4. Key tax considerations (Income Tax Act 1947 Section 10L & Pillar 2)
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Questions and Answers

What is the maximum top-up tax rate that may be imposed by a jurisdiction under a QDMTT?

  • 15% (correct)
  • 20%
  • 10%
  • 12%

    • How is the top-up tax collected under a QDMTT treated in relation to the IIR?

  • It is paid in addition to the IIR.
  • It is calculated based on the gross income of the MNE.
  • It is not applicable in any scenario involving IIR.
  • It can be deducted from the top-up tax payable under the IIR. (correct)

    • In the provided example, which jurisdiction has an effective tax rate (ETR) below 15%?

  • Country C (correct)
  • Country A
  • Country B
  • Country D

    • What is the calculation used to determine the top-up tax for Sub C in the example?

    <p>$3,000 x (15% - 5%) = $300</p> Signup and view all the answers

    What is the significance of a jurisdiction imposing a QDMTT for entities of an MNE group?

    <p>It helps ensure minimum taxation on MNE profits.</p> Signup and view all the answers

    What is the primary purpose of Pillar Two in the OECD's Two-Pillar solution?

    <p>To impose a global minimum effective tax rate.</p> Signup and view all the answers

    Which of the following is NOT included in the mechanisms of Pillar Two?

    <p>Global Tax Adjustment Rule (GTAR)</p> Signup and view all the answers

    What characterizes an 'excluded entity' under the exceptions for gains from disposal of foreign assets?

    <p>An entity with adequate economic substance in Singapore.</p> Signup and view all the answers

    When will Singapore implement the Income Inclusion Rule (IIR) and Qualified Domestic Minimum Top-up Tax (QDMTT)?

    <p>1 January 2025</p> Signup and view all the answers

    What is the expected global revenue gain from the introduction of Pillar Two?

    <p>USD 220 billion</p> Signup and view all the answers

    Which of the following is a requirement for pure equity-holding entities concerning exceptions?

    <p>They must demonstrate adequate economic substance.</p> Signup and view all the answers

    What is the minimum effective tax rate established by Pillar Two for affected multinational enterprises?

    <p>15%</p> Signup and view all the answers

    Which entity is NOT considered a prescribed financial institution under the exceptions for gains from disposal of foreign assets?

    <p>Nonprofit organizations</p> Signup and view all the answers

    What is the primary focus of Section 10L of the Income Tax Act 1947?

    <p>Tax treatment of gains from the sale of foreign assets</p> Signup and view all the answers

    Which of the following is NOT a requirement for the application of Section 10L?

    <p>Gains must be chargeable under section 10(1)</p> Signup and view all the answers

    In the context of Section 10L, what does 'foreign assets' refer to?

    <p>Movable or immovable property located outside Singapore at the time of disposal</p> Signup and view all the answers

    Which of the following conditions could lead to a gain being deemed received in Singapore under Section 10L?

    <p>Gain is applied to satisfy a debt incurred in Singapore</p> Signup and view all the answers

    What constitutes an 'entity of a relevant group' as per Section 10L?

    <p>A member of a multinational enterprise group with operations across jurisdictions</p> Signup and view all the answers

    What is the administrative guidance provided by IRAS regarding Section 10L?

    <p>Foreign entities not operating in Singapore are not within the scope of Section 10L</p> Signup and view all the answers

    Which of the following best describes the scope of Section 10L?

    <p>It governs the taxation of foreign assets disposals under certain conditions</p> Signup and view all the answers

    What is the effect of deemed receipt under Section 10L as per its provisions?

    <p>Certain gains are treated as received in Singapore regardless of actual remittance</p> Signup and view all the answers

    Which country has the highest jurisdictional Effective Tax Rate (ETR)?

    <p>Country B</p> Signup and view all the answers

    What is the net GloBE income for Country D?

    <p>$5,000</p> Signup and view all the answers

    What is the top-up tax for Country B?

    <p>$2,000</p> Signup and view all the answers

    Which country has a jurisdictional ETR of 5%?

    <p>Country C</p> Signup and view all the answers

    What is the amount of the top-up tax for Singapore under the QDMTT?

    <p>$100</p> Signup and view all the answers

    Which country has the lowest jurisdictional ETR?

    <p>Country C</p> Signup and view all the answers

    What is the combined effective tax rate on the GloBE income for Country A?

    <p>10%</p> Signup and view all the answers

    What is the total jurisdictional ETR for Singapore?

    <p>15%</p> Signup and view all the answers

    Study Notes

    Section 10L

    • Section 10L of the Income Tax Act 1947 (ITA) charges to tax income from the sale or disposal of foreign assets by a member of a multinational enterprise (MNE) group, received or deemed received in Singapore.
    • Section 10L applies if the gains would not otherwise be chargeable to tax as income under section 10(1) or are exempt from tax under the ITA.
    • Section 10L applies to sales or disposals of foreign assets occurring on or after 1 January 2024.
    • Foreign entities not operating in or from Singapore are excluded from the scope of section 10L.
    • The sale or disposal gain is deemed received in Singapore if it is remitted, transmitted or brought into Singapore, applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Singapore, or applied to purchase movable property brought into Singapore.
    • Exceptions to Section 10L apply for gains from the disposal of foreign assets carried out as part of the business activities of a prescribed financial institution, incentivised business activities or operations of entities enjoying certain tax incentives, or by an "excluded entity" with adequate economic substance in Singapore.
    • Tighter rules apply to exceptions for gains from the disposal of intellectual property rights (IP rights).

    Pillar Two – Global Minimum Tax

    • Part of the OECD’s Two-Pillar solution (BEPS 2.0) aims to re-allocate profits and taxes from where economic activities are conducted to where the markets are and introduce a global minimum effective tax rate (ETR) of 15% for affected MNE groups.
    • Pillar Two comprises the Income Inclusion Rule (IIR), Qualified Domestic Minimum Top-up Tax (QDMTT), Undertaxed Payments Rule (UTPR), and Subject to Tax Rule (STTR).
    • Singapore will introduce its IIR and QDMTT with effect from businesses' financial years starting on or after 1 January 2025.
    • The IIR imposes a minimum tax of 15% on income of subsidiaries not in the ultimate parent entity’s (“UPE”) jurisdiction.
    • The QDMTT allows jurisdictions to collect top-up taxes on entities of an MNE group in its jurisdiction up to the minimum tax of 15%.
    • Top-up taxes collected under a QDMTT can be deducted against the top-up tax payable under the IIR.

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    Related Documents

    Key Tax Considerations on M&A and Corporate Restructuring (Section 10L & Pillar 2) PDF

    Description

    This quiz covers Section 10L of the Income Tax Act 1947, which pertains to the taxation of income from the sale or disposal of foreign assets by multinational enterprises in Singapore. Learn about the conditions under which these gains are chargeable to tax and the exemptions that apply. Test your knowledge on the key points and implications of this section.

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