Introduction

On 18 July 2013, the Ministry of Finance (“MOF”) had issued a consultation paper on proposed legislative amendments to be made to the Income Tax Act (“Act”) in order to give effect to a revised Exchange of Information (“EOI”) framework intended to enhance cross-border cooperation in tax cases. Please click here to view Drew & Napier LLC’s update on this.

MOF has now responded to public feedback on the consultation paper and this update discusses MOF’s responses.

KEY RESPONSES TO THE PUBLIC CONSULTATION

Foreign Account Tax Compliance Act

Earlier on, MOF had announced that Singapore would be concluding with the United States, an Inter-Governmental Agreement (“IGA”) that will facilitate financial institutions in Singapore in complying with the United States’ Foreign Account Tax Compliance Act (“FATCA”).

The draft Income Tax (Amendment) Bill, which was annexed to the consultation paper, had contained a proposed new section 105K that was worded to enable the Minister to make an order to implement the IGA. The IGA itself was described in section 105K as an agreement between Singapore and the United States to implement FATCA.

Following public feedback, MOF will be revising  the wording of section 105K so that the IGA will  not be described as an agreement to implement a law of the United States (since it is not for Singapore as a sovereign state to implement the laws of another state). Instead, the IGA will be described as an agreement to facilitate compliance by financial institutions in Singapore with FATCA.

Allowing IRAS to obtain bank and trust information from financial institutions without having to seek a Court Order

In the public consultation, MOF had also proposed that the Act be amended to allow the Inland Revenue Authority of Singapore (“IRAS”) to obtain for the purposes of EOI, information otherwise protected by secrecy requirements, without having to apply for a Court Order.

It seems there were substantial concerns on this and feedback was given to MOF, that for IRAS to directly obtain information without first applying for a Court Order might undermine the robustness of Singapore’s EOI regime.

However, MOF has rejected this feedback. In its response, MOF reiterated that doing away with the Court Order process was part of the process of streamlining Singapore’s EOI regime in accordance with the internationally agreed standard for EOI developed by the Organisation for Economic Cooperation and Development (“OECD”).

MOF emphasised that there would be no change to the safeguards currently imposed on EOI requests by Singapore from foreign jurisdictions. This would include ensuring that EOI requests are clear, legitimate and foreseeably relevant to the enforcement of the requesting jurisdiction’s tax laws.

Given that IRAS already had substantial experience in handling EOI requests, MOF felt that IRAS is sufficiently well positioned to assess whether these requests are made in accordance with the OECD standard for EOI.

Taxpayer’s right of appeal on EOI matters

MOF also received feedback that the Act should provide an express right for taxpayers to appeal against any decision by IRAS on EOI matters.

This feedback has also been rejected.   In its response, MOF felt that providing for a right of appeal was unnecessary, given that, as with other tax matters, taxpayers were already able to make representations to IRAS regarding its request for information to fulfil an EOI request.

MOF also pointed out that judicial review of the decision of IRAS in relation to EOI requests would still be available.

COMMENTARY

Just as the feedback against the abolition of the Court Order procedure, and the feedback to provide for a right of appeal is not unexpected, so the decision by MOF to reject both of them should not really come as a surprise.

While one might continue to question the true motivations of the OECD in developing its new streamlined model for EOI and seeking to impose this new standard on the rest of the world, for Singapore this is now water under the bridge. Having already committed to abide by the OECD standards, if Singapore is to continue to retain credibility in international legal circles, there can be no doubt that our EOI regime must be amended to bring it fully in line with the OECD standard.

Those who are concerned with the potential loss of privacy may understandably be concerned that the courts no longer have a role to independently moderate the EOI process.

However, even if Singapore had bucked the trend and retained the Court Order process, it is not entirely clear that this would really give truly meaningful assurance.

Whether or not to accede to an EOI request is ultimately an administrative decision which only IRAS can make. Just as a court in judicial review proceedings will not substitute its decision for the executive’s, it is hard to imagine that a court that is called upon to endorse an IRAS decision to cooperate with its foreign tax counterparty will approach the matter differently.

At the end of the day, one may be left with no practical alternative but to trust in the good judgment and good sense, of our tax officials to distinguish between legitimate EOI requests and questionable ones.

REFERENCES

Please click on the following links to access the documents.

  1. Draft Income Tax (Amendment) Bill
  2. Ministry of Finance’s press release dated 13 September 2013
  3. Ministry of Finance’s response to feedback on its consultation paper on the draft Income Tax (Amendment) Bill