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Singapore Urges Need For Tax Competition After BEPS

by Mary Swire,, Hong Kong

21 September 2015

Global convergence towards higher tax rates globally would be a poor outcome for the base erosion and profit shifting (BEPS) project and a severe impediment to uplifting global growth prospects, Josephine Teo, Singapore's Senior Minister of State for Finance and Transport, has said.

Speaking at the SMU-TA Centre for Excellence in Taxation Inaugural Conference on September 17, 2015, Teo identified the risks associated with the BEPS movement, stating that "through attempts to curb harmful tax practices, harmful barriers to trade and investments, like double taxation, may also creep in. The global tax community would do well to guard against such tendencies." Teo told attendees that, rather than seek to achieve increased tax revenues for governments, "the BEPS project should, instead, work towards global convergence on free and fair competition in taxation."

Teo said: "To create a level playing field that we all desire, BEPS recommendations should be consistently applied across all states as well as non-state jurisdictions. Any efforts to review the adherence to these new international standards should also be conducted in a fair, open, and objective manner. This will provide a stable global environment that facilitates investment and growth, while minimizing opportunities for tax arbitrage."

The Minister added: "Countries on the receiving end of global tax rules are at varying stages of development, with varying capacities to implement and enforce those rules. Leaders of the BEPS movement should be cognizant of the need to be inclusive, and avoid putting everyone in the same straightjacket. The conditions for investment and growth are especially fragile in emerging economies; we should not put further obstacles in the way of their development through disproportionate uncertainties in tax matters, in the name of curbing cross border tax avoidance."

Teo continued: "We must recognize each country's sovereign right to determine its tax policies to attract investments, support entrepreneurship, and promote growth. Countries compete on the attractiveness of our tax measures in the same way we compete in the quality of our human capital, infrastructure, or administrative efficiency. There is a cost to developing a competitive advantage in any dimension, including tax measures. It is entirely up to each country to design its overall value proposition at a cost that it can afford."

Teo stressed that "with the exception of tax incentives that are profit-shifting measures in disguise, it makes no sense at all to curb tax incentives that are based on real economic substance. In fact, there is inherent unfairness if any country is pressured into giving up its legitimate tax incentives, just as it would be unfair to require them to hold back human capital development because their competitors are not able to match up."

Teo told attendees that "there is great unevenness in the robustness of tax administrations across jurisdictions. We know how important it is to have tax systems that support businesses and promote investment, and how helpful it is to have simple, clearly defined tax policies and rules. But that goal has not been so simple for all tax jurisdictions to achieve. Instead of pushing for more onerous global tax rules layered on top of domestic rules, we would be better off with greater clarity, simplicity, and consistency in both global and domestic tax rules."

"Singapore supports the BEPS project, and participates actively in BEPS-related discussions through several platforms. Our interest in the BEPS movement stems from the basic belief that tax policies and administration play an important and positive role in a country's development. As an open economy that is fully plugged into the global ecosystem, we support having a level-playing field across all tax jurisdictions. We also support measures that promote transparency and counter profit shifting."

Teo concluded: "Singapore, like many countries, has been studying the BEPS recommendations. At its best, we think that the BEPS movement can lead to greater clarity for companies on the rules of engagement in global taxation. This will promote legitimate investments and economic activities that create jobs and help governments grow the incomes of their citizens."

TAGS: environment | compliance | Finance | tax | investment | business | tax compliance | tax avoidance | tax incentives | interest | revenue guidance | law | entrepreneurs | Organisation for Economic Co-operation and Development (OECD) | Singapore | enforcement | tax authority | agreements | multinationals | legislation | tax planning | transfer pricing | G20 | tax reform | standards | regulation | trade | Tax

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