Removing the fences: Singapore General Anti-Avoidance Provisions
Against a backdrop of increasing global tax scrutiny, the release of guidelines on the General Anti-Avoidance Provision by Singapore’s tax authorities shows the worldwide tax environment is becoming more complex and less forgiving to those who try to bend the rules.
On 11 July 2016, the Singapore tax authorities issued an e-Tax guide on the General Anti-avoidance Provision and its application.
The guide essentially sets out the Singapore tax authorities’ approach to the construction of the general anti-avoidance provisions in Section 33 of the Income Tax Act. It illustrates through examples the types of arrangements that the authorities regard as having the purpose of effecting tax avoidance within the meaning of Section 33. The guidelines and accompanying examples in the guide are not meant to be exhaustive.
The examples in the guide focus on certain selected scenarios:
- Circular flow or round-tripping of funds
- The setting up of more than one entity for the sole purpose of obtaining a tax advantage
- Changing business forms for the sole purpose of obtaining a tax advantage
- Attribution of income that is not aligned with economic reality
It makes expressly clear that arrangements not discussed or described should not be taken as falling outside the ambit of Section 33. The guide does not cover arrangements that form the subject of specific anti-avoidance provisions in the Income Tax Act and/or that involve tax evasion.
Scheme and purpose approach
In drafting the guide, the Singapore tax authorities have essentially adopted the principles outlined by a corporate restructing case Comptroller of Income Tax v AQQ and another appeal  SGCA 15. Indeed the structure of Section 33 is based on the “scheme and purpose” approach that formed the basis of the Court of Appeal’s ruling in the AQQ case.
Overall, the guide appears to be an effort by the Singapore tax authorities to communicate their perspective on the construction and application of the anti-avoidance provisions that are already enshrined in the legislation, underpinned firmly by the principles extolled from the AQQ case. The authorities may update the guide with new guidelines and new examples of arrangements, where necessary. In a broader sense, this is perhaps unsurprising and possibly timely given the clear imperative of combating harmful tax practices as one of the action points being implemented under the Base Erosion and Profit Shifting (BEPS) initiative by the OECD.
Asia region following suit
Other countries in the region have also been steadily jumping on the anti-avoidance bandwagon in recent years. China issued its administrative measures on the General Anti-Avoidance Rule (GAAR) in late 2014, which came into effect in early 2015. And India has tabled its GAAR which is currently awaiting implementation in the 2017/18 financial year.
For more information, contact:
Lam Fong Kiew
Nexia TS, Singapore
T: +65 6534 5700