What the strengthened capacity of tax authorities means for taxpayers

Taxpayers need to relook at their information and record maintenance with the IRAS’ strengthened capacity to access and share information.  

Background

Since Singapore first adopted the International Standard for Exchange of Information (EoI) on request in 2009, many changes have been made to Singapore’s legislative and administrative frameworks to support the Inland Revenue Authority of Singapore (IRAS)’ co-operation and information sharing with other tax authorities. This reflects Singapore’s commitment to uphold international tax transparency standards and partnership with other tax authorities in combating cross border tax evasion and avoidance.

The Income Tax (Amendment) Act 2020, which was gazetted on 7 December 2020, has implemented a new exception to the official secrecy requirement in the Income Tax Act (ITA). The IRAS is now able to disclose information to an authorised officer of the government of another country for a prescribed purpose if certain conditions are met. At around the same time, the IRAS also announced its participation in the International Compliance Assurance Programme (ICAP) from 2021. The ICAP is a voluntary risk assessment and assurance programme to facilitate co-operative multilateral engagements between multinational enterprises and tax administrations.

While the disclosure of information in cases such as the ICAP is permitted only with the express written consent of the taxpayer, this nonetheless represents another step taken by the IRAS to broaden the facility to exchange tax information between tax authorities. Such amendment has come at the back of other legislative changes and steps taken by Singapore over the years to broaden co-operation and information sharing with other tax authorities. Aside from implementing the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS), Singapore has implemented Country-by-Country Reporting (CbCR) as part of its obligation as member of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS). Singapore has also implemented necessary legislative frameworks for facilitating various forms of EoI, including spontaneous and automatic EoI.

Singapore’s EoI on request regime has twice been rated by the Organisation of Economic Co-operation and Development (OECD)’s Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) as compliant with international tax transparency standards. This rating is a testament to the integrity of Singapore’s regime for EoI on request.

Implications

These developments are critical for maintaining Singapore’s position as an international place of doing business – one that plays by international rules.  Abiding by international standards also provides consistency and coherence, contributing to a stable business environment valued by international businesses.

For Singapore taxpayers, the greater sharing of information by the IRAS with other tax authorities, and the other way around, means that they should expect to face greater scrutiny by tax authorities both locally and internationally. Singapore taxpayers therefore must step up their vigilance and efforts in maintaining robust documentation and records that explain their business models, transactions and tax positions. 

In the last few years, many Singapore taxpayers have encountered requests for information made by the IRAS arising from EoI requests from overseas tax authorities. In general, the IRAS has to be satisfied that certain criteria and conditions  are met before it will agree to collate and exchange the information requested by the requesting tax authority (E.g.,  the request is not a “fishing expedition” and the information is foreseeably relevant for carrying out the administration or enforcement of the domestic laws concerning taxes of every kind imposed by a treaty partner).

If a Singapore taxpayer is concerned that the information requested by the IRAS is of sensitive and confidential nature e.g., trade or business secrets, it may discuss the concern with the IRAS. The IRAS will determine if the Singapore taxpayer’s concern is reasonable and act accordingly.  However, a Singapore taxpayer may not have the opportunity to raise concern in cases where the information requested by the overseas tax authority is readily available within the IRAS and the IRAS assesses that the above pre-requisites for sharing the information are met. This is because the IRAS does not have to inform the Singapore taxpayer that such information is shared with foreign tax authorities for EoI on request cases. 

Record keeping for Singapore taxpayers can no longer be seen as “business as usual”. Tax authorities have many more tools at their disposal for accessing and sharing information. Therefore, taxpayers should proactively prepare to deal with requests for exchange of information, additional reporting requirements, a rising need for reconciliation of information and data, and more tax audits.

EoI can also potentially pave the way for cross-border tax compliance activities or initiatives including joint audits. The implications for taxpayers engaged in cross-border transactions from a tax controversy perspective can be more far-reaching than expected.  Consistency and coherence of the information will be critical since such information will be readily shared across borders.

In summary, taxpayers should embrace the new normal by ensuring that robust and coherent information and records are maintained and presented appropriately, and that they are also readily available to explain and defend their business models, transactions and tax positions. The following three steps would be helpful:

• Examine the current level of tax documentation including agreements, internal correspondences, transfer pricing documentation and other materials to evaluate if these are consistent with actual facts and circumstances and are symmetrically applied to the various jurisdictions which are impacted.
• Examine the tax audit readiness in relation to such internal documentation.
• Where gaps have been identified, strive to develop a roadmap on closing these gaps. Depending on what these gaps are, taxpayers should cast a wider net to find solutions for the broader issues – ranging from updating of documents through to more comprehensive technology solutions to facilitate data extraction.

This can go a long way in terms of managing and mitigating the tax risks faced by taxpayers as tax authorities gain strengthened capacity to access and share information. 

The co-authors of this article are former EY partner Chai Sui Fun and Vivienne Ong, Director, International Tax and Transaction Services from EY Corporate Advisors Pte. Ltd.