- POSTED: 06 May 2014 13:45
- UPDATED: 06 May 2014 23:05
Singapore has concluded discussions on a tax information sharing agreement with the United States that aims to prevent tax evasion by US citizens, permanent residents and entities.
SINGAPORE: Singapore has concluded discussions on a tax information sharing agreement with the United States that aims to prevent tax evasion by US citizens, permanent residents and entities.
Known as an Intergovernmental Agreement (IGA), the deal requires Singapore-based financial institutions to comply with the US Foreign Account Tax Compliance Act (FATCA).
FATCA, which is set to take effect on July 1, requires all financial institutions outside the US to regularly submit information on financial accounts held by US "persons" to the US Internal Revenue Service (IRS).
In a joint statement on Tuesday, the Ministry of Finance (MOF), Monetary Authority of Singapore (MAS) and the Inland Revenue Authority of Singapore (IRAS) said Singapore-based financial institutions will report information on financial accounts held by US account holders to the IRAS.
IRAS will then provide the information to the US IRS.
The joint statement added that "transmitting this information through IRAS helps to ease the compliance burden for our financial institutions as their reporting obligations would be deemed met once they have transmitted the information to IRAS."
Desmond Teo, partner (financial services tax) at Ernst & Young, said: "This makes it a lot easier, both from a information reporting perspective, as well as with regards to the systems and process changes that's actually required.
"I think there's always been concern about whether this might lead to a extra-territorial tax clampdown globally -- we do not think that that's something will necessarily happen.
"More likely, what we will be seeing in the short and medium term is a situation where there will be greater transparency in terms of information exchange."
The greater transparency comes amid a global crackdown on cross-border tax evasion, and analysts said the move will help Singapore combat illegal fund flows and banish its image as a tax haven.
Fund managers in Singapore managed S$1.63 trillion of assets in 2012. According to asset managment firm Lexico Advisory, the industry is unlikely to be hit by the new agreement.
It estimates that US citizens only account for one-tenth of Singapore's wealth management industry.
But it warns that there could be challenges in implementation.
Jack Wang, a partner at Lexico Advisory, said: "Financial contracts involving derivatives, involving noteholders from different countries -- you will have difficulty enforcing it. How do you ascertain, maybe (out of) a few hundred individuals, which ones are US citizens or US-related or what kind of entities are these.
"There will be a constant lack of information. How much can you ask the client to provide? And if they refuse, what does that mean for the overall tranche of notes? And private equity deals as well -- when you deal with multiple parties, you may not know whether they are US-related, or fall under the guidelines."
Singapore has initialled the IGA, and both sides are expected to sign the agreement in the second half of 2014.
Foreign financial institutions that do not comply with FATCA will face a 30 per cent withholding tax on certain payments made to them from the US.
A set of FATCA regulations and guidance will be issued in the second half of 2014, and the Ministry of Finance will hold a public consultation on the draft guidance before it is finalised.
The authorities also said that Singapore-based financial institutions have until December 31 to register as a foreign financial institution within a Model 1 IGA jurisdiction and obtain a Global Intermediary Identification Number at the US IRS' online FATCA registration portal.
This will ensure that there is no FATCA-related withholding tax on payments made to them from the US.
Banks in Singapore welcomed the move, with the three local banks saying that they are working on the necessary process and systems changes.
Loretta Yuen, head of legal and regulatory compliance at OCBC Bank, said: "Over the past 18 months, OCBC and Bank of Singapore have taken various steps in preparation of the requirements set out under FATCA.
"These include system enhancements for additional activity monitoring and reporting, process re-engineering to strengthen due diligence, and staff training. Invariably, these measures and others, translate to compliance costs."
"We believe however that the regulation promotes transparency and adds to Singapore's standing as an international financial centre. This will benefit us as we continue to grow our leading wealth management business in the region and beyond."
A DBS spokesperson said the bank is "already taking steps to put in place the systems and processes by the stipulated deadlines". For example, FATCA has staggered compliance timelines, and the first compliance milestone to be met is to register with the US IRS for FATCA. DBS has done this.
UOB said that it is "reviewing the bank's processes such as client on-boarding, management and reporting of client information".
UOB's spokesperson said: "We are also working through the investments required to ensure that the bank is FATCA compliant when the proposed regulation comes into force."
In May 2013, Singapore signed an OECD convention on tax cooperation, and extended exchange of information assistance to existing tax agreement partners.
This doubled the number of jurisdictions that Singapore will able to exchange information with from 41 to 83.