Singapore joins OECD fight against tax avoidance

SINGAPORE — The Republic has committed to the Organisation for Economic Cooperation and Development’s (OECD) global initiative to curb tax avoidance, and will require large companies based here to report their income, economic activity and taxes paid in every jurisdiction that they operate in.

In a practice known as base erosion and profit shifting (Beps), companies artificially shift profits across borders to keep their overall tax exposure low. Singapore’s participation in the framework for implementing measures against Beps will help lift the Republic’s standing internationally, said tax experts.

The OECD initiative, also endorsed by the G20, has been in the works for three years. In February, a framework was included to allow all interested countries and jurisdictions to join efforts in closing gaps in international tax rules that allow companies to take advantage of the mismatches and minimise their taxes. Singapore is not a member of the OECD or the G20.

In a statement yesterday, Deputy Prime Minister Tharman Shanmugaratnam said: “Singapore is committed to working with the international community to counter artificial shifting of profits, and continues to welcome substantive economic activities.

“We will be actively involved with the OECD and G20 in ensuring then consistent implementation of the Beps standards across all jurisdictions, so as to ensure a level playing field,” said Mr Tharman, who is also Coordinating Minister for Economic and Social Policies as well as standing in as Minister for Finance.

With Singapore’s commitment to the Beps project, companies whose ultimate parent entities are here and whose group turnover exceeds S$1.125 billion will be required to file country-by-country reports for financial years beginning on or after Jan 1, 2017. This means breaking down details such as revenue, profits, taxes paid and business activities in each jurisdiction that they operate in.

The Ministry of Finance said the Inland Revenue Authority of Singapore will consult Singapore-headquartered multinational enterprises on the implementation and release these details by September.

Tax experts TODAY spoke to said the move did not come as a surprise given that Singapore’s tax regime generally conforms to OECD’s principles.

“By starting the implementation from Jan 1, 2017, this should allow taxpayers a little bit of time to get ready for this. We hope the Government can implement this with the same template that is recommended by the OECD,” said Mr Henry Syrett, partner, transfer pricing services, at Ernst & Young Solutions.

The experts also noted that foreign multinational corporations would not be new to the practice, having been asked to file such reports by their parent countries.

However, around 100 big companies here would have to do so for the first time. While the additional work adds to administrative costs, the experts said this would not affect Singapore’s attractiveness as a place to do business.

“Such costs are inevitable in this environment of growing transparency as more countries adopt country-by-country reporting. Global MNCs (multinational corporations) look to many factors in determining the best location for their operations. Our highly skilled workforce, strong rule of law and coherence with international principles are valued by MNCs,” said Ms Nicole Fung, transfer pricing leader at PwC Singapore.

Mr Chester Wee, partner, international tax services at Ernst & Young Solutions, said Singapore’s participation bodes well for the country. “If we have good international standing in terms of being a fair player when it comes to tax policies, then we are less likely to be scrutinised by overseas players where companies have operations in.”