Opening Address by Ms Indranee Rajah, Minister in the Prime Minister’s Office, Second Minister for Finance and National Development, at Tax Academy Conference 2023 on 29 September 2023
29 Sep 2023Ms Chiam Yah Fang, Chief Executive Officer, Tax Academy,
Distinguished Guests,
Ladies and Gentlemen,
Context and overview of international tax developments
1. It is a great pleasure to address you at this very first in-person Tax Academy Conference since COVID-19. When I last spoke about the Base Erosion and Profit Shifting (BEPS) 2.0 Project at the 2021 conference, the world was looking quite different. In fact, the audience was masked at that time. The global fight against COVID-19 was ongoing, and against that backdrop, BEPS 2.0 was still very much a work-in-progress.
2. Today, COVID-19 almost feels like a bad dream, a thing of the distant past. We have moved on to DORSCON green earlier this year, and the economy has rebounded. At the same time,
a) More than 50 jurisdictions are taking steps towards implementing the global minimum tax framework under Pillar 2, also known as the Global Anti-Base Erosion (GloBE) rules. Some, like the European Union and United Kingdom, are working towards implementing the GloBE rules in phases from 2024, with full effects in 2025. Others, like Hong Kong and Thailand, are working towards implementing the rules from 2025.
b) As for Pillar 1, negotiations are in the closing stages. Some parameters remain outstanding, but the Inclusive Framework is working to resolve the issues.
New Competitive Landscape
4. BEPS 2.0 and other global developments have changed the nature of competition for investments around the world. With BEPS 2.0 setting a global minimum effective tax rate of 15% for large multi-national enterprises (MNEs), there will be less scope to use tax incentives as a tool to attract new investments going forward. At the same time, amidst geopolitical tensions and increased global competition for quality investments, countries are intensifying their efforts to attract new projects by providing generous subsidies and tax credits, particularly in strategic sectors such as semiconductors and clean energy:
a) In the US, the CHIPS and Science Act sets aside S$69 billion to support semiconductor manufacturing, R&D and workforce development. The Inflation Reduction Act provides S$500 billion in incentives for investments in areas including emissions reduction and clean energy manufacturing.
b) India has announced a S$13 billion package to attract investments in semiconductor manufacturing.
c) Germany has recently agreed to provide around S$14 billion to Intel for two chipmaking plants in Magdeburg.
5. Like other countries, Singapore will have to deal with these new competitive dynamics. The good news is that we are moving forward from a position of strength. Tax factors have never been the main reason why businesses choose to operate in Singapore. Investors are drawn to our stable and trusted business environment, well-trained workforce, and excellent connectivity, among other factors. But these did not come about by chance; they are the results of decades of investment in our infrastructure, our ecosystem, and our people.
6. Given the more challenging external environment, we must redouble our efforts to remain relevant and competitive and we can do so in three ways.
Aligning our regime with internationally agreed standards
7. First, we will continue to align our regime with internationally agreed standards. Singapore has always supported a multilateral consensus-based approach that promotes global cooperation and creates a level playing field for businesses and jurisdictions alike. To this end, we have over the years aligned our tax regime with international standards in areas such as country-by-country reporting and tax transparency through exchange of information. We will continue this approach, to provide certainty to businesses that their practices in Singapore will be consistent with international standards. This will simplify their cross-border compliance and reporting burden.
Ensuring continued ease of doing business
8. Second, we will ensure continued ease of doing businesses for enterprises in Singapore. As we implement the GloBE rules, we need to take into account the compliance burden on businesses. The rules are new and complex, and we are mindful of businesses’ concerns regarding onerous compliance requirements and possible double taxation. Having clarity and consistency in implementing the rules globally will therefore be important.
9. We had earlier announced plans to implement the GloBE rules and a domestic top-up tax from businesses’ financial years starting on or after 1 January 2025. We will continue to monitor international developments and make adjustments along the way if needed. In designing our rules, we will take close reference to the GloBE Model Rules and Administrative Guidance, so that our domestic top-up tax can qualify for the Qualified Domestic Minimum Top-up Tax safe harbour. This will benefit MNEs which are based here. At the same time, we will continue to strive to make compliance easy and seamless for businesses as far as possible, not just in relation to BEPS 2.0 rules, but across all tax types.
10. Assistant Commissioner of IRAS will be sharing more on Singapore’s preparations for implementation later.
Strengthening our competitiveness in a post-BEPS 2.0 environment
11. Third, we will strengthen our competitiveness in a post-BEPS 2.0 environment. As the scope for tax competition narrows, and countries roll out vast subsidies to strengthen their competitive advantage, competition for global investments will only get tougher.
12. Singapore must likewise adapt in this new era. We will do so by building on our strong foundations. In 2022, EDB attracted a record high of S$22.5 billion in fixed asset investment commitments despite a challenging business environment. This reflects businesses’ confidence in Singapore as a trusted hub for capital, talent, and innovation. That is heartening but not to be taken for granted. We must continue to build our capabilities, strengthen our competitiveness, and enhance our value proposition.
13. Singapore’s overall competitiveness is not, and never has been, based on tax factors or financial incentives alone. We have strong physical and digital connectivity in trade and people flows, a trusted rules-based system with strong intellectual property protection, and a growing research and innovation ecosystem for the development of high-value products. We also have a skilled and well-educated workforce, complemented by an effective tripartite model.
14. To strengthen our competitiveness, we will take a long-term and sustainable approach, and continue to invest in our economic ecosystem.
a) We regularly review and update our economic development schemes to ensure they remain relevant. At Budget 2023, Deputy Prime Minister Lawrence Wong announced that we would top up the National Productivity Fund with S$4 billion, and expand its scope to include investment promotion.
b) We are investing in our Research, Innovation and Enterprise ecosystem to partner MNE groups in developing emerging technologies in growth areas.
c) We are also levelling up the capabilities of our local SME and supplier ecosystem, so that they are equipped to partner MNE groups in localising supply chains, catalysing new activities and expanding to regional or global markets.
Conclusion
16. While BEPS presents challenges, it also presents opportunities for Singapore to work closely with our workers, industry, and academia, to strengthen existing advantages and build new ones. I am confident that together, we can continue to make Singapore a great place for businesses and foster a good future for our people.
17. I wish you all a fruitful and enriching conference ahead. Thank you very much.