Singapore Issues Final Regulations for the Application of the Global Minimum Tax

Legislation

On June 10, 2024, the Singapore Ministry of Finance issued a draft Multinational Enterprise (Minimum Tax) Bill and subsidiary legislation (draft Multinational Enterprise (Minimum Tax) Regulations  for consultation. The consultation was open until July 5, 2024.

On November 27, 2024, the Multinational Enterprise (Minimum Tax) Act 2024 (the ‘Law’) was published in Singapore’s Official Gazette.

On December 30, 2024, Singapore published the Multinational Enterprise (Minimum Tax) Regulations 2024 (the ‘Regulations’) which provide for the detailed rules for the application of the multinational top-up tax (MTT) and domestic top-up tax (DTT).

The Law includes an Income Inclusion Rule (IIR) (‘MTT’ in the Law) and a domestic minimum tax (‘DTT’ in the Law) (intended to be a Qualified Domestic Minimum Top-Up Tax (QDMTT)). This is intended to apply to fiscal years beginning on or after January 1, 2025.

The Law is construed as one with the Income Tax Act 1947 (“ITA”), and as such, certain provisions, such as administration, enforcement and appeals that apply under the ITA, will also apply to the DTT and MTT (with certain modifications).

General

The Law does not contain any provisions for the implementation of the UTPR. This is in line with the 2024 Budget, which stated that the UTPR is not yet being implemented.

The implementation of the OECD Model Rules and subsequent Administrative Guidance is split between the Law and the Regulations. The Law provides the fundamental structure of the GloBE rules in Singapore with the regulations providing the more detailed GloBE income and covered taxes adjustments in order to calculate the GloBE effective tax rate (ETR).

The Regulations also provide guidance on some other aspects including the GloBE reorganisation rules and the rules for multi-parented MNE groups (chapter 6 of the OECD Model Rules), as well as the Safe Harbours.

Administrative Guidance

Aspects of the First Set of OECD Administrative Guidance included in the Law are:

-Rebasing monetary thresholds in the GloBE Rules (Article 1.1)

-Consolidated deferred tax amounts (Article 1.3)

-Sovereign wealth funds and the definition of Ultimate Parent Entity (Article 1.4)

-Meaning of “ancillary” for non-profit organisations (Article 1.6)

-Excess negative tax carry-forward guidance (Article 2.7)

-The exclusion of insurance investment entities from the definition of intermediate parent entity and partially-owned parent entity (Article 3.2)

Aspects of the First Set of OECD Administrative Guidance included in the Regulations are:

-The foreign exchange hedge election (Article 2.2)

-The debt release election (Article 2.4)

-Provisions for accrued pension expenses (Article 2.5)

-Substitute loss carry forwards (Article 2.8)

-The equity gain or loss inclusion election (Article 2.9)

-Rules for blended CFC tax regimes (Article 2.10)

-Application of Taxable Distribution Method Election to Insurance Investment Entities (Article 3.1)

-Provisions on restricted tier one capital for insurance companies (Article 3.3)

-Liabilities related to excluded dividends and excluded equity gain or loss from securities held on behalf of policyholders (Article 3.4)

-The portfolio shareholding election (Article 3.5)

-Deferred tax transition rules (Articles 4.1-4.3)

Aspects of the Second Set of OECD Administrative Guidance included are:

-Currency conversion rules (Article 1)

-Marketable transferable tax credits (Article 2)

-Substance-based income exclusion rules (foreign assets, leases and impairment loss-es) (Article 3)

-QDMTT Safe Harbour

The only aspects of the Third set of OECD Administrative Guidance (issued in December 2023) included (aside from Safe Harbour rules) are:

-Identifying Consolidated Revenue (Article 3.1)

-Mismatch between Fiscal Years of the UPE and another Constituent Entity (Article 3.1)

The Law/Regulations do not include the Fourth Set of OECD Administrative Guidance (issued in June 2024).

Safe Harbour and Penalty Relief Guidance

Section 20 of the Law provides for the application GloBE Safe Harbours. However, the detailed provisions are included in the Regulations.

Part 9, Division 2 of the Regulations provides for the Transitional Country-by-Country Reporting (“CbCR”) Safe Harbour based on the OECD Safe Harbour and Penalty Relief Guidance. The following amendments included in the December 2023 OECD Administrative Guidance are included:

-Transitional CbCR – Purchase Accounting Adjustments (consistent reporting condition, goodwill impairment adjustment) (Article 1)

-Transitional CbCR – JVs (Article 2.2.1)

-Transitional CbCR – Same Financial Statements/Local Financial Statements for Statutory Reporting (Article 2.3.1)

-Transitional CbCR – MNEs not required to file CbC Reports (Article 2.3.4)

-Transitional CbCR – Qualified Financial Statements for PEs (Article 2.3.5)

-Transitional CbCR – Treatment of hybrid arbitrage arrangements (Article 2.6)

Sections 78-83 apply the QDMTT Safe Harbour which applies to QDMTTs that have been identified in a Regulation as meeting the QDMTT requirements.

It specifically applies the Switch-off rule to a number of defined scenarios as provided in the OECD Administrative Guidance. This includes where a jurisdiction imposing a QDMTT provides that it does not apply to an MNE group in the initial phase of the MNE group’s international activity (with no limitations).

Section 84-86 of the Regulations includes the Simplified Calculations Safe Harbour for Non-Material Constituent Entities as based on the OECD Safe Harbour Guidance (and the December 2023 OECD Administrative Guidance).

Domestic Minimum Tax

Part 3 of the law provides for a qualified domestic minimum top‑up tax (‘QDMTT’) (or at least a domestic minimum tax that is likely to be classed as a QDMTT) for fiscal years beginning on or after January 1, 2025.

Section 27 of the Law states that the intention is for the domestic minimum tax to be a QDMTT within the meaning of the GloBE Rules. Section 27(4) provides that the Law is to be interpreted in a manner that is consistent with this.

The amount of top-up tax under the QDMTT is the top-up tax calculated under the general rules. The Law/regulations provide for a number of adjustments:

Shareholdings

Firstly, Section 30 of the Law ensures that the QDMTT applies irrespective of the shareholdings in the group entities located in Singapore. This reflects the OECD Administrative Guidance that provides that Top-up Tax that is subject to the QDMTT is based on the whole amount of the jurisdictional Top-up Tax calculated, irrespective of the ownership interests held in the Constituent Entities located in the QDMTT jurisdiction by any Parent Entity of the MNE Group.

Stateless Entities

Secondly, it applies the QDMTT to stateless entities.

Under the OECD Administrative Guidance, a domestic minimum tax does not need to apply to Stateless Constituent Entities to be a QDMTT. However, jurisdictions can impose a QDMTT on these entities when they are created under the domestic Law of the jurisdiction.

Taxes Pushed Down

Tax paid or incurred by a Constituent Entity-owner under a CFC Tax Regime that is pushed down to a domestic Constituent Entity in the GloBE Rules must be excluded, as provided in the OECD Administrative Guidance. This is included in Section 49 of the Regulations.

Section 49 of the Regulations also prevents the pushdown of tax to hybrids, PEs and for taxes on distributions (aside from Singaporean withholding tax on distributions).

Accounting Standard

Section 6 of the First Schedule to the Law provides that instead of using the UPEs accounting standard, MNEs can calculate GloBE income using domestic Accounting Standards (within the meaning of the Singapore Accounting Standards Act 2007).

For this to apply all the constituent entities of the MNE located in Singapore must prepare financial statements based on those Accounting Standards and their financial year must be the same as the consolidated financial statements.

The financial statements must also be subject a statutory audit or be required under a Singapore Law to be kept or used.

If these conditions are not met, the domestic minimum tax is calculated:

– using the financial accounting standard of the ultimate parent entity, and, if that is not practicable,

– on the basis of an accepted or approved accounting standard, if:

         -the constituent entity’s financial statements are prepared in accordance with that standard,

          -the information contained in the financial statements is reliable; and

           -permanent differences of more than EUR 1 million are conformed with the UPEs accounting standard.

Currency

The Second set of OECD Administrative Guidance also provides that where all the constituent entities use the domestic accounting standard and use the Singapore dollar as their functional currency in preparing those financial statements, the calculations for the purposes of the QDMTT are to be carried out in the Singapore dollar.

Where not all Constituent Entities in the jurisdiction use the Singapore dollar as their functional currency, Section 9(5) of the Law provides that the Filing Constituent Entity may make a Five-Year Election to undertake the QDMTT computations for all Constituent Entities in the jurisdiction either:

• in the presentation currency of the Consolidated Financial Statements; or

• in the Singapore dollar.

Elections

As required in the OECD Administrative Guidance, Section 30(8) of the Law also requires that any GloBE election made (or revoked) is taken into account for QDMTT purposes, if the election is included in a GloBE Information Return that would affect the top-up tax calculation.

Investment Entities

Section 30(10) excludes investment entities and insurance investment entities from the scope of the QDMTT.

Transitional Years

Section 93 of the Regulations provides for the transitional year refreshing rule.

A new transition year, arises in an accounting period in which the entities of an MNE/domestic fall within the scope of a qualified IIR or UTPR if this accounting period begins after the beginning of the transition year for QDMTT purposes.

In the new transition year the following attributes of the relevant Constituent Entities are refreshed:

-Any Excess Negative Tax Expense Carry-forward under Article 4.1.5 or Article 5.2.1 is eliminated at the beginning of the new Transition Year.

-The DTL recapture rule in Article 4.4.4 does not apply to any deferred tax liability that was taken into account in computing the ETR under the QDMTT and that was not recaptured prior to the new Transition Year.

-Any GloBE Loss Deferred Tax Asset that arose in a year preceding the new Transition Year must be eliminated. The Filing Constituent Entity may make a new GloBE Loss election in the new Transition Year.

-The deferred tax items previously determined are eliminated and Article 9.1.1 is applied at the beginning of the new Transition Year.

-Article 9.1.2 applies to transactions occurring after November 30, 2021 and before the beginning of the new Transition Year. However, if QDMTT was payable due to the application of Article 4.1.5 in respect of a deferred tax asset attributable to a tax loss, the deferred tax asset is not treated as arising from items excluded from the computation of GloBE Income or Loss under Chapter 3 of the OECD Model Rules.