AIC Releases Industry Paper “Beyond BEPS New Taxing Rights and Minimum Corporate Taxes” (December 2019)

The International Monetary Fund (IMF) has reduced its global economic growth projections for the year 2019. It attributes the broad-based slowdown in the world economy to policy uncertainty stemming from factors such as trade tensions, higher oil prices and the increased incidence of natural disasters. Small open economies such as Singapore are particularly susceptible to global uncertainties. The IMF calls for multilateral cooperation to arrest the downward trend.

The OECD emphasises simplicity over precision in order to minimise costs of compliance and administration. It also seeks to minimise the risk of double taxation and proposes mandatory and time-bound dispute resolution. The technicalities of the proposals are yet to be determined and many important aspects depend on the agreement between countries. Regardless of the particulars, large MNEs should expect to pay more taxes in more jurisdictions.

It is critical that a successful long-term solution to address the taxation of the evolving international economy should be consistent with the following key tenets:

1. It should be levied on profits/losses and not revenue. VAT/GST is a tax that applies to revenue.
2. It should apply in an economically principled way to both loss-making and profit- making companies/businesses.
3. It should be proportionate, neutral, equitable, and enforceable so that, on an overall basis, it is applicable to all types of businesses such that the new tax rules do not ring-fence the digital economy, do not result in different tax rates for foreign and domestic taxpayers, and do not create market distortions.
4. It should be a direct tax measure only and should have no impact for indirect tax purposes.
5. It should achieve consensus and maximize consistency in its application, with sufficient detail to foster consistent application and avoid multi-layer taxation.
6. The new framework must not undermine the existing tax treaty network and not lead to double taxation.
7. It must include mechanisms for effective dispute resolution, including mandatory binding arbitration.
8. The measures must be easy to comply with and provide collaboration on transition relief. Simplicity for taxpayers will be preferable to precision in measurement.