The Global Anti-Base Erosion (GloBE) rules is an initiative of the OECD and G20, whose purpose is to impose a Global Minimum Tax (GMT) of 15% or more on the profits of Multinational Enterprises (MNE) to prevent them from shifting profits to low tax jurisdictions and deprive countries of their rightful tax revenues.
CGS International (CGS), in a note today, explores the impact of GloBE on companies like MISC and Yinson that currently enjoy tax exemption on their shipping and FPSO operations in Malaysia and Singapore.
Petronas Chemicals Group (PCG), meanwhile, is enjoying just 3% tax on the profits of its Labuan sales entity, which has depressed its effective tax rate (ETR) to below the GMT of 15% for most years.
With Malaysia and Singapore embracing the GloBE rules and committed to collecting GMT of 15% from 1 Jan 2025F, this report assesses how they affect PCG, MISC, and Yinson.
PCG and MISC protected by the Petronas tax umbrella in Malaysia
Tax legislation in most national jurisdictions imposes taxes on individual legal entities, and do not permit aggregation across different legal entities.
However, the GloBE rules are unique in the sense that all companies of an MNE that are based in the same jurisdiction are assessed for compliance with GMT of 15% on an aggregate basis.
This saves PCG from any additional taxes when GloBE takes effect in Malaysia from 2025F because PCG in Malaysia is part of the Petronas MNE, which likely already incurs an ETR of above 15% in Malaysia because its exploration and production subsidiary Petronas Carigali is liable for petroleum income tax of 38%.
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.
However, MISC's FPSO Mero3 is owned by a Singapore entity and will be subjected to a GMT of 15% in 2025F and beyond; without this, CGS's FY25F EPS forecast and target price for MISC would have been about 2% higher.
Meanwhile, Yinson may be subjected to a GMT of 15% 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% or higher; this may save Yinson from additional tax exposure come 2025F.
Only the FPSO Abigail-Joseph is exposed to GMT, in CGS's view, but the negative impact may amount to less than 1% against their 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.
Multiple catalysts for the O&G sector
Sector rerating catalyst include the commissioning of new FPSOs, higher daily charter rates for rigs and service vessels, and new tank terminal demand in the midst of high oil prices.
Sector downside risks include offshore capex cutbacks by Saudi Arabia and potentially by Petronas in Malaysia as they reevaluate their oil production and spending targets.