Cross-border tax cooperation on the cards for Singapore

THE legislative language in the Singapore Income Tax (Amendment) Bill introduced in Parliament on Oct 5 paves the way for Singapore to participate in multilateral tax compliance programmes that could raise the overall level of tax certainty for companies headquartered in Singapore or which run their regional hub operations from the city-state.

The proposed amendments to Section 6 of the Singapore Income Tax Act seek to allow for the disclosure of any information relating to any person to an authorised officer of the government of another country if express written consent of the person is provided. It was further clarified during public consultation that the proposal was for the purpose of Singapore's participation in multilateral tax compliance programmes.

One of such multilateral tax compliance programmes would be the International Compliance Assurance Programme (Icap), which was established two years ago and is sponsored by the Organisation for Economic Co-operation and Development (OECD). Icap is a voluntary programme in which taxpayers and tax administrations work cooperatively and multilaterally to undertake risk assessment and assurance of key international tax risks using materials that the taxpayer has already submitted.

Under the OECD's 2015 Base Erosion and Profit Shifting (BEPS) initiative, it is presented that some countries employ policies that erode other jurisdictions' tax bases, and offer recommendations to restrict what a country can and cannot do from a tax policy perspective. The proposals under BEPS 2.0 may further impact the ability of countries to deploy competitive tax policies against each other.

The headline corporate income tax rate was one of the few areas that countries could use to attract more inward investments, and a number of countries have lowered such rates over the last five years. Singapore's competitive rate of 17 per cent, which has been in place since 2010, is still attractive, but perhaps not quite the major draw it once was. Effective tax administration - and with it, international cooperation, tax certainty, consistency and currency - has increased in importance as a deciding factor when companies compare two similar locations.

Singapore is attractive to multinational organisations for many reasons, including its strategic location, excellent connectivity, pro-business policies and highly educated workforce. Would joining the Icap add to Singapore's appeal as an international business hub?

UNDERSTANDING Icap

Icap was launched as a pilot scheme in 2018 and expanded into a second pilot attracting 19 tax authorities the next year. In the Asia-Pacific, Australia and Japan have been participants since the programme's inception. Icap uses an organisation's country-by-country (CbC) reports and other taxpayer-provided information to facilitate open, cooperative and multilateral engagement between the taxpayers and tax administrations for early tax certainty and assurance.

Under Icap, a group of countries will work together to review the taxpayer's CbC reports and other relevant information. If all is well, the taxpayer will receive assurance that they will not receive further compliance interventions from those tax administrations for two years.

In the first Icap pilot, any issues that could not be agreed via Icap and required further attention were handled outside the programme via processes such as advance pricing agreements or a tax audit. The second pilot included changes to expand the scope of issues that an organisation could ask tax authorities to examine and bring dispute resolution into the Icap process. That is an important change - and very valuable to taxpayers.

Looking ahead, it is likely that the OECD will announce a further Icap initiative for 2021 and beyond during its upcoming virtual plenary session next month. This third phase of Icap will likely be more "business as usual", where companies can submit their own applications, rather than being invited to participate by their home location tax administration.

However, Icap is not without its challenges, and may not be suitable for every company.

A common complaint is that Icap offers no legal certainty. As each country has its own existing dispute resolution process, it would be impossible to get everyone to agree to provide legal surety. Furthermore, some companies fear that Icap may be used by the authorities to gather information for future tax audits. This is likely a myth; there are specific guardrails around the conditions where taxpayer information can be exchanged.

Probably the biggest consideration for companies is the resource impact of participation. The level of documentation required and the commitment to engage with tax authorities will be significant. Not all organisations will want to devote such resources or are able to do so.

COLLABORATION AND TRUST

For many, entering a more open and transparent relationship with the revenue authorities - in multiple countries simultaneously - may seem concerning. For others, it may represent an acceptable price to pay for higher level of tax certainty. That is what the OECD wants - for taxpayers to change their relationship with the revenue authorities to a more collaborative and trusting one.

In Singapore, the Enhanced Taxpayer Relationship Programme introduced in 2008 is one such initiative to build an open and collaborative taxpayer relationship through regular engagement with large companies. Given the rapid changes in the global tax landscape, Singapore's joining of multilateral tax compliance programmes such as the Icap should have the positive impact of strengthening Singapore's taxpayer-friendly image and bodes well for our future.