In the wake of the infamous “Panama Papers,” nations around the world have felt extraordinary political pressure, both from within and from international economic organizations, to reform tax laws. These reforms are generally aimed at providing better transparency while closing loopholes that allow foreign organizations and individuals to funnel cash in an effort to avoid taxes in their home nations.
The Organization for Economic Cooperation and Development (OECD) and the G20 have been pushing hard for these reforms among their member nations. The OECD has implemented its “Base Erosion and Profit Shifting Action Plan” (BEPS) and the G20 has thrown its support behind this initiative. The latest to yield to these pressures and tighten their tax laws in accordance with this new international framework is Singapore.
Pursuant to an announcement made by the Singapore Ministry of Finance on Thursday, the nation will now require locally headquartered multinationals to file reports broken down by country, income, and taxes to the Inland Revenue Authority of Singapore (IRAS).
According to the BEPS plan for Singapore, the country will implement a series of reforms to create new minimum standards aimed at heading off “aggressive tax planning” by multinationals. This will include reforms to improve the nation’s lax tax code, prevent abuses of various treaty obligations, make transactions and financial accountability more transparent, and create a new system for dispute resolution. The goal of these reforms, as under BEPS, is to ensure that companies are taxed in the country where economic activity takes place, not the nation with the most lenient tax laws.
Under the new laws, multinational organizations with economic activity in excess of S$1.125 billion and whose parent company is located in Singapore will have to report financial and economic activity to the IRAS on a per country basis beginning in 2017. IRAS will then consult with multinational organizations on further implementing a country-by-country report, and releasing the details of its findings publicly by September 2016.
Although the law is a step in the right direction in the eyes of the OECD and G20, in reality it will not affect that many organizations doing business in Singapore. According to Nicole Fund, Transfer Pricing Leader at PriceWaterhouseCoopers in Singapore: “There won’t be a large number of companies affected … Our estimate: It’ll be less than 100, and these companies are not just in Singapore. They’re global companies and they play in the international space.”