Singapore within touching distance of OECD white list

Singapore within touching distance of OECD white list

SINGAPORE, Sept 28 — Singapore has now signed nine of the 12 tax treaties that it needs to get off the “grey list” of the Organisation for Economic Cooperation and Development (OECD) and onto the white. These treaties are compliant with the internationally-agreed tax standard on exchange of information (EOI).

The speed with which governments worldwide have moved to pass required legislation and sign treaties speaks of the reputational implications that being left on the grey list could have. Already, areas traditionally thought of as tax havens for low or zero tax rate regimes, such as the British Virgin Islands and Cayman Islands, have made the white list.

Though not seen as a traditional tax haven, Singapore is still listed as a “financial centre” on the grey list of jurisdictions which have committed to the standard but have yet to substantially implement it. Switzerland, which was also on the list, has already signed 12 tax treaties and says that it has been taken off the OECD list. Singapore hopes to take the same path.

“Being taken off the grey list will undoubtedly help to enhance Singapore’s image as an open and conducive economic environment. It will also remove any stigma that might attach to Singapore being regarded as an outlier in the international economic community,” said PricewaterhouseCoopers tax partner David Sandison.

Indeed, these changes are needed to “retain Singapore’s strong credibility as a commercial and wealth management centre underpinned by high standards of financial regulation and strict supervision”, said Owi Kek Hean, head of tax services at KPMG in Singapore.

Singapore has the advantage of a wide network of double taxation treaties (DTAs) with 60 countries, of which 14 have agreed to, and nine have signed protocols amending treaties in line with the OECD tax standard.

The necessary legislative changes for the signed amendments to take effect are expected to be passed before the end of this year, so that the signed amendments can take effect.

Wealthy individuals who are hiding behind foreign banking secrecy laws to evade their home countries’ taxation laws are expected to feel the impact of these changes hardest.

Sandison said: “There may be some concerns that this commitment to openness will discourage certain people from using the local banking system.”

“However, stringent measures have been put in place in the draft legislation to ensure that foreign authorities cannot come here on a fishing expedition, and that only serious and well-founded cases will be entertained,” he added.

These include the requirement of a High Court order for information to be passed on an exchange request.

Countries, such as the US and the UK, which tax residents on worldwide income, would have interest in obtaining such information, though not the Singapore tax authorities, as the interest income of Singapore residents with bank accounts abroad is tax exempt anyway.

Under existing DTAs, there are already information exchange agreements, but the new laws widen the scope for EOI cooperation by lifting two previous barriers — that Singapore should have domestic interest in the information request, and banking confidentiality, as long as requests are clear, specific and relevant.

As for business interests, multinational corporations will likely be affected only as far as perceptions of the general public are. “If a jurisdiction bears the stigma of being a tax haven, then naturally major corporations are more reluctant to do business there,” said Steve Towers, tax partner at Deloitte & Touche.

More action on the part of corporates might arise from the fact that some countries, such as France, now seem to be considering sanctions against companies with operations in tax havens. “So Singapore companies going abroad may want to review their global holding structures to eliminate intermediaries in tax havens,” said Andy Baik, international tax services partner, Ernst and Young.

Towers thinks that there will be an “irreversible flight to quality among MNCs worldwide”. Tax considerations will affect MNCs’ supply chain planning, and many “will likely move to jurisdictions with useful tax attributes, where they can build up substantial operations with senior decision makers stationed there as well”.

“This is good news for locations such as Singapore and Hong Kong, which are still attractive tax-wise and have the economic substance,” he said.

Missing from Singapore’s many DTAs is one with the US. And Singapore still remains on US’s list of offshore secrecy jurisdictions. The pressure to clinch a tax agreement with the US is mounting, with the recent demands of information from Switzerland on the UBS bank accounts.

In this respect, moving to OECD’s white list could “send a clear message to the US that Singapore is serious in its desire to open its banking system to genuine request for tax information,” Sandison observed.

He added: “It was primarily a reticence to disturb Singapore’s stringent banking rules that have prevented any earlier progress towards a treaty with the US. The way is now clear.” — Business Times Singapore, Malaysian Insider

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