The new age of international tax enforcement and exchange of information

26 October 2012

Sundareswara Sharma

It used to be that each country or territory could only apply and enforce its tax laws within its own borders. One tax authority would not provide information on its own taxpayers to foreign tax authority. Neither would a tax authority go out of its way to obtain information or documents it did not possess, just to provide them to a foreign tax authority. Not any more.

In recent years, Singapore has amended many of its double taxation agreements (DTAs) with treaty partners to allow for exchange of information under the OECD’s new international standard for information exchange. This means that a number of treaty partners can make, and in fact have been sending, requests for information to the Comptroller of Income Tax in Singapore on a whole range of matters that may not only concern income tax in Singapore but also other taxes not covered under the tax treaty. The information that can be, and probably has been, provided also involves disclosure by the Comptroller to a foreign tax authority about hitherto confidential tax matters of persons tax resident in Singapore and may also extend to the affairs of person not resident in Singapore, e.g. permanent establishments of foreign businesses such as branches of foreign banks or other financial institutions. Singapore has also substantially changed its income tax laws in early 2010 to provide specifically for exchange of information under DTAs and under separate arrangements.

Businesses carrying out international trade may wish to note the countries or territories with whom Singapore has agreed to such wide-ranging provisions for exchange of information. The information may be used by the foreign tax authority variously for tax assessment, collection, enforcement, assessment, prosecution, determination of tax appeals and may even be passed on to other government bodies that are not directly involved in tax administration but have oversight over the foreign tax authority. The information disclosed may also be used and disclosed in public court proceedings and in judicial decisions.

These countries and territories include Albania, Australia, Austria, Bahrain, Belgium, Canada, China, Denmark, Finland, France, Greece, Georgia, India, Ireland, Isle of Man, Italy, Japan, Jersey, Malta, Mexico, Morocco, Norway, Panama, Qatar, Saudi Arabia, Slovenia, South Korea, Spain, Turkey, United Kingdom, Uzbekistan and Vietnam. Not all the exchange of information articles in the above DTAs may be in force, as some may be awaiting ratification. Notable absences from the countries/territories set out above currently include Germany, Indonesia and Malaysia. This does not mean those countries have no exchange of information provisions in their DTAs with Singapore. It means that the earlier standard for exchange of information subsists where either treaty party could more easily decline to provide the information sought. Under this earlier regime, among other things, matters protected by secrecy provisions in the Banking Act or the Trust Companies Act could not be disclosed at all by the Comptroller to the foreign tax authority.

Under the new international standard, the Comptroller is required to notify the person who is believed to have the information, e.g. bank, and the person in respect of whom the information is sought, e.g. holder of the bank account, and obtain an Order of the High Court to be given access to the information or copies of bank documents requested by the foreign tax authority.

There are several live issues arising from these tax changes on exchange of information that may have serious and far reaching implications for Singapore businesses in their cross-border dealings both with related parties and with non-related parties.