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Changes may be made to how overseas remote working will be taxed

Changes may be made to how overseas remote working will be taxed

Source: Business Times
Article Date: 05 Jul 2021
Author: Michelle Quah

All experts agreed that any moves by Singapore's own tax authority would be measured and well-communicated.

The Covid-19 pandemic has made working remotely, virtual meetings and a whole host of related digital arrangements part of the new normal - much to the satisfaction of a significant portion of the workforce. But these new developments have also created challenges for tax authorities around the world, and increased tax risks for companies.

In a survey of 500 chief executives in 11 key markets - Australia, Canada, China, France, Germany, India, Italy, Japan, Spain, the United Kingdom and the United States - global professional services firm KPMG found that tax risk had risen to become the second-greatest threat to growth for companies over the next three years, surpassed only by cybersecurity risk.

This focus on tax was markedly higher than in recent years: 14 per cent of CEOs named it as the greatest threat to growth in 2021, compared with 4 per cent who identified it as a top risk in 2020, and less than one per cent in 2019.

The KPMG CEO Outlook Pulse Survey said that the pandemic has contributed to the increase in tax risk in particular areas. Where employees are working in different jurisdictions due to pandemic restrictions, for example, there is additional risk of the creation of a taxable permanent establishment arising in the place where the employee is located.

"The concept of 'work from anywhere' in a post-pandemic world brings a new set of challenges, if employees are based in a different country from the employer," Mark Addy, a tax partner who is part of the technology, media and telecommunication practice at KPMG in Singapore, told The Business Times.

"Tax authorities have generally taken a lenient approach when employees have had to work remotely from another country due to travel restrictions. However, such flexibilities may not be afforded by tax authorities if the remote working situation prolongs. If companies intend to continue with overseas remote working arrangements, both the company and their employees could face tax exposures in multiple jurisdictions."

Shirley Shen, partner and part of KPMG Singapore's indirect tax practice, said that such concerns about growing tax risk are also shared by CEOs in Singapore. "This is since tax risk has been a growing threat to business growth in an increasingly complex international tax environment. Multilateral consensus-based international tax rules will also have a direct impact on countries across the world including Singapore."

EY's 2021 Tax Risk and Controversy Survey, which covered over 1,200 tax and finance leaders globally, found that issues surrounding worker mobility, pandemic-related losses, the claiming of tax refunds and even the receipt of stimulus measures were major concerns. Of these, tax issues relating to the stranding of personnel overseas as a result of travel bans and immigration changes were at the top of the list.

Tax and finance leaders also expect the complexity and challenges associated with complying with such new and differing tax treatments across jurisdictions to grow.

"Overall, we expect tougher tax enforcement and examination to come as governments seek to raise revenue to cover fiscal deficits. More than half of the survey respondents expect tax enforcement actions to surge after the pandemic," said Angela Tan, leader of Asean tax policy and controversy at EY.

Chris Woo, tax leader at PwC Singapore, noted: "Tax risk management is no longer a binary question of how much tax is paid and where.

"There has been an increasing focus by tax authorities on tax governance, and new enforcement measures are being put in place. It is evident that there is greater pressure on the board of directors and senior management of multinationals to focus on these areas. CEOs will, in the near future, need to ensure that tax is a priority of mind on the board agenda."

Daniel Ho, tax partner at Deloitte Singapore, believes that it is inevitable for tax revenues to be at the top of governments' priorities as they seek to shore up their fiscal positions and recover from pandemic spending. "This may not necessarily take the form of tax increases, as the economy may still be in a delicate state, but perhaps minimising tax leakages in the system by performing more tax audits or pursuing instances of non-compliance more aggressively."

All experts agreed that any moves by Singapore's own tax authority would be measured and well-communicated.

But they cautioned that CEOs and companies must prepare to manage the growing tax risks of cross-border activities and from developments triggered by events happenings elsewhere in the world.

Deloitte's Mr Ho said: "The Inland Revenue Authority of Singapore has always been reasonable in its dealings with taxpayers, so we do not expect a major change in its approach towards audits. However, to enhance the efficiency of the tax assessment process, they may focus more on having industry specialisations or having more resources to tackle areas where tax uncertainties are expected to arise, such as transfer pricing."

PwC's Mr Woo said that Singapore's tax authorities have always exercised due consideration and tracked international tax developments closely, and that they would ensure the nation stays attractive to existing and new foreign investors.

"At the same time, it is also imperative for Singapore to preserve its revenue base; especially as tax authorities in other jurisdictions are likely to step up their audits to fund the increasing government expenditure, including the Covid-19 relief measures. That said, we expect that the Singapore tax authorities will continue to align itself with international tax practices and adopt a principle-based approach in setting its tax policies," he said.

To better manage growing tax risks, EY's Ms Tan said that companies and CEOs should look into building a tax controversy department of the future (TCDF), which should holistically encompass a complete cycle of tax risk assessment, tax risk management and tax audit management.

"(And) while it is intuitive that the in-house tax function should be the primary driver, building the TCDF should not be confined to the tax department only. It should cut across all other internal stakeholders so that the tax risk management process can be integrated in the organisation's business strategy for optimal effectiveness."

To better align behaviours and outcomes of all business units in an organisation, she added, companies may wish to consider incorporating some elements of tax into their performance matrices, as opposed to limiting it to just the tax department.

KPMG's Ms Shen said proactively involving the tax function in the early stages of strategic business decisions would be especially crucial for indirect taxes - which may not attract much attention from business leaders but could have a direct impact on the top-line.

"Technologies must (also) become an integrated part of every tax function to help manage risks. Many multinationals are using these solutions not only to streamline the tax reporting process, but also to have an accurate, timely and complete view of their tax compliance status across the globe," she added.

The impact of global developments on Singapore's tax competitiveness is scheduled to be discussed at Monday's Parliament session. The topics include the G-7's recent agreement to impose a minimum global corporate tax rate, and how this would affect Singapore's competitiveness and its tax revenues.

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.

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