Page 7 - RSM Budget 2022 Highlights

Minimum Effective Tax Rate Regime

Proposed changes
In response to the global minimum effective tax rate under the Pillar 2 Global Anti-Base Erosion (“GloBE”) rules of
the BEPS 2.0 project, and based on consultation with industry stakeholders, MOF is exploring a top-up tax called
the Minimum Effective Tax Rate (“METR”).

The METR will top up an MNE group’s effective tax rate in Singapore to 15%. The METR will apply to MNE groups
operating in Singapore that have annual revenues of at least Euro 750 million, as reflected in the consolidated
financial statements of the ultimate parent entity. The METR, if introduced eventually, will be aligned with the Pillar
2 GloBE rules as far as possible.

IRAS will study the METR further and consult industry stakeholders on the design of the METR.

MOF will continue to closely monitor international developments before making any decisions on the METR.

Comments
 Given Singapore’s relatively small domestic market and the activities of the MNEs present here, it is inevitable
that Singapore will lose tax revenue under Pillar 1 of BEPS 2.0. Such tax revenue will be re-allocated to where
the consumers are located. Under Pillar 2 GloBE rules, where the effective tax rate is less than 15% at the Group
level in Singapore, other jurisdictions such as its home country can collect the difference up to 15%.

 The METR is a possible prevention for this to happen. With the higher tax burden brought about by METR, the
concern is would this discourage foreign investors to setup base in Singapore.

 Tax incentive is one of the benefits to attract MNEs to invest in Singapore. This advantage will clearly be gone
and Singapore needs to find new ways to maintain its competitive edge in regional and global markets.

 If METR is introduced, it remains to be seen whether this can be a double-edged sword, i.e. although
safeguarding the imposition of foreign additional tax but potentially driving MNEs away from Singapore.

BUDGET 2022 HIGHLIGHTS | 5