Singapore has long enjoyed the reputation of being the “Switzerland of the East”. As a geopolitically nonaligned country with an advanced financial system and strong rule of law, the Lion City is a crossroad for global capital flows in Asia, making it smoother and easier for the thousands of multinational corporations to set up shop here. Of course, a relatively low corporate tax rate of 17%, versus the OECD average of 23.51%, helps.

But BEPS 2.0 might just cast a shadow on Singapore as a financial hub. Deputy Prime Minister Heng Swee Keat observed during his Budget 2020 round-up speech that as a small hub economy with a smaller consumer base, Singapore could face weaker corporate tax revenues. The OECD has estimated that investment hub countries like Singapore could face a 5% drop in taxable revenue.

But even though Singapore’s 17% corporate tax rate exceeds the proposed global minimum on paper, deductions and incentives mean that the effective tax paid by some MNEs may be less than 15%. The benefit of such incentives, Poh of NUS warns, could be nullified by BEPS 2.0 since MNEs will have to pay top-up tax in their home jurisdictions. Singapore would be just subsidising additional tax collection for other countries instead of attracting business.

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