Singapore Tax Information Exchange Treaties?

Editor’s note: a lot of people have asked our opinion lately on Singapore as a private or offshore banking haven. Peter Macfarlane has written an excellent article for the next Q Wealth Report (issue 58) specifically covering Singapore’s bilateral tax information exchange protocols and double tax agreements, as they relate to banking privacy in Singapore. Below, we present a brief ‘teaser’. The full text of the article will be published in the forthcoming QWR. If you are not yet a subscriber, please consider joining today to receive the full article as soon as it is published. Click here for a detailed summary of membership benefits.

SINGAPORE AS A PRIVATE BANKING HAVEN: STEPS TOWARDS EXCHANGE OF TAX INFORMATION

By Peter Macfarlane

First there was the Black List. Then the grey list and the white list – and various shades in between. 2009-2010 saw a comical frenzy of new tax information exchange treaties as the offshore jurisdictions scrambled to become whiter than white by signing tax treaties with sparsely-inhabited islands somewhere up near where Santa lives. (For that story, please refer to my article in the last edition of Q Wealth Report, covering the Panama-US tax information exchange treaty)

The famous G-20 summit in London in April 2009, during which Sarkozy and Merkel railed against tax havens, certainly caused a stir and made inroads into banking secrecy laws worldwide. Attacks from the US on the Swiss Banks, first UBS and now – as I predicted two years ago – on Credit Suisse are putting banks under further pressure. Their solution? Go East!

We don’t hear so much about attacks on bank secrecy in Singapore. It’s still much lower profile than Switzerland for banking purposes. An increasing number of Q Wealth members are expressing an interest in opening private bank accounts in the city-state. In this article, I study the implications of the exchange of information treaties recently signed by Singapore.

Some background first. European – predominantly Swiss – banks are clearly interested in Singapore, opening a multitude of new branches there primarily as a hub to enter the increasingly lucrative business of managing money for Asia’s nouveaux riches. Traditional Swiss-style banking for Asian clients – dare I say it, secret numbered accounts and the like – is very big business today, and much easier for the banks than dealing with those pesky gringos and their extra-territorial laws! While some developing countries like Brazil and Argentina are showing disturbing signs of aggression against those who help their citizens avoid taxes, China, Taiwan and other regional powers have as yet shown little interest in their wealthy citizens’ financial activities beyond their borders.

Although Singapore does not benefit from a significant history of private banking like Switzerland, or even Panama, since its independence from the British in 1965, Singapore has made up for this simply by importing banks and bankers. It has become a major intercontinental trade hub, linking Europe, Asia and Australasia. With its business friendly policies, it is natural that it should have developed into a regional banking centre too.

Singapore today is the fourth largest foreign exchange centre in the world, after London, New York and Tokyo, and plays host to many businesses, multinational corporations, banks and financial investment companies. Singapore possesses the world’s ninth largest foreign exchange reserves, quite impressive for such a small country. The currency of Singapore is the Singapore dollar, represented by the ISO abbreviation SGD, and it’s been performing very well recently as a safe haven currency, similar to the Swiss Franc. Naturally, Singapore banks open accounts in both Singapore Dollars and Swiss francs, as well as all major currencies and even precious metals.

It is in this context that Singapore banks have been quietly gaining more of a foothold in far off markets like the US, UK and Canada. Whilst banks did not originally set up in Singapore to target these markets, they have been taking on substantial numbers of clients from there, including US citizens who are generally given the cold shoulder in Switzerland these days. And it is from here that Q Wealth members’ interest in Singapore has undoubtedly developed.

Private banking in Singapore is not for everybody. For a start, you normally have to go there to open an account. There is almost no way to get a bank account opened in Singapore without flying there in person, though there are a few exceptions in terms of banks that have other offices outside Singapore. I have now started working with a couple of these banks for my private consulting clients.

There are, however, substantial advantages too. Singapore does not tax bank deposits of non-residents. A pure offshore company like an LLC or IBC can easily open a bank account in Singapore, especially if it’s incorporated in one of the English speaking jurisdictions. English is the business language in Singapore, another reason why it’s attracting Americans and Brits. Our clients who deal with Singapore banks generally report extremely high levels of satisfaction with the service.

What about privacy and exchange of information? Singapore banking privacy is, unfortunately, being gradually whittled away. Singapore was initially placed on the grey list after the G-20 summit. The “Income Tax (Amendment) (Exchange of Information) Bill” was passed promptly afterwards and entered into force on 19th October, 2009, which authorizes release of information to foreign tax authorities in certain circumstances – more on that later.

Around that time, Singapore made the interesting announcement that instead of signing separate TIEAs (Tax Information Exchange Agreements) it was planning to amend its existing DTAs (double tax agreements) to include information exchange provisions. It’s important to understand the difference between these legal animals, and if you don’t I would urge you to go back to QWR 56 in the archives and read my article on this subject there. On 13th November 2009 – less than a month later – Singapore signed its twelfth protocol with a treaty partner and moved officially on to the white list.

The main change implemented in this law and the DTA protocols was that Singapore no longer limits exchange of information to cases where there is a domestic interest. This is actually a significant downgrading of banking secrecy.

Prior to these changes, Singapore’s position in its DTAs was that there would be no exchange of information where the information was not held for purposes of collection of Singapore’s domestic taxes. For example, Singapore does not tax bank accounts of non-residents and so Singapore tax authorities would not ordinarily hold any information on such bank accounts. Thus, Singapore would not have exchanged information.

The DTAs have now been updated and permit exchange of information where it is “foreseeably relevant” for the administration or enforcement of domestic laws concerning any kind of tax imposed by or on behalf of the contracting states. In other words, if the information is required by the other country for its domestic tax enforcement purposes, Singapore is now obliged to release the information. Although the Singapore tax authority would not typically have the information, they are obliged to seek it out on behalf of the treaty partner.

What if this information is held by a bank? Is it not protected then by Singapore’s banking confidentiality laws? Unfortunately not. International treaties always take precedence over domestic law, and the treaties provide that “in no case shall a contracting state decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or fiduciary capacity…”

There is, however, a bright side…

To read the rest of the article, and future articles we have planned covering Singapore residency, Singapore second citizenship (passports), Singapore companies and investor immigration services, please watch upcoming issues of The Q Wealth Report.