Pepsi, IBM sell bonds through Singapore to reap potential tax benefit

The tactic can allow companies to deduct interest expense from their taxable income in both the United States and Singapore. — Bloomberg

SINGAPORE: A potential tax benefit is spurring US companies, including PepsiCo Inc and International Business Machines Corp, to sell bonds through their Singapore subsidiaries, fuelling a record surge of sales from borrowers in the city-state.

The tactic can allow companies to deduct interest expense from their taxable income in both the United States and Singapore.

That double deduction means that effective borrowing costs, after taxes, can be materially lower than they would be with a bond issued in the United States.

The mechanics of qualifying for the benefit are complicated and a rule that emerged from the Organisation for Economic Cooperation and Development (OECD) in December may wind up stopping firms from using the technique.

But companies may be able to take advantage of it for at least the next three years.

As companies sell bonds, they are pushing debt sales volume from Singapore ever higher.

Last year, corporates sold US$51.5bil of notes from the city-state, more than double the previous year and an all-time record.

That mainly came from Pfizer Inc’s sale of US$31bil of bonds, one of the biggest corporate bond offerings on record, in May 2023 through a Singapore unit to help finance an acquisition.

The sales have continued this year. PepsiCo Singapore Financing sold US$1.75bil of bonds earlier this month and IBM International Capital sold US$5.5bil of securities in late January.

A spokesperson for IBM declined to comment. PepsiCo and Pfizer did not respond to requests for comment. New global tax rates are taking shape through the OECD to ensure minimum tax corporate rates are levied globally. — Bloomberg