Witch-Hunting for Tax Havens

singapore tax haven
Share on facebook
Share on linkedin
Share on twitter
Share on whatsapp

By Jonathon Ang

With recent international developments, now is a bad time to be labelled as a tax haven.

Last year’s Panama Papers leak divulged several global elites and politicians who were using tax havens to squirrel away their wealth from tax obligations, forcing named politicians like Iceland’s ex-prime minister Sigmundur David Gunnlaugsson and Pakistan’s prime minister Nawaz Sharif to resign under public pressure.

The ensuing public outcry sparked a global crusade against countries suspected as tax havens, singling them out and pressuring them to adopt international tax standards.

The Crusade Begins

Singapore was not spared in the witch hunt against tax havens. Despite Singapore’s commitment to tax transparency, the country was ranked as the fifth worst tax haven in the world by Oxfam, after Bermuda, the Cayman Islands, Netherlands and Switzerland.

In Oxfam’s 2016 report, “Tax Battles: the dangerous global race to the bottom on corporate tax”, Singapore was singled out for facilitating corporate tax avoidance. The UK-based charity organisation also penalised Singapore for providing numerous tax incentives, condoning profit shifting and not collecting withholding tax.

Despite Singapore’s commitment to tax transparency, the country was ranked as the fifth worst tax haven in the world by Oxfam, after Bermuda, the Cayman Islands, Netherlands and Switzerland.

Oxfam was concerned that such corporate practices deny other governments of their rightful share of taxes, which have been unfairly booked in lower tax jurisdictions.

Oxfam’s report was met with swift rebuttal from the Singapore government, which highlighted the inaccuracies in Oxfam’s report and emphasised its commitment to a fair and transparent tax regime.

The Crusade Continues

singapore tax haven sports car

The witch hunt against tax havens did not end there – in the aftermath of the Panama Papers leak, the G20 nations requested the Paris-based Organisation for Economic Co-operation and Development (OECD) to identify countries that were lacking in Exchange of Information on Request (EOIR) standards, as well as to pressure them to follow international tax transparency standards.

Given Singapore’s commitment to international exchange of tax information, Singapore was not identified by OCED as one of the five “non-compliant” countries to tax transparency standards. By 2017, four of the countries had been taken off the list, with the exception of Trinidad & Tobago.

Please clarify: I was unable to find any information on “the OECD 2016 list of 15 uncooperative tax havens”, what I found instead was that since May 2009,  “no jurisdiction is currently listed as an unco-operative tax haven by the Committee on Fiscal Affairs.”  (http://www.oecd.org/countries/monaco/listofunco-operativetaxhavens.htm)

I also note that in the OECD Tax Transparency 2016 report, only five (instead of 15) countries were listed as “non-compliant” in tax transparency standards. (http://www.oecd.org/tax/transparency/GF-annual-report-2016.pdf). It would be great if you could provide sources for the original information in the article.

Within the span of a year, the OECD reported in June 2017 that all blacklisted countries, with the exception of Trinidad & Tobago, had made concrete steps toward international transparency standards. Trinidad & Tobago was singled out during a peer review process for its lack of cooperation in the following 3 areas: (1) availability of information, (2) access to information and (3) the willingness to exchange information. Trinidad & Tobago will continue to remain on the blacklist unless it can convince the international community of its commitment to tax transparency.

In July 2017, Singapore was again mentioned in a Scientific Reports journal article for its perceived role in facilitating tax havens. The article, “Uncovering Offshore Financial Centres: Conduits and Sinks in the Global Corporate Ownership Network”, claims that Singapore facilitates the transfer of capital with low or zero taxation, by acting as a conduit offshore financial centre for tax havens.

Although Singapore was ranked fourth in the world (after the Netherlands, the UK and Switzerland) for facilitating capital transfer, such a ranking is insignificant as only 2 percent of such capital flows through Singapore. As such, Singapore’s perceived role in facilitating tax avoidance as mentioned in the article should be taken with a pinch of salt.

So Is Singapore a Tax Haven?

defination of tax havenBefore we hear the case against Singapore, we need to define what is a tax haven. While an official definition is lacking, a “tax haven” generally describes a country which has the following characteristics: (1) low or zero tax rate, (2) a tax structure that encourages foreign investment for tax avoidance purposes and (3) a secretive environment that does not promote the sharing of information with other jurisdictions.

Detractors of Singapore’s tax regime have accused Singapore of keeping its corporate tax low at 17 percent to attract foreign investment. According to Oxfam, low-tax countries like Singapore draw companies away from developing countries with higher tax rates. Oxfam estimates that developing countries lose US$100 billion annually to corporate tax dodging, which inhibits the development of necessary infrastructure like schools and hospitals.

But are such accusations justified against low-tax countries like Singapore?

Let’s face it – nobody wants to pay taxes. Profit-seeking corporations are no different from individuals like you and I. Just as we want to pay the lowest price for our shopping, corporations are also obliged to meet shareholder interests by paying the lowest tax rate.

It’s true that tax rates have to be competitive in order to encourage foreign investment, which drives growth and creates jobs. However, it would be overly simplistic to believe that Singapore is keeping its taxes intentionally low for the sole purpose of attracting multinational corporations (MNCs). As a matter of policy, Singapore is unlikely to short-change itself by allowing foreign MNCs to exploit our infrastructure without paying a fair tax rate. Unfortunately, what is deemed as fair and competitive is often open to subjective interpretation.

Another sticking point against Singapore is that it offers generous tax incentives to MNCs to establish their headquarters in the country. Critics say that this encourages companies to write their books and dodge taxes in Singapore, citing notable cases like mining giant BHP Billiton and technology powerhouse Google.

In 2015, the Australian Tax Office (ATO) issued a S$1 billion tax bill to BHP Billiton for evading taxes for over a decade. During the investigation, it was suggested that BHP Billiton had paid only a few million in taxes to Singapore, after booking billions in profit through its Singapore marketing arm. This was denied by BHP Billiton, which claimed that they had selected Singapore as its headquarters as it was the ideal marketing hub to serve its Asian market.

Australia is not the only country to take issue with Singapore’s tax incentives. Just recently, the Indonesian tax authorities engaged in “tax shaming” tactics against Google for booking its profits in Singapore at a lower tax rate.

Again, it would be overly simplistic to declare Singapore a tax haven based on recent controversies. Tax is just one of the many factors that MNCs consider before they choose a country as their base of operation.

Other than taxation, factors like political stability, infrastructure reliability and access to skilled manpower and talents are just as important to MNCs. These factors are just some of the reasons why MNCs continue to base their operations in Singapore, when there are countries offering even lower taxes than Singapore.

Lifting the Veil of Secrecy

Despite the allegations, Singapore has demonstrated its commitment to fight tax evasion by supporting tax transparency.

Starting from 2017, Singapore-based financial institutions have to abide by the Common Reporting Standard (CRS), by establishing the t ax residency status of their account holders. The collected information is then reported to the Inland Revenue Authority of Singapore (IRAS). The CRS, an international standard promoted by the OCED, allows automatic exchange of information (AEOI) between participating nations to deter tax evasion.

This would mean that a foreign tax evader can be tracked down by his home country if he attempts to evade taxes by establishing offshore accounts in Singapore. Potential tax evaders can no longer expect any privacy when the AEOI officially commences in 2018.

The CRS is not the only tax transparency initiative that Singapore supports. In June 2017, Singapore signed the “Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting” (BEPS). This OCED driven project seeks to combat tax avoidance malpractices, where profits generated in a higher tax jurisdiction are artificially shifted to a jurisdiction with a lower tax rate.

Hopefully, this will reassure other countries that Singapore does not actively tempt foreign MNCs to book their profits in Singapore, when the profits were rightfully generated in their own country.

Shifting of Tides

In retrospect, the Panama Papers leak was a gift that unleashed a torrent of furies against tax havens. The world community has finally garnered the much-needed momentum to eradicate tax malpractices once and for all. Tax havens that do not comply to international transparency standards are facing increasing pressure to change their ways. It may be that the secrecy provided by tax havens may soon be a thing of the past.

Singapore has long accepted that the world has changed. Singapore’s increased compliance to tax transparency standards will pose a significant challenge to its financial industry. Given that the financial industry is one of the major pillars of Singapore’s economy, the government is now proactively guiding the financial industry to weather these turbulent times.

It is still too early to tell if Singapore can emerge from this storm unscathed. But one thing is for sure, it is no longer business as usual in Singapore.

Subscribe for Newsletter

Scroll to Top