Wednesday, January 21, 2009

Singapore’s no haven

Obama may crack down on tax havens but S’pore is in no danger of being blacklisted, say analysts


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BEFORE Mr Barack Obama won the US presidency, his track record in policymaking had raised fears about whether he would lead the United States towards increased protectionism.

Now, hours before his inauguration, there are concerns that the superpower’s leader will crack down on places that he previously suspected to be tax havens, including Hong Kong and Singapore. If that materialises, bilateral financial exchanges may hit a few speed bumps, say observers.

According to Withers, a Hong Kong law firm that touts itself as serving “high net worth individuals”, Mr Obama’s leadership could see the start of increased restrictions for US persons utilising the offshore financial centres in the two jurisdictions.

In February 2007, Mr Obama co-sponsored the Stop Tax Haven Abuse Act, which included Singapore on the initial list of 34 “offshore secrecy jurisdictions” as probable locations for US tax evasion.

“If Obama, as President, pushes similar legislation through, the next step would be to determine whether Hong Kong and Singapore should be considered ‘tax havens’,” Withers partner Kurt Rademacher said in a press release dated Jan 19.

Once a jurisdiction is designated as a “tax haven”, there might be increased penalties for tax avoidance and a US citizen may be banned from putting deposits there. This could hurt the wealth management industry here and, in the long term, may cause US talent to shy away from Singapore.

Besides the US, the European Commission has also raised concerns about Singapore being a shelter for tax evaders.

Tax experts here say Singapore is not in danger of being officially blacklisted by the US.

Said Mr Owi Kek Hean, head of KPMG Tax Services: “With the transparency in tax administration and tax laws, we certainly have a strong argument against being labeled as a tax haven.”

But he warned that rules on “treaty shopping” needed to remain enforced. Treaty shopping occurs when companies make use of the benefits of Singapore’s network of double-tax treaties with other countries, without having real operations here.

“It’s important for Singapore to ensure that we’re not used as a conduit for companies investing in the region because of the attractive treaties that we have,” added Mr Owi.

Corporate tax partner Anuj Kagalwala at PricewaterhouseCoopers said: “If we look a bit deeper you will see that jurisdictions such as the US have a greater concern with the issue of provision of information, than Singapore being a tax haven.

“That is one of the reasons why Singapore does not have a tax treaty with the US. Singapore is not a tax haven; it is merely a low tax jurisdiction.”

Mr Kagalwala said Singapore, as an international financial centre, needs its banking secrecy laws, as giving up information about deposits and transactions would make many jittery about placing money here. This secrecy, however, has prompted fears that banks here could receive funds leaving the US illegally. “Singapore, in its own interest, may need to find a way to discuss with the US other ways to deal with the issue of provision of information,” said Mr Kagalwala.

The authorities here take offence at being labelled a tax haven and have reiterated their stand against money laundering. “We require all financial institutions to institute strict procedures, including the need to identify and know their customers, and to report all suspicious transactions. Our banking and financial system is open and transparent, and our rules vigorously enforced,” the Monetary Authority of Singapore said in 2007.