KUALA LUMPUR: CGS International expects limited impact from Malaysia and Singapore's adoption of the 15 per cent global minimum tax rule come January 2025 on oil and gas (O&G) multinational enterprises (MNE) here.
The firm has an overweight recommendation on the O&G sector (MISC Bhd included), with add calls on MISC, Dialog Group Bhd, Yinson Holdings Bhd, Bumi Armada Bhd, Dayang Enterprise Bhd, Velesto Energy Bhd and Wasco Bhd.
The report dated July 9 looked at the impact of the 15 per cent GMT on MISC, Yinson and Petronas Chemicals Group (PCG).
MISC and Yinson currently enjoy tax exemption on their shipping and floating, production, storage and offshore (FPSO) operations in Malaysia and Singapore. Meanwhile PCG, is enjoying just 3 per cent tax on the profits of its Labuan sales entity, which has depressed its effective tax rate (ETR) to below the GMT of 15 per cent for most years.
The Global Anti-Base Erosion (GloBE) rules which imposes the 15 per cent GMT effective from Jan 1, 2025, is an initiative by the Organization for Economic Cooperation and Development (OECD) together with the Group of 20 (G20) countries to tackle the issue of base erosion and profit shifting (BEPS), which describes how MNE shift profits from jurisdictions where the profits are earned to low/zero-tax jurisdictions, causing countries to be deprived of their rightful tax revenues.
MNEs are defined as companies that operate in more than one national jurisdiction; companies that operate in one single national jurisdiction are not in scope of the GloBE rules.
The GloBE rules applies on MNEs with an annual global turnover exceeding €750m (in two of the past four fiscal years), and requires the MNE groups to pay at least 15 per cent GMT on the income in each jurisdiction where they operate.
Malaysia, Singapore, Thailand, Indonesia, Hong Kong, among others, have announced that they will implement the GMT from Jan 1, 2025.
Certain countries, including India, China, the US, Brazil, the Philippines, among others, have not committed to implementing the GloBE rules.
GLoBE rules state that all companies of a MNE that are based in the same jurisdiction are assessed for compliance on an aggregate basis.
This saves PCG from any additional taxes when GloBE takes effect in Malaysia from 2025 because PCG in Malaysia is part of the Petrolian Nasional Bhd (Petronas) MNE, which likely already incurs an ETR of above 15 per cent in Malaysia because its exploration and production subsidiary Petronas Carigali is liable for petroleum income tax of 38 per cent.
As MISC is also part of the Petronas MNE, it is similarly shielded from additional taxes on its Malaysian FPSO business, while its shipping operations are specifically exempted from the GloBE rules.
CGS International said however, MISC's FPSO Mero3 is owned by a Singapore entity and will be subjected to a GMT of 15 per cent in 2025 and beyond.
It said without this, its FY25 forecast earnings per share forecast and target price for MISC would have been about 2 per cent higher.
CGS International said Yinson may be subjected to a GMT of 15 per cent on its FPSO income booked in Malaysia and Singapore, but since Yinson incurs losses on its Green Technologies (GT) ventures in both countries, the jurisdictional ETR may be c.15 per cent or higher and may save Yinson from additional tax exposure come 2025.
"Only the FPSO Abigail-Joseph is exposed to GMT, in our view, but the negative impact may amount to less than 1 per cent against our FY27F core EPS forecast. However, Yinson may have to pay more taxes on its FPSO incomes if the GT ventures turn profitable in the future," CGS International said.