US companies to issue bonds via Singapore to benefit from tax system
A possible tax advantage is motivating US companies like PepsiCo Inc. and International Business Machines Corp. to issue bonds via their Singapore-based subsidiaries, contributing to a historic increase in bond sales from entities based in the city-state, Bloomberg reported on Tuesday.
PepsiCo Singapore Financing recently issued $1.75 billion in bonds earlier this month, while IBM International Capital sold $5.5 billion worth of securities in late January. Both companies declined a comment request.
This approach enables companies to deduct interest expenses from their taxable income in both the US and Singapore. This dual deduction results in significantly lower effective borrowing costs—after taxes—compared to issuing bonds in the US alone.
Notably, qualifying for the benefit involves intricate mechanisms, and a regulation stemming from the Organisation for Economic Co-operation and Development in December might potentially prevent firms from utilising this system. Nonetheless, companies might still have the opportunity to leverage it for at least the next three years.
Moreover, with each bond sale, companies are driving the volume of debt sales from Singapore to new heights.
In the past year, corporate entities sold $51.5 billion worth of notes from the city-state, surpassing the previous year’s figure twofold and setting a record. The bulk of this surge stemmed from Pfizer Inc.’s issuance of $31 billion in bonds, marking one of the largest corporate bond offerings to date. This sale occurred in May 2023 through a Singaporean unit, aimed at financing an acquisition.
New global tax rates are being formulated by the OECD to enforce minimum corporate tax rates worldwide. In Singapore, domestic tax laws permit companies, including local subsidiaries of foreign corporations, to deduct interest payments on debt from their taxable income within the country. Concurrently, provisions within the US tax code may enable companies to deduct interest expenses incurred by a foreign branch from their taxable income in the United States.
