Reformation of Global Tax System due to G7 Agreement and Its Impact

Mr Shawn Huang Wei Zhong asked the Minister for Finance (a) how will Singapore be affected by the G7 agreement to reform the global tax system; (b) how will this global reform be implemented; and (c) how can Singapore capture opportunities or mitigate its impact.

Since 2016, there have been concerted efforts to strengthen international co-operation in taxation matters, to stamp out harmful practices and to increase the taxes paid by multinational enterprises (MNEs). These efforts were first initiated by the OECD to deal with the issue of Base Erosion and Profit Shifting (BEPS) by MNEs. To ensure a wider international consensus, the discussions were subsequently broadened to include more than 130 jurisdictions through a platform called the Inclusive Framework (IF) on BEPS.

Singapore has been actively involved in these international discussions as part of the IF. The IF has been discussing two major tax changes.

The first proposal concerns the re-allocation of taxing rights of the largest and most profitable MNEs from where they conduct their substantial activities to where their customers are. This is known as Pillar 1. The current proposal is that Pillar 1 will apply to MNE groups with global revenues above 20 billion euros and profitability above 10%.

The second proposal is the introduction of an internationally-agreed minimum corporate tax rate for large MNEs, wherever they operate. This is known as Pillar 2. The G7 and IF have proposed a minimum effective tax rate of at least 15% for MNE groups with global revenues above 750 million euros.

With respect to how Singapore will be affected by these proposals, as well as our response to them, these have been addressed in my reply to similar questions in Parliament on 5 July 2021. In brief, Singapore has never relied on tax incentives alone to attract investments. We have consistently invested in our talent, infrastructure, R&D, and created a conducive business environment. These have allowed us to build a vibrant economy and create good jobs for our people.

As for how Pillars 1 and 2 will be implemented, the members of the IF will agree on an implementation plan in the coming months. To ensure the coordinated and consistent implementation of the consensus, the IF is considering the development of multilateral instruments for both Pillars 1 and 2. Depending on its own domestic legislation, each jurisdiction may also need to translate these international tax rules into its domestic tax systems.