Singapore crackdown
With increasing regulation internationally, and a widespread clampdown on tax cheats, Singapore has taken steps to further secure its position on the financial stage, says Marcus Hinkley
Singapore is a rising star in the private wealth world and a key financial centre in Asia. The island's legal, regulatory and tax regimes are engineered towards attracting investment. As a result, a significant number of international funds, both personal and institutional, are now held in Singapore.
Elsewhere, many governments are clamping down on apparent tax dodgers, using a multitude of tactics to recoup supposed lost funds and keep tighter control in the future. Financial centres the world over are being forced to make a decision: either help in the fight against tax evasion or risk being blacklisted and falling out with some of the world's largest economies.
Singapore is opting to join the fight and is implementing a number of measures to help ensure the wealth it attracts is not tainted by unpaid taxes. This year alone, Singapore has announced that it will strengthen its framework for international tax cooperation and has criminalised certain tax evasion activities.
Expanding network
In a joint press release on 14 May 2013, the Ministry of Finance (MOF), Monetary Authority of Singapore (MAS) and Inland Revenue Authority of Singapore (IRAS) announced that, following a review of the current exchange of information (EOI) framework, four key steps would be taken to further strengthen this framework. Singapore's EOI practice is in line with the standard for EOI for tax purposes (the Standard), as confirmed by the Global Forum on Transparency and Exchange of Information for Tax Purposes.
The four steps to be taken are:
- Extending EOI assistance in accordance with the Standard to all of Singapore's existing tax agreement partners, without having to update individually the bilateral tax agreements with them (subject to reciprocity).
- Becoming a signatory to the Convention on Mutual Administrative Assistance in Tax Matters (signed on 29 May 2013). The combined effect of this and step 1 is to more than double the number of jurisdictions - from 41 to 83 - that Singapore will be able to exchange information with under the Standard.
- Allowing the IRAS to obtain bank and trust information from financial institutions without having to seek a court order, as currently required.
- Concluding with the US, a model I intergovernmental agreement that will facilitate financial institutions in Singapore to comply with the Foreign Account Tax Compliance Act.
Although these steps appear to significantly increase the circumstances in which a private client's details may be obtained and/or shared, the context of this access (i.e. international tax cooperation) means it is likely these changes will have a positive, rather than a negative, impact on Singapore as a financial centre. The chairman of the MAS noted: "There is no conflict between high standards of financial integrity and keeping our strengths as a centre for managing wealth."
The MOF is seeking public feedback on these steps by 31 July 2013 and the necessary legislative changes are intended to be made by the end of the year.
Money laundering
Singapore criminalised the laundering of proceeds from certain serious tax offences with effect from 1 July 2013. These offences are: tax evasion, serious fraudulent tax evasion, evading Singapore's goods and services tax (GST), and improperly obtaining a refund of GST (the Offences). As a result, financial institutions (FIs), such as banks, insurance companies and trust companies, will be criminally liable for money laundering if they are found to be holding the proceeds of the Offences.
The impact for FIs is significant. First, FIs may be fined up to SG$1m and have their licence withdrawn (among other penalties), whereas individuals could face up to SG$500,000 in fines and seven years in prison. Second, the reclassification of the Offences introduces an additional administrative burden. FIs are required to review accounts, using a risk-based analysis, with all "high tax risk" accounts having been reviewed by 30 June 2013 and all others by 30 June 2014.
Where an FI knows, or has reasonable grounds to suspect, that a client's assets are the proceeds of any of the Offences, that FI will be required to file a suspicious transaction report and either refuse to accept the business/discontinue the relationship. It is vital that FIs have the processes in place to ensure compliance with this latest addition to money laundering offences.
Marcus Hinkley is a group partner and head of the Singapore office for Collas Crill
He writes a regular blog about Asia for Private Client Adviser