Tax Update April 2013

Tax Update: June 2013 (Issue 2)

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Currently, Singapore may provide assistance to foreign jurisdictions under its Avoidance of Double Taxation Agreements (DTAs) which incorporate the internationally agreed Organisation for Economic

Co-operation and Development (OECD) Standard for the effective Exchange of Information (EOI) through DTAs (EOI Standard)1.

To-date, Singapore has incorporated the EOI Standard in 40 of its DTAs and signed one Tax Information Exchange Agreement only with Bermuda.

Since the adoption of the EOI Standard in March 20092, Singapore continues to take progressive steps to enhance its EOI framework. Besides introducing measures to ensure that Singapore’s financial system is not used to harbour illegitimate funds or as a conduit for the flow of undeclared assets, Singapore will with effect from 1 July 2013, criminalise the laundering of proceeds from serious tax offences. Four key steps were announced in May 2013 to further strengthen its current EOI framework:

Extend EOI assistance to all of Singapore’s existing DTA partners

This new measure will extend the EOI Standard to all existing DTA partners, subject to reciprocity, without the need to amend and update individual DTAs to incorporate the EOI Standard, which is the current approach.

Sign the Convention on Mutual Administrative Assistance in Tax Matters

On 29 May 2013, Singapore signed the Convention3 which is promoted as an international agreement for bilateral tax cooperation among the Convention’s signatories. This will expand Singapore’s network of EOI partners by 13 new jurisdictions (including Brazil and the United States).

Allow the Inland Revenue Authority of Singapore (IRAS) to obtain bank and trust information from financial institutions without the need for a Court Order

This move is meant to further streamline the administration of EOI under the EOI Standard and allow the IRAS to respond to an EOI request for bank and trust information without having to seek a Court Order.  The IRAS has indicated that it will not undermine the basic safeguards to taxpayers and will continue to assess whether the requests are in line with the EOI Standard before acceding to them. Taxpayers will still have the right of appeal against the IRAS’ decisions.

Conclude a Foreign Account Tax Compliance Act (FATCA) Inter-Governmental Agreement (IGA) with the US

By entering into a Model 1 IGA with the US, it will facilitate financial institutions in Singapore in their compliance with the FATCA4 without the need for financial institutions to enter into agreements with the US Internal Revenue Service (IRS) individually.

The Model 1 IGA establishes a framework of reporting account information of US persons by financial institutions outside of US to the relevant domestic authority which in turn provides the information to the US IRS.

The necessary amendments to the Singapore Income Tax Act to effect the above changes are expected to be made before the end of this year.

Comments

These are significant measures and it demonstrates Singapore’s resolve to work with its international partners to combat cross-border tax offences as well as to meet international standards. With Singapore being a leading financial centre, these changes are considered necessary to safeguard Singapore’s reputation as a clean and efficient financial centre with the highest standards of financial integrity.

1 Essentially, the EOI Standard enhances the scope of information exchange with DTA partners by lifting the domestic interest condition and allowing for access of information from banks and trust companies under certain conditions as well as allowing exchange of information for other taxes in addition to income tax.

2 Please refer to Ernst & Young’s Q3/2009 Tax news – Singapore and beyond for details of the EOI endorsed by Singapore in 2009 and discussed under ”Public consultation on draft Income Tax (Amendment) (Exchange of Information) Bill”.

3 The Convention is a multilateral agreement originally drawn up by the OECD and the Council of Europe to enable each Party to the Convention to combat international tax evasion and better enforce its national tax laws, whilst respecting the rights of taxpayers. The scope of the Convention covers a wide range of taxes and goes beyond exchange of information on request. It provides for other forms of assistance such as spontaneous exchanges of information, simultaneous examinations, performance of tax examinations abroad, service of documents, assistance in recovery of tax claims and measures of conservancy.

4 FATCA is a US law which aims at US tax non-compliance by US persons through use of offshore accounts. FATCA requires foreign financial institutions to pass information about financial accounts held by US persons to the US IRS.