US tax cuts unnerve Asian economies

February 12, 2018 at 18:00

US tax cuts unnerve Asian economies

Broadcom quits Singapore as region frets over competitiveness

Takashi Nakano, Nikkei staff writer | December 22, 2017 11:25 pm JST

Broadcom has decided to relocate its legal base from Singapore to the U.S. © Reuters


SINGAPORE — The U.S. move to slash business taxes means Asian economies, which have been promoting themselves on the back of their low tax rates, must review their strategies.

The forthcoming tax reduction is already having an impact, after major American semiconductor company Broadcom earlier decided to relocate its legal base from Singapore to the U.S.

To prevent more American companies from returning to the U.S., moves to expand companies’ benefits from their investments in Asia may accelerate in the region.

“Today, we are announcing that we are making America home again,” Broadcom CEO Hock Tan said at the White House on Nov. 2, when Republican lawmakers were stepping up negotiations over President Donald Trump’s tax cut proposal.

Broadcom CEO Hock Tan announces the repatriation of his company headquarters to the United States from Singapore as U.S. President Donald Trump looks on during a ceremony in the Oval Office of the White House on Nov. 2. © Getty Images

“The proposed tax reform package will level the global playing field and allow us to compete effectively in worldwide markets. Our move to domicile into the U.S. will bring in $20 billion of annual revenues into this country,” Tan said, while Trump listened with a huge smile.

The tax reform legislation, endorsed by the U.S. Congress on Wednesday, includes a cut in the federal corporate tax rate to 21% from 35%. Singapore, where Broadcom has its registered head office, has a corporate tax rate of 17%, so the difference between the two countries will narrow sharply, even when local U.S. taxes are included.

Singapore and Hong Kong have hosted global companies’ core operational outlets and attracted investment on the back of low tax rates. Despite its per capita gross domestic product of more than $50,000, Singapore has not joined the Organization for Economic Cooperation and Development, possibly in part because it wants to retain a high degree of freedom concerning taxes.

For economies with small populations and limited land such as Singapore and Hong Kong, the use of their tax systems to attract capital and people from abroad has been indispensable for growth.

U.S. and other foreign companies have benefited by concentrating their regional headquarters and core operational outlets in countries and regions where tax burdens are low.

But the tax cuts in the U.S., the world’s biggest economy, will weaken the competitive edge of countries and regions with low tax rates and change the landscape of competition.

Singapore Technologies Engineering, a leading defense equipment company in the island-city state, welcomed the U.S reforms, saying the cuts would benefit the company as its U.S. subsidiaries contributed a significant share, some 23%, of total group revenue. “We welcome the U.S. tax overhaul and will continue to evaluate investment opportunities that fit our business strategy,” Lina Poa, head of corporate communications and investor relations, said.

Although few companies have followed Broadcom’s decision to relocate its head office to the U.S., the tax changes will encourage Asian companies planning to make new investments or expand operations in the U.S. More companies may choose the U.S. as an investment destination.

How to respond?

How will Asian economies respond to the biggest U.S. tax overhaul in about 30 years, and try to prevent declines in revenues from investment and taxation?

Malaysia and Indonesia, which have tax rates higher than 21%, “will be forced to take countermeasures in the future,” said Junichi Fujii, senior director at PricewaterhouseCoopers Taxation Services.

Asian economies have also provided tax breaks and other incentives on top of low tax rates to attract foreign businesses.

“Corporate tax rates are low in Asia, so instead of direct cuts, countries may offer non-tax incentives which could make tax regimes opaque and distortionary,” said Taimur Baig, chief economist at DBS Group Research, part of Singapore’s DBS Group Holdings.

Praveen Randhawa, director of the Economic Development Board of Singapore, which has been playing the leading role in luring foreign businesses to the city state, said: “It is too early to determine the impact of U.S. tax reforms on the actions of companies, worldwide and in Singapore.”

Environments friendly to business activities cannot be created through the tax system alone. Regulations, infrastructure, availability of human resources and other factors combine to determine the competitiveness of countries.

But undeniably, the time has come for Asian economies to take a fresh look at the sources of their competitiveness.



  All rights to the stock images are owned by Getty Images and its image partners and are protected by United States copyright laws, international treaty provisions and other applicable laws.
Getty Images and its image partners retain all rights and are available for purchase by visiting gettyimages website.

Arangkada Philippines: A Business Perspective — Move Twice As Fast | Joint Foreign Chambers of the Philippines