Singapore's digital tax agenda: A matter of time
Yesterday Singapore’s 2018 Budget was presented by Singapore Finance Minister Heng Swee Keat: Kees van Raad and Barbara Voskamp gave their views from an international tax perspective in the Singapore’s Business Times.
Most corporate tax systems are based on the presumption that businesses operate in close proximity to their customers. These days, however, thMost corporate tax systems are based on the presumption that businesses operate in close proximity to their customers. These days, however, the reality is not so. Many businesses operate on a regional or even worldwide level. The Internet, more than anything else, has enabled businesses to supply markets without the need for a local presence.
These developments are putting pressure on the way taxes are currently levied and have prompted the question of whether existing tax systems are sufficiently equipped to operate effectively.
Because the digital component is often an integral part of the business, the material difference between tech and traditional businesses is quickly diminishing. Therefore, it is also becoming more difficult to separate the tech and non-tech components of a business. Considering that, it may not be sensible to seek such separation for tax purposes.
The lack of global consensus on how to respond to the direct tax challenges associated with digitalisation presents an ongoing challenge. An increasing number of countries have started taking steps to implement unilateral and uncoordinated measures aimed at taxing digitalised activities and business models. A number of countries have even already implemented unilateral measures such as diverted profit taxes and equalisation levies.
On a global and European level, the following trends can be noted: the OECD, as part of its Base Erosion Profit Shifting (BEPS) project, has formulated a number of tax policy options in its report Tax challenges of digital economy and announced that an update of this report will be released in April 2018.
The European Union is also looking into these issues and is seriously contemplating the introduction of a new form of taxation for the tech sector, such as an equalisation tax, outside the existing corporate income tax frame work. This type of tax would be levied on digital companies as a percentage of their turnover in a respective market.
At the World Economic Forum in Davos, Pierre Moscovici, the European commissioner for tax matters, announced that, while looking forward to the forthcoming OECD proposals, he will push ahead and propose a package on digital taxation in early March.
Although some propose that Singapore, with its ambition to become the regional tech hub in Asia, should be a front runner in leading harmonisation of the Asian digital tax treatment, we appreciate the call of Singapore not to include in its 2018 Budget an easy short-term solution. Rather we believe Singapore should use its position as a participant in the BEPS project to reach a global consensus in that forum first.
Once those discussions have fully evolved and lead to a coordinated approach to tax the digital economy, Singapore, as the chair of Asean, in 2018 would be perfectly positioned to lead a similar harmonisation process in this region.
Kees van RaadOf counsel
Kees van Raad is chairman of the International Tax Center Leiden, of counsel to Loyens & Loeff and past Professor of International Tax Law at the University of Leiden. He is also chair of the International Fiscal Association’s Jury for the annual Mitchell B. Carroll Prize and a member of the Advisory Panel of BRITACOM (the tax branch of the organization set up to develop and implement China’s Belt and Road Initiative).T: +31 20 578 51 40 M: +31 620 61 52 44 E: [email protected]