Share with your friends

Singapore: Effects of BEPS multilateral instrument (MLI) on tax treaties

Singapore: Effects of BEPS MLI on tax treaties

Singapore in late December 2018 deposited with the OECD its instrument of ratification of the multilateral instrument (MLI) addressing base erosion and profit shifting (BEPS) by allowing jurisdictions to amend their tax treaties to include tax treaty-related BEPS recommendations.


Related content

The MLI will enter into force on 1 April 2019 for Singapore’s network of income tax treaties.

At the time of ratification of the MLI, Singapore intended for the MLI to apply to 86 existing income tax treaties (“covered tax agreements”). For these purposes, a covered tax agreement between Singapore and the other treaty partner jurisdiction will be amended by the MLI if both jurisdictions share the same position on the MLI provisions and both have deposited their instruments of ratification with the OECD.

Singapore is adopting certain key provisions under the MLI, such as:

  • In a treaty’s preamble, a statement of intent that the income tax treaty is to eliminate double taxation without creating opportunities for non-taxation of reduced taxation through tax evasion or avoidance
  • A mechanism to allow Singapore resident taxpayers to seek assistance from the tax authority under the “mutual agreement procedure”
  • In the treaty article on “preventing treaty abuse,” a general anti-abuse rule (commonly referred to as the “principal purpose test”)

The Inland Revenue Authority of Singapore has clarified that the “principal purpose test” will not affect businesses with bona fide commercial transactions or operations. Further, the tax authority has stated that it will seek to address abusive arrangements when the purpose is to secure a benefit under the income tax treaty in a manner that is contrary to the objective and purpose of the income tax treaty.

Singapore has not adopted mechanisms provided by the MLI to address artificial avoidance of a permanent establishment and hybrid mismatches.

KPMG observation

Singapore has been the preferred holding jurisdiction for investments into the Asia Pacific region for numerous reasons—including its business-friendly environment and stable political conditions. Because the principal purpose test is inherently a subjective test, it may create uncertainty with regard to the effectiveness and viability of certain holding structures. With the entry into force of the MLI, multinational businesses may need to reassess the substance of their cross-border structures and take certain steps, if needed.


Read a February 2019 report [PDF 509 KB] prepared by the KPMG member firm in Singapore

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Want to do business with KPMG?


loading image Request for proposal