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Advance notice for a new Minimum Effective Tax Rate regime

The Minister announced an evaluation and consultation exercise of a 15% Minimum Effective Tax Rate (METR) regime. This is in response to the Global Anti-Base Erosion model rules (the GloBE rules) released by the Organisation for Economic Cooperation and Development (OECD)/G20 Inclusive Framework to address the Tax Challenges Arising from the Digitalisation of the Economy (Pillar Two).

The GloBE rules, published on 20 December 2021, are intended to give effect to the agreement reached by 137 countries participating within the OECD/G20 Inclusive Framework, including Singapore, to establish a global minimum corporate income tax rate of 15% for multinational enterprise groups (MNCs), with a turnover of at least €750 million. The primary mechanism of the GloBE rules, expected to take effect from 2023, will be a “top-up tax”, designed to ensure that the combined profits of an MNC arising in any single jurisdiction are taxed at an effective rate of at least 15%. The top-up tax will be levied by the MNC’s Ultimate Parent Entity (UPE) jurisdiction, or other jurisdictions down the ownership chain where this taxing right is not exercised by the UPE jurisdiction.

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Singapore Budget 2022 commentary - Advance notice for a new

The Minister announced an evaluation and consultation exercise of a 15% Minimum Effective Tax Rate (METR) regime. This is in response to the Global Anti-Base Erosion model rules (the GloBE rules) released by the Organisation for Economic Cooperation and Development (OECD)/G20 Inclusive Framework to address the Tax

Advance notice for a new Minimum Effective Tax Rate regime

For jurisdictions such as Singapore which have historically used tax incentives as part of a suite of measures to attract foreign direct investment (FDI), the top-up tax presents a significant challenge to fiscal policy, since the value of tax incentives to an MNC is diluted if a third country top-up tax is applied. The Singapore policy response is therefore twofold:

  • to evaluate the role and structure of FDI incentives going forward, in order to ensure that Singapore remains competitive
  • to evaluate whether and how to adjust the tax base so that any top-up tax is levied by Singapore and not foreign countries

The METR, which will be applicable to multinational enterprise groups with annual revenues of at least €750 million, has therefore been tabled for consideration and will undergo industry consultation. Further details have not been released but it should be expected that the METR, if enacted, will be closely aligned with the GloBE rules which are computationally complex and will require a significant reworking of an MNC’s tax compliance and tax accounting templates. 

Further, given the likely negative impact the METR will have on our attractiveness, we need to see if and when other countries will be implementing the Pillar Two rules so as to better assess Singapore's competitive positioning. Notwithstanding the GloBE rules and the potential METR, the Minister stressed that Singapore must continue to remain competitive to attract foreign investments. If the METR is implemented, we can expect other non-tax measures to be introduced to continue to enhance Singapore's attractiveness to foreign enterprises and mitigate the impact of the METR.

Get in touch

Chris Woo

Tax Leader, PwC Singapore

+65 9118 0811

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Falgun Thakkar

Transfer Pricing Leader, PwC Singapore

+65 9634 7984

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Tan Tay Lek

Partner, Tax, PwC Singapore

+65 9179 2725

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