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Singapore fifth worst tax haven in the world: Oxfam

SINGAPORE — Months after committing to a global initiative to curb tax avoidance, Singapore has again come under the spotlight for its regime that allows companies to legally but artificially shift profits across borders to keep overall corporate taxes low.

Reuters file photo

Reuters file photo

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SINGAPORE — Months after committing to a global initiative to curb tax avoidance, Singapore has again come under the spotlight for its regime that allows companies to legally but artificially shift profits across borders to keep overall corporate taxes low. 

A new report, titled “Tax Battles: the dangerous global race to the bottom on corporate tax,” was released on Monday (Dec 12) by United Kingdom-based charity organisation Oxfam, which examined the extent to which countries encourage corporate tax avoidance. Oxfam named Singapore the fifth worst corporate tax haven for its lack of withholding taxes, its range of tax incentives, and evidence of substantial profit shifting.

The Ministry of Finance (MOF) defended Singapore’s tax regime and said parts of the Oxfam report were inaccurate. “We note that the report cites the lack of withholding taxes as one of the characteristics of our regime. This is inaccurate. Withholding tax (for example, interest, royalty, services, etc.) is applicable for payments made to non-resident persons. Singapore does not impose withholding tax on dividends due to our one-tier corporate tax system. Under this system, profits are taxed at the corporate level and is a final tax,” the MOF said.

Singapore came after Bermuda, Cayman Islands, Netherlands and Switzerland in Oxfam’s ranking of 15 worst tax havens in the world. The only other Asian city in the list is Hong Kong — at ninth place. “In an attempt to attract business, governments around the world are slashing corporate tax bills — damaging their own economies, and those of other countries in the process,” Oxfam said in the report, adding that corporate tax rates globally have fallen from an average of 27.5 per cent just ten years ago to 23.6 per cent today, despite the rise in profits reported by the world’s largest companies. 

Oxfam said reduced corporate tax revenue is harmful to developing countries, who lose around US$100 billion annually as a result of corporate tax avoidance schemes. And tax havens such as Singapore is partially responsible for this, it added. 

The report came just six months after Singapore joined the Organisation for Economic Cooperation and Development’s Base Erosion and Profit Shifting (BEPS) project as an associate country. That move was seen by observers as a plus in lifting the country’s standing internationally.

“Singapore’s tax policies are designed to support substantive economic activities, in order to create skilled jobs and build new and enduring capabilities in Singapore. We do not condone any tax evasion activities or actions aimed at base erosion and profit shifting. Singapore is able to keep the headline corporate tax rate competitive at 17 per cent because we are fiscally prudent and have a diversified tax base,” the MOF said on Monday.

“As a BEPS associate, Singapore has committed to implementing the four minimum standards under the BEPS project, namely the standards on countering harmful tax practices, preventing treaty abuse, transfer pricing documentation, and enhancing dispute resolution. In keeping with this commitment, Singapore will implement country-by-country reporting for financial years beginning on or after 1 Jan 2017,” the ministry added.

However, Oxfam said BEPS “has resulted in an acceleration of the race to the bottom on tax rates.” It added that since the BEPS agreement, several European countries including the UK, Hungary, Belgium and Luxembourg have announced or made plans to cut corporate tax rates. 

This is not the first time that Singapore’s low tax regime and offering of tax breaks to lure multi-national corporations (MNCs) have come under the spotlight. In recent years, the Australian Taxation Office investigated MNCs such as BHP Billiton, Rio Tinto, Apple and Google over the use of their Singapore marketing hubs to allegedly reduce their tax bills, Australian media reported. BHP responded that it was given a “concessional” tax rate for setting up operations in Singapore.

Analysts whom TODAY spoke to reiterated that the Republic’s attractiveness as a place to do business goes beyond its competitive tax regime.

“Tax is never the primary reason for businesses to locate in Singapore. Corporates look for many factors in determining the best location to base themselves such as availability of talent, strong rule of law, good business infrastructure, clear and transparent regulation, political stability and coherence with international principles. Commercial reasons would be the country’s ecosystem, geographic location, revenue and business opportunities. The list is endless for a hub like Singapore,” said Mr Chris Woo, tax leader at PwC Singapore.

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