Impact of Multinational Enterprises on Base Erosion and Profits Shifting (BEPS)

Parliamentary Question by Mr Louis Chua Kheng Wee:

To ask the Minister for Finance in each of the last 10 years, for the 1,800 multinational enterprises (MNEs) in Singapore that meet the 750 million euros revenue threshold under OECD’s Two-Pillar Solution, what is their annual (i) total revenue (ii) accounting profit before tax (iii) chargeable income (iv) corporate income tax paid and (v) average effective tax rate respectively.

Parliamentary Reply by Minister for Finance, Mr Lawrence Wong:

Mr Chua has asked for data on the 1,800 multinational enterprise (MNE) groups likely to be affected by the ongoing international discussions on Base Erosion and Profits Shifting (BEPS), specifically the global minimum effective tax rate under Pillar 2.

Presumably Mr Chua’s intention is to ascertain the tax revenue we can gain from raising taxes for the companies affected under Pillar 2. But the current available data does not permit an easy estimate for the impact of Pillar 2.  

In particular, Pillar 2 is meant to be applied on a group basis, not on an entity basis. The group-level data will not be the simple sum of the data of entities within a group. Much of the group-level data needed for ascertaining the impact of Pillar 2 are not present in our current corporate tax returns. 

More importantly, the ongoing BEPS project is a challenging development for small economies like Singapore. Let me explain why. 

a. First, under Pillar 1, 25% of the residual profits, defined as profit in excess of 10% of revenue, will be allocated away from where the economic activities are conducted to where the markets are. This means that Singapore will suffer corporate tax revenue losses. The magnitude of fiscal impact would only be clear after international negotiations have been concluded, and after companies in due course adapt their business decisions.

b. Second, Pillar 2 of the multilateral consensus includes a global minimum effective tax rate of 15%. This means that in whichever jurisdiction a MNE group operates, the group’s effective tax rate in that jurisdiction cannot be lower than 15% or there will be additional taxes levied by other jurisdictions elsewhere. Pillar 2 will therefore limit the effectiveness of tax incentives as a tool for attracting investment. 

MOF has earlier explained that we will adjust our corporate tax system to preserve our taxing rights in response to Pillar 2. This may yield some additional revenue. But the final impact on our fiscal position must include the expected adverse revenue impact under Pillar 1.  Furthermore, in a post-BEPS world, we must expect competition for jobs and investment worldwide will be more intense.  So even if we were to get additional tax revenue from Pillar 2, we will need to use these resources to strengthen our capabilities and stay competitive.