On 9 May 2016, Singapore passed the Income Tax (Amendment No. 2) Act 2016 (Amendment Act). This is a first step towards the implementation of the Common Reporting Standards (CRS) developed by the Organisation for Economic Cooperation and Development (OECD) into Singapore law. The legislation sets up the legal framework that will enable financial institutions to put in place the necessary processes and systems to start collecting information for compliance with the CRS from 1 January 2017.

Background

In 2014, the Global Forum on Transparency and Exchange of Information for Tax Purposes (of which Singapore is a member) and the Group of Twenty (G20) major economies endorsed automatic exchange of information (AEOI) under the CRS. As at 9 May 2016, 55 countries have agreed to undertake the first information exchanges under the CRS by 2017. A further 46 – making a total of 101 countries – have agreed to undertake information exchanges under the CRS by 2018.

Singapore was one of the 46 countries that agreed to undertake AEOI under the CRS by 2018. This was announced in Parliament on 3 November 2014 by Mr Tharman Shanmugaratnam, the Deputy Prime Minister and then Minister for Finance. He stated that AEOI under the CRS would be implemented subject to the following conditions:

• There has to be a level playing field among all major financial centres, including Hong Kong, Dubai, Switzerland and Luxembourg, to minimise regulatory arbitrage.
• Singapore will only engage in AEOI with jurisdictions that have a strong rule of law and can ensure the confidentiality of information exchanged and prevent its unauthorised use.
• There has to be reciprocity with any future AEOI partners in terms of information exchanged.

The Amendment Act

The Amendment Act piggy-backs on existing provisions in the Income Tax Act to implement the Singapore-United States Foreign Account Tax Compliance Act (FATCA) Intergovernmental Agreement (Singapore-US IGA). It accordingly expands the scope of these existing provisions to include any competent authority agreement entered into between the Government of Singapore and the government of another country, or the governments of two or more countries. A competent authority agreement is defined in the Amendment Act as a bilateral or multilateral agreement to improve international tax compliance based on the standard for automatic exchange of financial account information in tax matters developed by the OECD. This framework, therefore, allows bilateral or multilateral competent authority agreements entered into by the Singapore Government with other jurisdictions in order to implement the CRS to be given effect by a declaration of the Minister for Finance.

As with many other jurisdictions, Singapore has decided to adopt the “Wider Approach” for the collection and retention of CRS information. Under this approach, financial institutions will be empowered and required to collect and retain CRS information for all non-Singapore tax residents, and not only tax residents of jurisdictions with which Singapore has an AEOI agreement. It obviates the need for financial institutions to repeatedly review whether the accounts are reportable each time Singapore enters into a new competent authority agreement.

However, financial institutions will only be required to report information relating to account holders who are tax residents of jurisdictions with which Singapore has a competent authority agreement. The Ministry of Finance has indicated that it will set out a list of such jurisdictions in regulations and on the website of the Inland Revenue Authority of Singapore (IRAS). The due diligence procedures to be conducted by financial institutions to establish an account holder’s tax residency will also be covered in regulations and financial institutions will be required to identify the status of all non-Singapore tax resident accounts. A financial institution may, under the Amendment Act, authorise a third party to fulfil its CRS obligations (provided the IRAS is informed).

The amendments also empower IRAS with the necessary powers for the routine collection and transmission of relevant information for the purposes of implementing AEOI under the CRS, and include mandating the electronic filing of returns and information.