Second Reading Speech by Minister for Finance, Tharman Shanmugaratnam on the Income Tax (Amendment) (Exchange of Information) Bill 2009
1 Mr Speaker, Sir, I beg to move, “That the Bill be now read a second time”.
2 The Income Tax (Amendment) (Exchange of Information) Bill proposes amendments to the Income Tax Act that will allow Singapore to implement the internationally agreed Standard for the exchange of information for tax purposes upon request.
3 The Bill was released for public consultation from 29 June to 28 July this year. MOF has revised the Bill to incorporate the public feedback received.
The Internationally Agreed Standard
4 Sir, for the benefit of members who may not be familiar with the internationally agreed Standard for the exchange of information, allow me to first explain how it came about.
5 The principles of transparency and exchange of information for tax purposes have evolved over the years. The Standard in its current form was first published by the Organisation of Economic Cooperation and Development, or OECD, in 2005. It was most recently articulated in the OECD 2008 Model Tax Convention on Income and on Capital, and sets out how tax jurisdictions should address cross border tax evasion by entering into effective information sharing arrangements through their Avoidance of Double Taxation Agreements, or DTAs.
6 When the Standard was first published by the OECD in 2005, jurisdictions which were not members of the OECD did not have to adopt it in their DTAs. Not all jurisdictions accepted the Standard. In fact, even some OECD jurisdictions expressed reservations on the Standard. Singapore noted the Standard, but did not adopt it because it was one promulgated by the OECD, and not a worldwide Standard then.
7 The Standard only gained recognition as an internationally agreed Standard when the United Nations Committee of Experts on International Cooperation in Tax Matters endorsed the Standard in October last year.
8 Following the UN Committee’s move, Singapore decided to endorse the Standard in March this year. It has always been our practice to adopt relevant international standards, in keeping with our role as a trusted international financial centre and a responsible jurisdiction.
9 Our financial sector is built upon the quality, depth and breadth of services we offer, strong and consistent regulatory policies and a firm commitment to the rule of law. Our strict anti-money laundering regime is held in high regard by the Financial Action Task Force (FATF), which rates Singapore’s compliance score equal to the US and second to none. Our confidentiality laws are not intended to shelter tax criminals.
What the Standard means for Singapore
10 It is important to note that Singapore was able to exchange information with foreign jurisdictions on tax matters even before we endorsed the internationally agreed Standard. We can and already provide tax information in response to foreign requests through our DTAs. However, assistance through DTAs was subjected to the domestic interest condition, meaning that the information had to be relevant to the enforcement of domestic tax laws before the Inland Revenue Authority of Singapore or IRAS can gather and exchange it with DTA partners. Where there was a domestic interest, our banking and trust confidentiality laws allowed for information to be obtained for the purposes of investigating or prosecuting a tax offence.
11 The new internationally agreed Standard for exchange of information enhances the scope of information exchange cooperation under DTAs by lifting the domestic interest condition and allowing for access to information from banks and trust companies under certain conditions. This enhanced scope of cooperation will not only allow Singapore to provide greater assistance to its prescribed treaty partners, but also help Singapore obtain information for the enforcement of our domestic tax laws.
12 An integral aspect of the internationally agreed Standard is its respect for taxpayers’ rights. The Bill contains important safeguards in this respect. Spurious or frivolous requests for information will not be acceded to. Further, it does not allow for ‘fishing expeditions’ - it requires requests for information to be specific, detailed and relevant to the tax affairs of a given taxpayer. Consistent with the Standard, we will only provide assistance where there is a genuine case on hand, and the requested information is specific and relevant to the case.
13 Additionally, the Standard also does not allow jurisdictions to take advantage of the information system of another jurisdiction if it is wider than their own system. Hence, we will only exchange information that a requesting jurisdiction would have ordinarily been able to obtain under its own laws or administrative practices, had the information resided in that jurisdiction in the first place. Jurisdictions must also have pursued all domestic means to access the requested information before putting forth a request to us.
14 Such safeguards do not impede the effective exchange of information. They are provided for by the Standard itself to uphold the principle of respecting taxpayers’ rights. With the amendments proposed in this Bill, Singapore is committed to respecting these rights, while fully meeting our obligations under the Standard and playing our full role as a trusted and responsible jurisdiction.
15 The Standard also sets out clear limits on the types of information that jurisdictions are obliged to exchange. Jurisdictions are not obliged to exchange trade or business secrets, or information that is subject to legal privilege. They may also decline to exchange certain information if doing so would be contrary to public policy. Some examples of such information include state secrets or information sought for the purposes of political, religious or racial persecution. However, these are serious grounds of refusal, and we do not expect to invoke them under normal circumstances.
Implementing the Standard through DTAs
16 The legislative amendments contained in this Bill will enhance the level of assistance that Singapore can provide to foreign jurisdictions whose DTAs with us incorporate the new Standard. To date, we have reached agreement with 20 jurisdictions to incorporate the Standard under our DTAs, and have formally signed such agreements with 11 of these jurisdictions.
17 Most of these countries are those we already have full DTAs with and therefore have broader cooperative arrangements on matters of tax, and with whom we have established a good understanding on each others’ systems and processes of law. Of the 20 jurisdictions that we have reached agreement with, 15 are in fact OECD members.
18 Sir, the changes Singapore is making are essentially similar to those being made by other major financial centres. For example, Hong Kong is making the same moves. It is amending its legislation and intends to conclude DTAs to give effect to its amended legislation. Switzerland and Austria have each signed more than 12 DTAs that incorporate the internationally agreed Standard, and will be able to fulfil their obligations under the Standard once these DTAs are ratified.
Amendments to the Act
Enhancing the scope for foreign assistance
19 Sir, I will now explain the two categories of specific amendments to the Act that will allow us to implement the internationally agreed Standard. The first category enhances the scope of assistance that Singapore can provide to foreign jurisdictions under DTAs that incorporate the Standard, or ‘prescribed DTAs’ for short.
(a) Lifting of domestic interest
20 Firstly as I have explained earlier, under our current laws, exchange of information with our treaty partners is subjected to the domestic interest condition. The new section 105F lifts this domestic interest condition to enable IRAS to satisfy its obligations under prescribed DTAs.
(b) Access to information held by banks and trust companies
21 Secondly, under existing laws, IRAS may only obtain banking and trust information for the purposes of investigating or prosecuting a suspected domestic tax offence. The Standard requires the exchange of information which is foreseeably relevant to the administration of the requesting jurisdiction’s own tax laws, without it being predicated on the taxpayer having committed an offence. IRAS’ information gathering powers will be widened under the new Part 20B to enable it to access bank and trust information to accommodate requests on tax administration matters under prescribed DTAs and domestic tax administration matters.
(c) Allowing exchange of information for other taxes in addition to income tax
22 Thirdly, as the internationally agreed Standard applies to all forms of taxes, IRAS will be allowed to share information obtained under the Goods and Services Tax Act, Stamp Duties Act and Property Tax Act to fulfil Singapore’s exchange of information obligations under prescribed DTAs. The new section 105G provides for this change.
23 The second category of amendments sets out safeguards to ensure that requests for information are only acceded to where they are clear, specific, relevant, and consistent with the Standard. Proper safeguards, including due legal process, are crucial to protecting the rights of taxpayers, and in maintaining confidence in our tax and legal systems.
(a) Documentary requirements
24 The new Eighth Schedule sets out the documentary requirements which a requesting jurisdiction must fulfil for all requests. These requirements ensure that requests are justified, that is – clear, specific, relevant, legitimate and consistent with the Standard. They will help screen out ‘fishing expeditions’.
(b) Access to banking and trust information
25 There will be safeguards for assisting in requests relating to information that is protected from unauthorised disclosure under the Banking Act and the Trust Companies Act. The new Part 20B sets up a judicial process for IRAS to obtain such information in response to requests under prescribed DTAs. The affected taxpayer and bank or trust company will be notified of the request, unless there are exceptional circumstances, such as if doing so would prejudice an investigation into any breach of tax laws, or prevent or unduly delay the effective exchange of information. IRAS will make an application to the High Court for a production order to access the requested information. The affected taxpayer and bank or trust company have the right to apply to the Court to discharge or vary the Court order.
26 I should emphasise that these procedures are not meant to frustrate or delay the information exchange process. Rather, they are intended to provide a fair and independent assessment of the validity of requests, and allow us to render effective assistance to valid requests. They are essentially similar to processes used in the United Kingdom, which relies on a tribunal process, or the United States which relies on the courts.
27 Sir, the proposed amendments that the Bill contains will allow Singapore to implement the new internationally agreed Standard. Other leading financial centres are moving in tandem to implement the Standard. The changes we are enacting are fully in keeping with Singapore's status and reputation as a trusted and responsible business and financial hub committed to the international efforts to combat cross-border tax evasion.
28 Mr. Speaker, Sir, I beg to move.