[h=1]TAX CRACKDOWN IN EUROPE – WHAT HAS IT GOT TO DO WITH SINGAPORE?[/h]
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Post date:
15 Oct 2014 - 9:35am
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Friday, 10[SUP]th[/SUP] October. Financial Times headline read:
“Brussels in crackdown on ‘double Irish’ tax loophole”.
The article reported that the European Commission’s competition authority has asked the Irish government to explain the tax arrangements used by the likes of Google, Microsoft, Facebook and Abbot Laboratories. Essentially a ruse, these arrangements allowed companies reduce their effective tax bills which involve an operating company set up in Ireland to pay hefty fees for intellectual property to a related subsidiary in a low or no tax location. The first subsidiary would kept a sliver of profits taxed at Ireland’s 12.5% rate but the lions’ share in the second subsidiary is lightly taxed or not at all.
What has it got to do with SG one may wonder but it should sound very familiar. Indeed Singapore has its plethora of shell companies set up to use such things as non-taxable dividends to “massage” the effective tax bills on fees received from higher tax jurisdictions. Industrial policies driven by low taxes do not really help develop a competitive, innovative economy. Low taxes are a boon to business but especially to certain types of economic activities that SG arguably can do without, given constraints of land, labour and infrastructure. One is the low margin, low-tech business that needed low taxes to generate the required net return on capital. Then there are those high-tech manufacturers involved in low margin, commoditised products that are forever in search of low cost, low tax locations. Hence, the ease with which they come and go cannot be relied for sustainable GDP growth. Finally, the economic activity that SG can definitely do without; those shell companies set up for tax avoidance…. oops tax management. As Professor Jim Stewart of Trinity College, Dublin, wrote.
“Those with best knowledge of the tax systems will be the ones appointed to senior management jobs….. Meanwhile those skilled in product development, production expertise, logistics and marketing are being sidelined”
In the SG context, is it not a waste of resource if some of its best graduates are attracted to such jobs as tax “massaging” or providing services to attract footloose wealth avoiding tax and regulations; both of which contribute little if any to GDP? Does SG really need foreigners in those shell companies and those wealth management firms whose talents lie in devising tax avoidance structures?
The European Commission has not only probed Ireland and other low tax locations like Luxembourg but the companies involved. Investigative reports are already issued for Apple and on-going for Starbucks and Amazon. Not only are the companies targeted for tax avoidance but also governments for using tax arrangements as illegal subsidies. It can be argued that SG may be safe because it is not part of the European Union. But the backlash against corporate tax avoidance is gathering pace. SG will not be immune.
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Every policy, however effective has its sell-by date. The SG government low tax industrial policy was without doubt extremely effective in developing the economy and lifting incomes in the catch-up phase. However, like almost every policy from those days, the government of today still clung onto them even though technological advancements, socio-economic changes and the aspirations of the population required different types of policies. It can choose to ignore its own citizens but it cannot ignore irate governments of its main trading partners when the time comes.
Chris K
* Chris K holds a senior position in a global financial centre bigger than Singapore. He writes mostly on economic and financial matters to highlight misconceptions of economic policy in Singapore.
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Post date:
15 Oct 2014 - 9:35am
<iframe src="http://tpc.googlesyndication.com/safeframe/1-0-0/html/container.html" style="display: none; visibility: hidden;"></iframe><ins id="aswift_0_expand" style="margin: 0px; padding: 0px; border: currentColor; width: 336px; height: 280px; display: inline-table; visibility: visible; position: relative; background-color: transparent; border-image: none;"><ins id="aswift_0_anchor" style="margin: 0px; padding: 0px; border: currentColor; width: 336px; height: 280px; display: block; visibility: visible; position: relative; background-color: transparent; border-image: none;"><iframe name="aswift_0" width="336" height="280" id="aswift_0" frameBorder="0" marginWidth="0" marginHeight="0" scrolling="no" vspace="0" hspace="0" allowfullscreen="true" style="left: 0px; top: 0px; position: absolute;" allowTransparency="true"></iframe></ins></ins>
Friday, 10[SUP]th[/SUP] October. Financial Times headline read:
“Brussels in crackdown on ‘double Irish’ tax loophole”.
The article reported that the European Commission’s competition authority has asked the Irish government to explain the tax arrangements used by the likes of Google, Microsoft, Facebook and Abbot Laboratories. Essentially a ruse, these arrangements allowed companies reduce their effective tax bills which involve an operating company set up in Ireland to pay hefty fees for intellectual property to a related subsidiary in a low or no tax location. The first subsidiary would kept a sliver of profits taxed at Ireland’s 12.5% rate but the lions’ share in the second subsidiary is lightly taxed or not at all.
What has it got to do with SG one may wonder but it should sound very familiar. Indeed Singapore has its plethora of shell companies set up to use such things as non-taxable dividends to “massage” the effective tax bills on fees received from higher tax jurisdictions. Industrial policies driven by low taxes do not really help develop a competitive, innovative economy. Low taxes are a boon to business but especially to certain types of economic activities that SG arguably can do without, given constraints of land, labour and infrastructure. One is the low margin, low-tech business that needed low taxes to generate the required net return on capital. Then there are those high-tech manufacturers involved in low margin, commoditised products that are forever in search of low cost, low tax locations. Hence, the ease with which they come and go cannot be relied for sustainable GDP growth. Finally, the economic activity that SG can definitely do without; those shell companies set up for tax avoidance…. oops tax management. As Professor Jim Stewart of Trinity College, Dublin, wrote.
“Those with best knowledge of the tax systems will be the ones appointed to senior management jobs….. Meanwhile those skilled in product development, production expertise, logistics and marketing are being sidelined”
In the SG context, is it not a waste of resource if some of its best graduates are attracted to such jobs as tax “massaging” or providing services to attract footloose wealth avoiding tax and regulations; both of which contribute little if any to GDP? Does SG really need foreigners in those shell companies and those wealth management firms whose talents lie in devising tax avoidance structures?
The European Commission has not only probed Ireland and other low tax locations like Luxembourg but the companies involved. Investigative reports are already issued for Apple and on-going for Starbucks and Amazon. Not only are the companies targeted for tax avoidance but also governments for using tax arrangements as illegal subsidies. It can be argued that SG may be safe because it is not part of the European Union. But the backlash against corporate tax avoidance is gathering pace. SG will not be immune.
<ins id="aswift_1_expand" style="margin: 0px; padding: 0px; border: currentColor; width: 336px; height: 280px; display: inline-table; visibility: visible; position: relative; background-color: transparent; border-image: none;"><ins id="aswift_1_anchor" style="margin: 0px; padding: 0px; border: currentColor; width: 336px; height: 280px; display: block; visibility: visible; position: relative; background-color: transparent; border-image: none;"><iframe name="aswift_1" width="336" height="280" id="aswift_1" frameBorder="0" marginWidth="0" marginHeight="0" scrolling="no" vspace="0" hspace="0" allowfullscreen="true" style="left: 0px; top: 0px; position: absolute;" allowTransparency="true"></iframe></ins></ins>
Every policy, however effective has its sell-by date. The SG government low tax industrial policy was without doubt extremely effective in developing the economy and lifting incomes in the catch-up phase. However, like almost every policy from those days, the government of today still clung onto them even though technological advancements, socio-economic changes and the aspirations of the population required different types of policies. It can choose to ignore its own citizens but it cannot ignore irate governments of its main trading partners when the time comes.
Chris K
* Chris K holds a senior position in a global financial centre bigger than Singapore. He writes mostly on economic and financial matters to highlight misconceptions of economic policy in Singapore.
