Are Singapore's enticing incentives under threat from tighter OECD tax rules?

Experts say that new regulations will have positive long-term benefits.

Singapore offers a wide range of tax incentives to encourage foreign businesses to invest in the city-state. But are these incentives at risk as the Organization for Economic Cooperation and Development (OECD) rolls out new rules to curb tax avoidance by multinational corporations?

With the Base Erosion and Profit Shifting (BEPS) Project, the OECD asserts that multinational profits should be taxed in the territory where substantive profit-generating economic activities are performed and where value is created.

These tighter rules mean that some multinationals in Singapore would likely face increased queries from the other tax jurisdictions, said Tan Bin Eng, Partner, Business Incentives Advisory, Tax Services, EY in Singapore.

These firms will require stronger government support to ensure that they are in compliance with OECD rules, Tan noted.

"The OECD is focusing on ensuring there is a nexus between the income receiving the tax incentive and the core activities contributing to that income. One suggested approach is to use the level of expenditure to gauge substance and activities necessary to earn the income. This approach has traditionally already been adopted by the Singapore Government and is in-principle aligned with the proposals by OECD. Some refinements may be needed but the recommendations are unlikely to negatively impact Singapore’s tax incentive regime," she said.

In the long-term, Singapore is expected to benefit from the BEPS project as it will push global companies bring real investments into the country to support their profit level and tax outcome.