement a global minimum tax rate.

At a roundtable co-organised by the Singapore Chartered Tax Professionals (SCTP) and Singapore Economic Development Board (EDB), industry experts and business leaders from Baker McKenzie, Deloitte Singapore, Ernst & Young (EY) Singapore, EDB, the Inland Revenue Authority of Singapore (IRAS), KPMG Singapore and PwC Singapore discuss how Singapore will be relevant for companies to seize opportunities and capture new growth in a post-BEPS 2.0 environment.
 

Relativity of Impact of BEPS 2.0 on Singapore

When considering the impact of BEPS 2.0 on Singapore, Ms Liew Li Mei, Partner and International Tax Leader at Deloitte Singapore, highlights the need to focus on two types of investors: existing investors who are already benefiting from Singapore’s current incentives, and new investors who will be looking out for how these incentives will shift post-BEPS 2.o. Given that “each have their own priorities,” according to Ms Liew, Singapore will have to consider how each group can seize post-BEPS 2.0 opportunities differently.

The roundtable delegates also anticipate that Pillar Two of BEPS 2.0 will impact more businesses in Singapore than Pillar One. While the absolute rate of the global minimum tax under Pillar Two is expected to be at least 15 per cent, this figure is better contextualised against the backdrop of different jurisdictions’ rates. When compared to OECD countries, Singapore’s corporate tax rate is close to the proposed global minimum tax rate, and remains relatively consistent and competitively placed, making it a stable environment for businesses. This is advantageous for businesses as it allows them to plan and make long-term strategic investments.

The continued relevance of tax arbitrage is also discussed as a likely phenomenon post-BEPS 2.0, with Mr Dean Rolfe, Partner, Head of International Tax – Asia Pacific of KPMG Singapore, stating that “the tax arbitrage game is back on”. He adds that while businesses might not be able to chase zero tax jurisdictions post-BEPS 2.0, getting “as close as possible to the 15 per cent” still signifies “a big tax arbitrage between what is potentially a relatively high domestic rate”.

The panellists also discuss other non-tax factors that businesses can take advantage of even in a post-BEPS 2.0 world, including Singapore’s attractiveness as an innovation hub and breeding ground for new businesses. The city-state has made its mark as a conducive location for incubating startups and growth companies, alongside hosting innovative products and services for the markets in the region. Companies continue to be drawn to the country’s stable geopolitical position, strong rule of law, excellent connectivity and speed-to-market.

Seizing New Opportunities Through Evolving Needs of Businesses

As the possible impacts of BEPS 2.0 become clearer, the needs of businesses will evolve in distinct ways. The roundtable likens Singapore’s various initiatives to “LEGO blocks”, highlighting how the country can adapt its incentive packages to allow various companies to seize different opportunities. These initiatives include support for upskilling and capability development, addressing needs for infrastructure & industrial facilities, and measures to facilitate companies’ talent development and acquisition.

In order to reinforce the effectiveness of Singapore’s customised initiatives, Mr Johanes Candra, Partner, Business Incentives Advisory of EY Singapore, adds that these blocks could be “packaged into simple and elegant templates”, such that their benefits can be easily conveyed to companies’ stakeholders.

Reinforcing Opportunities in Value Creation

Singapore continues to be a key regional location for companies’ headquarters, with the roundtable discussing how businesses seek out the country’s well-connected supply chains as a means of managing their business transformation and diversification activities.

The country has demonstrably connected people and capital to opportunities, acting as the base for over 150 venture capital funds, incubators and accelerators while consistently attracting new talent.

For instance, EDB’s recently launched Corporate Venture Launchpad seeks to kickstart the venturing journeys of large, established corporates in Singapore, by enabling them to launch a new venture from the country within six months.

Mr Allen Tan, Principal at Baker McKenzie, emphasises the importance of such initiatives, commenting that Singapore’s role as an innovation hub is linked to whether startups have a “starting position” from which to seek funding, as well as sources of advice when it comes to beginning their venture journeys.

In summarising the potential impact of OECD’s proposals, Ms Cindy Wong, IRAS Tax Director (Tax Policy & Ruling Branch), expresses optimism for the future, hoping that “after the dust has settled, there could be greater certainty and stability for businesses”.

Amidst this transition, a consultative and communicative approach with the business community and practitioners will be a key element, adds Ms Lim.

With its proactive approach, Singapore looks poised to be relevant for companies to seize opportunities and capture new growth in a post-BEPS 2.0 world.