Edmund Leow of Baker & McKenzie.Wong & Leow explains some of the main implications of recent moves towards governments sharing more tax information about wealthy individuals.
Date: Sept 2010
Tags: Tax, Secrecy, Disclosure, Transparency
When it comes to banking secrecy, the general rule in Singapore is that this will still hold, since the local rules have not yet been repealed or amended, said Edmund Leow in an interview.
So if a bank in Singapore receives a request for information from the tax authorities in Australia, Germany, the UK or France, for example, the response in general from the bank would be that they cannot hand over this information because they are bound by Singapore secrecy, he explained. And those overseas authorities don’t have jurisdiction in Singapore to gather the information through law enforcement channels.
Yet Leow said Singapore has entered into a number of protocols to its double-tax treaties, and many countries have entered into new protocols with Singapore so that it will share some information with them.
Getting information in practice
According to Leow, exchange of information can only be done under certain circumstances. So the Australian Taxation Office (ATO), for example, cannot write a letter to a bank in Singapore asking for full details of all accounts held by Australian customers. This would be considered phishing, he explained, which is not allowed in the normal exchange of information procedure under Article 26 of the OECD Model Tax Convention – which is the provision adopted in many of the protocols which Singapore has entered into.
Leow said that what would happen, for instance in the case of the ATO, is the following:
• The ATO would need to write to the Singapore tax authorities to say it is investigating a particular person who is an Australian resident and who it believes has an account with a certain bank, so the ATO wants to investigate that account
• The ATO has to provide the Singapore authorities with some information about the investigation and evidence to support the accusation of tax avoidance in Australia
• Then under legislation passed in 2009 in Singapore, the local tax authority would decide whether to disclose this information
• If it decides to do this, since the information is held by a bank, which is governed by Singapore’s bank secrecy laws, the tax authority would need to apply for a court order
• To determine whether to grant the order, the court will then judge whether the request meets the required conditions
• However, because foreign customers don’t pay taxes in Singapore, the authority needs to get the relevant information by serving the order on the bank
• The bank can either provide the information, or it might decide to challenge the order and go back to court to try to reverse it
Encouraging tax transparency
While Article 26 of the OECD Model Tax Convention – which most countries, including Singapore, have adopted – includes a provision which provides for information exchange on request, this is very different from automatic information exchange, which exists under the EU Savings Directive, said Leow.
That requires banks in the EU to automatically provide information on EU customers from other EU member states. Switzerland has also signed up to this Directive, he said, although it is imposing a withholding tax as an alternative to providing the information.
For the time being, Leow said the Directive doesn’t apply outside the EU, and so far there are no signs that Singapore will adopt it.
In addition, a number of governments around the world have introduced voluntary disclosure programmes by offering tax amnesties. These give those people who have been keeping money offshore a chance to bring money back onshore with reduced penalties. And the money is then considered “clean”.
As a result, banks with offshore businesses are developing strategies to protect this business. For example, said Leow, the bank is looking to set up operations in the domestic market, to ensure accounts can be transferred. The banks are also helping clients to do proper tax planning, he added, to enable people to keep money offshore but in a legal way, structured to try to minimise whatever taxes need to be paid.
