Singapore has a track record of setting competitive tax and other policies that attract global and regional headquarters companies. Similar to the G20 countries, Singapore is engaged in the development of the OECD BEPS Action Plan. Singapore’s government realizes the importance of the BEPS project and is interested in how the OECD BEPS Action Plan is unfolding.
Further, as with companies from other developed countries in the region, Singaporean companies doing business in China and India are increasingly subject to aggressive tax investigations and adjustments in respect of their activities in these emerging countries. While the Singapore government has yet to introduce unilateral measures to counter BEPS, it may take steps inresponse to BEPS measures adopted by its neighbors and trading partners.
For example, Singapore is among the countries that endorsed the OECD declaration on 6 May 2014, committingthem to implement a new single global standard on automatic exchange of information. This allows Singapore to share in this data exchange. Singapore has also signed an intergovernmental agreement with the United States on information exchange in connection with the US FATCA legislation.
Outside of the OECD BEPS process and as part of Singapore’s efforts to encourage sound transfer pricing practices, the government regularly conducts transfer pricing audits ontaxpayers. Transfer pricing has been an area of significant activity in recent years, with the Inland Revenue Authority of Singapore (IRAS) now vigorously applying a series of guidelines and circulars issued from 2006–10. In early 2015, the IRAS adopted many of the BEPS Action Plan items relating to transfer pricing.
Singapore has an interest in being perceived internationally as a tax friendly jurisdiction — but not as a tax haven. Thus Singapore’s tax incentives and treaty benefits are generally only available to commercial arrangements with sufficient business substance. In fact, Singapore’s Prime Minister is on record as saying, “Profits made by companies should be rightfully taxed in jurisdictions where there are substantive economic activities.”⁸
The arm’s length principle is endorsed by IRAS and is set out in Section 34D of the Singapore Income Tax Act. According to Section 34D, where the pricing of related-party transactions is not at arm’s length and results in a reduced profit for the Singapore taxpayer, the Comptroller of Income Tax may adjust and tax the profit of the Singapore taxpayer. In addition to the arm’s length principle, Singapore also has other general anti-avoidance provisions in its tax legislation. In summary, as the OECD BEPS Action Plan proceeds, Singapore is engaging with the OECD and carefully monitoring the international developments as well as weighing their implications to determine what, if any, unilateral legislative change may be needed to protect its tax base.
⁸ “Improve Global Tax Rules,” Business Times, 6 September 2013.