Shanmugaratnam to simplify and reduce the taxation of foreign income

Shanmugaratnam to simplify and reduce the taxation of foreign income

Singapore´s Finanace Minister Tharman Shanmugaratnam wants to simplify and reduce the taxation of foreign income, so as to support companies that are internationalizing and earning a larger share of their income overseas. Foreign tax credit (FTC) pooling is to be introduced to give businesses greater flexibility in their claim of FTCs, reduce their Singapore taxes payable on remitted foreign income (FI), as well as to simplify tax compliance.

Under the FTC pooling system, FTC is to be computed on a pooled basis, rather than on a source-by-source and country-by-country basis for each particular stream of income. The amount of FTC to be granted will be based on the lower of the pooled foreign taxes paid on the FI and the pooled Singapore tax payable on such FI. This will take effect from the 2012 assessment year.

Shanmugaratnam then said that, while Singapore is making good progress to becoming a location of choice in Asia for global companies as well as a launch-pad for Asian enterprises to internationalize, he has made other tax changes in strategic business sectors to enhance its overall competitiveness as such a hub.

With effect from June 1, 2011, existing maritime incentives will be streamlined and enhanced. New tax benefits, such as certainty of WHT exemption for interest payments on loans to build or buy ships, will be introduced to further entrench international ship operators and encourage the growth of the shipping-related services sector in Singapore

For example, to facilitate access to a wider range of funding sources for their lending business and strengthen Singapore’s position as a regional funding centre, enhancements will be made to the withholding tax exemption (WHT) exemption regime for finance companies, banks and investment banks with effect from April 1, 2011. WHT exemption will be granted on interest payments made to all non-resident persons (including funding from non-bank sources, such as hedge funds and insurers).

There will also be a package of individual income tax benefits for all Singaporeans. All resident individual taxpayers will be given a one-off personal income tax discount of 20%, capped at SGD2,000 per taxpayer, in 2011/12, and a new personal income tax rate structure will take effect from 2012/13. Marginal tax rates will be reduced for the first SGD120,000 of chargeable income. While all taxpayers benefit, middle-income earners will enjoy the largest percentage reduction in taxes under the new rates.

After factoring in the various tax and other measures announced in his budget, he still expected a basic fiscal deficit of only SGD2.2bn, or about 0.7% of GDP, in 2011/12.

Shanmugaratnam disclosed that the government will continue to review Singapore’s top personal income tax rate, but saw no pressing competitive need for it to be reduced at present.

Growth Motives.

Growth Motives.

Growth opportunities associated with international markets were identified as a key driver of firm internationalization in several recent studies. Orser et al. (2008), for example, reports say that after allowing for the impacts of firm size and sector, Canadian legal firms whose owners had expressed growth intentions were more than twice as likely to export, than those whose owners did not indicate growth ambitions. Firms‟ overseas venturing decision also seems to be motivated by a need for business growth, profits, an increased market size, a stronger market position, and to reduce dependence on a single or smaller number of markets. The possibility of growth in other markets and increased profit opportunities from international expansion were highlighted as key stimuli for exporting among the Australian, British, Spanish, Swedish, and US firms investigated in recent studies.

European Union Direct Taxes

Permanent Establishment is a vital concept in international taxation. While for direct taxes, it is mainly defined by the OECD Model Convention, the European VAT Directive and its implementing Regulation provide an EU-wide approach for VAT.
Difficulties arise as terminology and definitions in indirect and direct tax diverge. Moreover, countries have implemented and interpreted the EU and OECD rules in a different way, impacting on issues like cross-border reorganisations, transfer pricing, taxation of dividends and interest and royalties, tax residence, temporary and permanent transfer of assets, place of supply and VAT liability.
In both direct and indirect tax, the concept of Permanent Establishment has undergone very recent changes: The 2010 changes to the OECD Model Convention and Commentary, and in particular the new Art. 7, will be adopted in national law, as speakers from the Netherlands and Germany will report. The effect of the new definition on treaties with other countries will also be considered.
Some of this topic is addressed in the new book "European Union Direct Taxes", by the International Tax Professor Salvador Trinxet Llorca.
In indirect tax, the current more important issue is the practical consequences of the adoption of the Regulation implementing the EU VAT Directive in January 2011.

Internationalization

internationalization and international entrepreneurship among small and medium-sized enterprises (SMEs) has remained a topic of considerable contemporary relevance, principally owing to the observed growth effects of cross-border venturing, and the demonstrated capacity of SMEs to drive economic development at national, regional, and global levels (European Commission, 2007). This realisation was at the heart of the 2007 OECD-APEC study on Removing Barriers to SME Access to International Markets, which provided general findings on the major barriers to SME internationalization as perceived by SMEs and policymakers in OECD and APEC member economies.1 The need to obtain a greater depth of understanding and an updated view of the issues raised by the OECD-APEC study provided a raison d'être for this follow-up project. Other value adding features include the additional focus on motivations for SME internationalization ; the coverage of recently available documentation from economies involved in the OECD enlargement (Chile, Estonia, Israel, Russia, and Slovenia) and enhanced engagement process (Brazil, China, India, Indonesia, and South Africa); and the sub-national and sectoral insights offered on SME internationalization barriers, motivations and support programs.

OCDE prerrogatives for internationalisation on SME

                      i. To analyse in-depth the most significant barriers to SME

internationalisation identified from the 2007 OECD-APEC sponsored research on this theme, with a view to uncovering new insights into the nature of these top barriers;

                        ii. To review recent work pertaining to factors that drive or motivate the internationalisation of SMEs; and

                        iii. To develop a deeper understanding of the current programs for SME internationalisation, particularly the specific measures aimed at addressing the top barriers identified.

 

To provide an updated appreciation of pertinent aspects of SME internationalisation, the report reviewed the post OECD-APEC survey evidence on the top barriers, drivers and support programs across OECD and APEC member economies and other economies involved in the OECD enlargement and enhanced engagement processes. This has yielded important longitudinal insights, thereby indicating that support programs are appropriately focused on the most resilient and enduring of the factors affecting SME internationalisation.

To ensure a greater depth of understanding on SME internationalisation barriers, this study focused on the top four barriers identified by the OECD-APEC study as being by far and away the most serious impediments to SME internationalisation (see Table 1). These include 1) Shortage of working capital to finance exports; 2) Identifying foreign business opportunities; 3) Limited information to locate/analyse markets; and 4) Inability to contact potential overseas customers. A fifth barrier, „lack of managerial time, skills and knowledge‟, is additionally examined. The reasoning is threefold: one, this reflects the importance of this barrier in the Member Economy survey (see Table 2); two, the consistently highlighted primacy of managerial factors in previous relevant global surveys; and three, the widely acknowledged importance of skilled human resources in all areas of economic activity, including market innovation.