Last September, I wrote "After Switzerland, is Singapore next?". The fact is that anyone with even a cursory interest in the world of banking has noticed what has been happening in Switzerland for the better part of the last decade. The mighty US government has managed to get Switzerland to do what no one else could ever do. The US managed to get Switzerland to circumvent their own rules on banking secrecy to turn over client details to the US authorities.
Following what happened in Switzerland, we now have FATCA and CRS. FATCA stands for the Foreign Account Tax Compliance Act and was enacted by the United States Congress back in 2010 to encourage tax compliance by US persons using non-US financial accounts. FATCA requires all financial institutions outside the US to transmit on a regular basis information about financial accounts held by US persons to the Internal Revenue Service (IRS). Financial Institutions that fail to comply could have certain US-source payments subject to 30% FATCA-related withholding.
Now the OECD has developed what can be described as FATCA on steroids. The Common Reporting Standard (CRS) is an information standard for the automatic exchange of information (AEoI). CRS covers most of the world with the notable exception of the US. It is important to stress that these are not taxes -- just frameworks for sharing account-holder information with tax authorities in foreign states.
Financial Institutions that thought the answer to FATCA was to avoid US persons are now confused. Following such logic, CRS should mean that they avoid anyone with foreign nexus!
Returning to the issue at hand, rumors that the US was beginning to look at Singapore now seem founded. In the case of US v. UBS, 16-mc-20653, US District Court, Southern District of Florida (Miami), the IRS is trying to compel UBS Bank turn over records on an account in Singapore held by a US citizen. Specifically, the IRS has asked a federal judge in Miami to force the largest Swiss bank to hand over documents on Ching-Ye Hsiaw, who lives in China. UBS has been directed to return to court on March 31 to explain why it is refusing to supply the account records.
According to the court documents – "The petitioner, United States of America, hereby petitions this Court for an order enforcing the administrative summons that the Internal Revenue Service ("IRS") served on the respondent, UBS AG ("UBS"), to produce certain bank records pertaining or relating to account(s) that were established and maintained by or on behalf of the noncompliant US taxpayer, Ching-Ye Hsiaw a/k/a Henry Hsiaw (“Hsiaw”), at UBS's branch office in Singapore during the relevant periods in order that the IRS may determine Hsiaw's correct federal income tax liabilities for the tax years 2006 through 2011 and ensure that he pays his fair share of taxes to the United States. Attached hereto and incorporated herein is a Declaration of Internal Revenue Agent James Oertel, including accompanying exhibit."
UBS' position is that – "…that UBS could not comply with the summons because, in the absence of a waiver from Hsiaw, it is prohibited by Singapore's bank secrecy laws from disclosing the summoned bank records that relate or pertain to Hsiaw's Singapore account(s)."
Many believe that this Ching-Ye Hsiaw case is just the beginning. Few really grasp the implications of CRS and the new era of tax transparency. For example, it is so common to hear business owners, entrepreneurs, and investors talk about BVI structures. Why do they do it? Because "all of their friends" hold assets using BVI structures. Ask them whether they have heard about CRS and the need to be tax-compliant in all jurisdictions where they may have nexus. They look confused.
As for Singapore, I have no doubt that the authorities are fully aware and are busy preparing for what is coming. Last year, the Inland Revenue Authority of Singapore (IRAS) published a "Summary of Responses - Public Consultation on Draft Income Tax (Amendment) Bill 2016". In the annex, the fifth point under the "Summary of key public feedback received on the Income Tax (Amendment) Bill 2016 ", was to amend the provisions relating to implementation of Foreign Account Tax Compliance Act (FATCA).
According to IRAS, public feedback was that, under subsection (2) of the draft section 105PA, the duty to provide information prevails over any duty of secrecy "whether imposed by written law, rule of law, any contract or any rule of professional conduct". The ambit of these words was considered very wide, and could potentially cover common law legal professional privilege.
A carve-out was suggested to be included in the draft section 105PA, to make clear that disclosures under FATCA are not permitted where such disclosures breach legal professional privilege. The Ministry of Finance's (MOF) response was - Accepted. Section 105PA will be amended to include a carve-out for information subject to legal professional privilege.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Derren is an Enrolled Agent admitted to practice before the IRS and an associate member of the American Institute of CPAs. He manages the Singapore operation of a US tax accounting firm. Derren has a Masters in Economics from the University of Aberdeen, a Masters in Development Studies from Middlesex University, a first degree in Business and holds a Certified Diploma from ACCA.