Adherence to global standard a step forward
Since Jan 1, banks and other financial firms here had to begin establishing the tax residency status of all their account holders.
It does not seem like a big deal, but this is a major step being undertaken as part of a multi-year international effort to clamp down on tax evasion.
Financial institutions have to do this as Singapore is now adhering to what is known as the Common Reporting Standard.
The key word here is reporting - under this international standard, countries that have agreements with one another will soon start automatically exchanging financial data for tax purposes.
PwC Singapore tax partner Brendan Egan noted that the new reporting standard requires financial institutions to obtain self certificates of the tax residency by their account holders.
They will then have to report to the Inland Revenue Authority of Singapore the financial account information of people who are tax residents of jurisdictions with which Singapore has Competent Authority Agreements (CAA).
Singapore has so far signed CAAs with Australia, Britain and Japan, among others.
This means, for example, that once the CAA takes effect, Singapore will automatically share with Australia the financial account information of accounts in Singapore held by Australian tax residents.
Australia, in turn, will do the same with Singapore for the financial account information of accounts in Australia held by Singapore tax residents.
The idea is that if someone were to consider parking their money in an overseas account to evade taxes or hide illicit funds, they would likely be deterred, knowing that if they were to open an account in, say, Singapore, their data could automatically be reported to their home country, or the country to which they owe taxes.
Not only does this international effort benefit those jurisdictions that are strapped for cash and need all the tax revenues they can get, it is also a win for Singapore, as this ensures that the funds parked here are clean.