Singapore has long been known for its attractive corporate tax rates, but this tax advantage may be whisked away once the landmark tax agreement by the Group of Seven (“G-7“) comes into effect.
The G-7 represents a huge proportion of global gross domestic product (GDP) and global net wealth, being comprised of the seven countries of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. On 5 June 2021, the G-7 sent ripples worldwide when it reached a deal to implement two sets of rules, namely (a) reallocating taxable profits of the largest multinational enterprises (“MNEs“) to “market jurisdictions” where their customers are located, and (b) a global minimum tax rate of 15% for large MNEs.
The agreement has multiple aims, ranging from modernising tax laws for the digital economy, to avoiding a “race to the bottom” with countries offering progressively lower tax rates to attract MNEs, to closing cross-border tax loopholes.
While there is no clear indication on when this agreement might come into play and what the specific rules will entail, it will have far-reaching implications beyond the borders of the G-7 countries. The G-7 agreement may further set the stage for similar deals, such as amongst the Group of 20 (“G-20“) or the more than 130 countries under the Organization for Economic Cooperation and Development Inclusive Framework. However, China as a member of the G-20 has already voiced objections to a global minimum corporate tax rate.
In this Update, we examine the implications of this agreement and specifically what it might mean for Singapore.
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