CHIPMAKER MOVES SOME OPERATIONS OUT OF SINGAPORE

By Chia Yan Min, Straits Times

A large American chipmaker has moved some operations out of Singapore to Ireland, which is likely to weigh on the already troubled electronics sector here.

Broadcom, a Fortune 500 company based in California and listed on Nasdaq, said in its latest annual report that after March 31 this year, it would “utilise (its) Irish trading company for certain foreign operations”.

The move coincided with the termination of tax incentives that it enjoyed in Singapore, which it said ended in March.

The incentives reduced its Singapore taxes by US$423 million (S$528 million) last year and by US$399 million in 2012.

The sums are considerable as the net earnings of Broadcom, the world’s second-largest fabless semiconductor firm, came to US$424 million last year and US$719 million in 2012.

Fabless semiconductor firms design and sell their products while outsourcing the fabrication to other companies.

Broadcom said the move to Ireland “would result in a similar foreign tax provision as our current Singapore tax incentive”.

In response to queries, its spokesman declined to elaborate on the exact nature of the operational shift to Ireland.

The company was due to meet the Economic Development Board (EDB) last month, as part of “a continuation of ongoing discussions about our commitment to Singapore”, the spokesman told The Straits Times.

The relocation is not expected to have “a material effect on operating results and tax expenses, or on customers or suppliers”, the spokesman added.

The move could be one reason Singapore’s electronics sector registered a sharp fall in semiconductor output in April this year – EDB attributed it to a one-off event but did not elaborate.

The semiconductor segment shrank 11 per cent in April from levels a year ago, which weighed on growth in the manufacturing sector.

Manufacturing grew just 1.5 per cent in the second quarter from levels a year earlier – in stark contrast to the 9.9 per cent growth seen in the first quarter.

The broader economy suffered as a result, expanding only 2.4 per cent from last year’s levels – well below the 4.8 per cent posted in the first three months.

Broadcom employs almost 300 staff here in research and development and for operations at its Asia-Pacific headquarters, according to the EDB website.

The company has an international distribution centre here, which includes engineering design and administrative facilities.

It ships most of its products through logistical facilities in Singapore. Products shipped to international destinations, mainly in Asia, made up 96.4 per cent of its product revenue last year.

Tax experts told The Straits Times they had not observed a trend of multinationals moving operations out of Singapore when tax incentives expired.

Mr Paul Lau, a tax partner at PwC Singapore, said tax concessions are typically attached to significant economic commitments over five or more years.

“The decision to pull out of a country and reverse these commitments, as well as to reconstitute supply chains, would and should involve serious considerations beyond tax,” he added.

Tax breaks can be an important consideration for multinational companies in choosing where to site their operations, but are only one of the many factors that companies take into account, tax experts said.

Others include proximity to markets, political stability, business costs, and access to talent, resources and capital, said Mr Lee Tiong Heng, a tax partner at Deloitte Singapore.

Tax breaks are often “the icing on the cake”, he added.