Impact of US Proposal for Global Minimum Corporate Tax Rate on Singapore

Mr Desmond Choo asked the Deputy Prime Minister and Minister for Finance what is the impact of the US proposal for a global minimum corporate tax rate on Singapore's tax regime, status as a hub for regional corporate headquarters and the economy.

The US administration, as part of its domestic tax reforms, has proposed to subject US multinational enterprises (MNEs) to a minimum effective tax rate of 21%, in each overseas jurisdiction where the US MNE operates. The reform is to be considered by the US legislature. If the US enacts this domestic law change, assuming that the effective tax rate of a group of Singapore-based entities of a US MNE is less than 21% here, the difference in tax will be payable in the US. This would apply to all sectors including regional HQs.

Since 2019, the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), comprising more than 130 members including the US and Singapore, has been in discussions to revise international corporate tax rules under the BEPS 2.0 Project. One of the proposals under discussion is the introduction of an internationally agreed minimum effective corporate tax rate for large MNEs, wherever they operate.

Although momentum towards an international consensus has accelerated, the negotiations and subsequent design of the new international rules on taxation of MNEs are not yet settled. It is, therefore, not possible to predict with a high degree of confidence what the impact on Singapore will be. For example, the potential net fiscal impact could range from significant downsides to some upside, depending on the final tax rules and how governments and businesses thereafter dynamically respond.

MNEs base their decisions on the overall business proposition of each location, including the availability of skilled manpower, the quality and cost of infrastructure and the attractiveness of the business environment. We will continue to build a supportive environment for businesses. These include supporting companies in building up deep enterprise capabilities including innovation, and in digitalisation. We will also continue to invest significantly in reskilling and upskilling our workers.

The Government has been updating the industry and businesses in Singapore on BEPS 2.0 developments. If and when a global consensus on an internationally agreed minimum effective tax rate is reached, we will make adjustments to our corporate tax system where needed, in consultation with the industry.

Any adjustments to our tax system will be guided by three principles: first, we will abide by internationally agreed standards; second, we will safeguard our taxing rights; third, we will minimise compliance burden for businesses, especially SMEs. Most of the BEPS 2.0 changes only apply to larger MNEs, rather than SMEs.