Singapore: At the Forefront of Tax Transparency

By Chee Fang Theng, Director, Pan Asia Law LLC, Singapore (01/06/2014)

Singapore is a small country-state situated on a tiny island in Asia, where there is a diversity of constantly changing socio-economic, religious, cultural, and national interests.  Despite incredible economic achievements since its independence, in the global context, Singapore is still a small nation with limited resources.   Yet Singapore has emerged as a leading financial and international transportation centre in the world. 

Singapore has a territorial system of taxation with relatively low tax rates, which means that there is inherently limited room for reciprocity with other countries with worldwide systems of taxation who seek information exchange.  In spite of this, Singapore recognises that its success and survival is highly dependent on international co-operation.  Therefore Singapore’s legislation and courts have clearly and consistently embraced this policy.

Legislation on Exchange of Information and Tax Transparency

Singapore’s consistent policy on international co-operation can be seen in its recent legislation on exchange of information and tax transparency, which closely endorses the OECD standard. Therefore the Singapore tax authorities cannot decline a foreign authority’s request for information merely because Singapore does not need the information for its own tax purposes, or if the information is held by a bank or other financial institution, a nominee, or a person acting in an agency or fiduciary capacity.

The test adopted for disclosure of information is that of foreseeable relevance.  Therefore the requesting authority needs to demonstrate that the requested information is demonstrably relevant for carrying out the provisions of the double tax treaty or the administration or enforcement of its domestic tax laws.


In order to ensure that the information requested is foreseeably relevant, an information request must contain the information as is set out in the Eighth Schedule to the Singapore Income Tax Act (the Act), which includes the following:


1.  The purpose of the request.


2.  The identity of the competent authority.


3.  The identity of the person in relation to whom the information is requested.


4.  A statement of the information requested for including its nature, and the form in which the competent authority wishes to receive the information from the Comptroller.


5.  The grounds for believing that the information requested for is held by the Singapore tax authorities, or is in the possession or control of a person in Singapore.


6.  To the extent known, the name and address of any person believed to have possession or control of the information requested for.


7.  A statement that the request is in conformity with the law and administrative practices of the country of the competent authority, and that the competent authority is authorised to obtain the information under the laws of that country or in the normal course of administrative practice.


8.  A statement that the country has pursued all means available in its own territory to obtain the information except those that would give rise to disproportionate difficulties.


9.  Any other information required to be included with the request under the prescribed arrangement.


10.  Any other information that may assist in giving effect to the request.


The disclosure of information must also be justified in the circumstances of the case, and not be contrary to the public interest. 

Landmark Decision on General Anti-avoidance – AQQ v CIT [2014] SGCA 15

On 26 February 2014, the Singapore Court of Appeal (CA) delivered its first decision on the construction of the general anti-avoidance provision in the income tax legislation in 26 years since the provision was enacted in 1988.  This is a landmark decision, setting out the principles of interpretation of the general anti-avoidance provision, section 33 of the Act.

This case involved a financing arrangement that was entered into in conjunction with a corporate restructuring scheme.  The CA held that the round tripping of AQQs full purchase price of its subsidiaries in a single day and the artificial interposition of the two external entities, crossed the line between tax efficiency and tax avoidance, in the absence of any cogent explanation for why it was necessary for AQQ to choose this overly complicated method of transferring funds from one subsidiary to another, through the conduit of two entities of the bank located in two different countries.

A comparison of section 33 with anti-avoidance provisions in other jurisdictions suggested that section 33 was inspired by similar provisions in Australia, New Zealand and the United Kingdom.  Therefore case law from these jurisdictions were considered, particularly since it was envisaged at the outset by Parliament that section 33 would not be construed literally, and that the courts could derive guidance from judicial considerations of similarly worded provisions in other jurisdictions.

The CA considered the conceptual conundrum which arose when an overarching general anti-avoidance provision in a taxing statute appears to pull in the opposite direction from other provisions that appear to exist for the taxpayer’s benefit.  How is the general anti-avoidance provision to be construed in a manner that is compatible with the other specific provisions of the statute that appear, on their face, to define the taxpayer’s obligations and liabilities and entitle a taxpayer to structure his affairs accordingly in order to reduce his tax liability?


There were two possible approaches: the choice principle, or the purposive approach.

The choice principle had its roots in Lord Tomlinson’s famous dictum in The Commissioners of Inland Revenue v The Duke of Westminster [1936] AC 1 at 19 that “[e]very man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be”.  The application of the choice principle was also described as giving effect to the principle of statutory construction expressed in the maxim generalia specialibus non derogant (namely: ‘the general does not detract from the specific’). 

The second approach was a facet of purposive statutory interpretation that sought to construe the ambit of the general anti-avoidance provision consistently with other provisions in the Act, which confer upon the taxpayer a tax benefit or an allowable deduction from assessable income.

The CA rejected the choice principle, on the basis that the general anti-avoidance provision was intended to strengthen the ability of the Comptroller to deal with increasingly complex tax avoidance schemes when it was introduced in 1988.

The CA adopted the scheme and purpose approach in construing section 33 together with other specific provisions of the Act, by following the decision of the majority in the Supreme Court of New Zealand in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2009] 2 NZLR 289.  The CA endorsed the approach that the legislature’s purpose was best served by construing specific tax provisions and the general anti-avoidance provision to give appropriate effect to each instead of considering one as overriding the other.

Where the taxpayer relies on specific provisions, the taxpayer must satisfy the court that the use of the specific provision was within its intended scope and that the use of the provision, viewed in the light of the arrangement as a whole, had altered the incidence of tax in a way that was within the contemplation and purpose of the legislature. If it was not, it will be a tax avoidance arrangement for the purposes of the general anti-avoidance provision. The court is not confined as to the matters which may be taken into account in deciding whether a tax avoidance arrangement exists, and a classic indicator is when the taxpayer obtains the benefit of the statutory provision in an artificial or contrived way. The court is also not limited to purely legal considerations, but may consider whether the impugned arrangement, viewed in a commercially and economically realistic way, uses the specific provision in a manner that is consistent with the legislature’s purpose.

The CA was of the view that a general anti-avoidance provision should not be read as ‘overriding’ any specific provision of the Act or vice versa. An arrangement should not be construed as having the purpose and effect of, for example, reducing or avoiding liability imposed by the Act within the meaning of section 33(1) if the arrangement results in a tax effect or advantage that is in fact contemplated by the use of the specific provision in the Act. This would enable section 33 to be read purposively, as a provision that can be understood within the context of the Act and as promoting the overall purpose and object underlying the Act.

The CA accepted that discerning whether the use of a specific provision was within the contemplation or purpose of Parliament would not be an easy task, as tax legislation evolves in a fragmented manner according to policy shifts at any single point in time and it may not be always possible to identify a coherent set of intentions within the Act.  The advantage of the scheme and purpose approach is that it provides a helpful framework in applying the general anti-avoidance provision, instead of asserting a doctrinal position that leans entirely in favour of the taxpayer’s choice.

The CA also affirmed the standard of review adopted by the High Court, namely that the Comptroller had to exercise his powers in a manner that was ‘fair and reasonable’. The court is therefore entitled to strike down any adjustments made by the Comptroller that are arbitrary or unreasonable, as well as any excessive or abusive exercise of discretion that falls outside the scope of the Comptroller’s powers under section 33(1). However, this review is necessarily limited, and where there are two or more methods of counteracting a tax advantage, it is not for the court to decide that one particular method is to be preferred over the others.

It can be seen from the above that Singapore’s legislation and courts continue to place high emphasis on international co-operation, as it recognises that its national interests is aligned with international interests within a framework defined by the rule of law.