SINGAPORE MAKING CHANGES TO AVOID TAX HAVEN LABEL

UNCLAS SECTION 01 OF 02 SINGAPORE 000294

SENSITIVE
SIPDIS

TREASURY FOR TRAND, MNUGENT

E.O. 12958: N/A
TAGS: EFIN ECON EINV SN

SUBJECT: SINGAPORE MAKING CHANGES TO AVOID TAX HAVEN LABEL


1. This cable is classified Sensitive but Unclassified (SBU)
please protect accordingly.


2. (SBU) Summary. The Government of Singapore (GOS),
concerned that being labeled as a non-cooperative tax haven
would dent its ambitions to become a global financial center,
announced on March 6th that it would make necessary legal
changes in order to adhere to an Organization for Economic
Cooperation and Development (OECD) standard for information
exchange on tax compliance. At the same time, the GOS is
pursuing an all-out lobbying effort to forestall any plans to
put Singapore on any tax haven blacklist. End Summary.

Increased U.S. and G-20 Pressure
--------------


3. (SBU) U.S. efforts to target uncooperative institutions
and jurisdictions have jarred Singapore officials. In
February, the USG levied a $780m fine on Switzerland's UBS
Bank, which narrowly escaped criminal indictment by turning
over names of some 250-300 of its problematic wealthy clients.
The March re-introduction of the Stop Tax Haven Abuse Act to
penalize tax havens also raised concerns in Singapore. The
bill explicitly named Singapore as a tax haven and would
provide the U.S. government with a set of new tools to clamp
down on offshore tax and tax shelter abuses.


4. (SBU) Internationally, the GOS is also concerned about
European plans to push for the publication of a list of non-
cooperative tax havens at the upcoming Group of 20 (G-20)
meeting in London. At their March meeting in Horsham, the G-
20 Finance Ministers called on "the relevant international
bodies [to] identify non-cooperative jurisdictions and develop
a tool box of effective countermeasures" to address the
problem of jurisdictions that do not share information on tax
issues (among other issues). International bodies working on
the issue include the OECD, which has developed standards for
transparency and effective exchange of tax information, and a
United Nations committee of tax experts, which endorsed those
standards last October. Some have called on the OECD to
create a public list of uncooperative tax havens. According
to press reports, OECD internal staff reports have included
Singapore, among others, as a non-compliant jurisdiction.
Singapore has undertaken an intense lobbying effort among
members of the G-20 to stop the announcement of a blacklist or
at least to prevent Singapore from being put on one.

The Singapore Government's Stance
--------------


5. (SBU) Singapore does not consider itself as a tax haven.
The GOS argues that its corporate income tax rate of 17
percent, while low and competitive, is not among the lowest in
the world. Other countries and territories like Hong Kong
(16.5 percent),Romania (16 percent),Ireland (12.5 percent)
and Bulgaria (10 percent) have rates even lower than
Singapore. The GOS also argues that Singapore is not a magnet
for shell or "fly by night" companies, but rather attracts
companies with concrete business activities. Officials note
that at least 25 percent of GDP is manufacturing. Most
importantly, the GOS argues that the rule of law is strong in
Singapore and it has signed 60 tax agreements with other
countries.


6. (SBU) Nevertheless, the pressure convinced the GOS that it
would have to take pro-active measures to protect its
reputation as a reputable global financial center. In a
statement released on March 6, the Ministry of Finance (MoF)
announced that it will introduce draft legislative amendments
to provide the legal basis for its compliance with the OECD
standard in mid-2009. Once the amendments have gained
parliamentary approval, Singapore has expressed its
willingness to extend further cooperation on information
exchange through double taxation agreements (DTAs),with the
caveat that it will respond only to legitimate requests for
information and not fishing expeditions by foreign

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jurisdictions. The GOS also hopes to negotiate and conclude
further DTAs. The United States does not have a comprehensive
DTA with Singapore, in part due to concerns about Singapore's
information sharing practices.


7. (SBU) Singapore's government-linked press has tried to put
a brave face on the dramatic change in policy by arguing that
relaxing banking secrecy rules may not necessarily be bad for
Singapore's ambition of growing its financial sector.
Analysts quoted in local newspapers suggest that closing the
loopholes to tax fraud and tax evasion by foreigners could
strengthen the robustness of the rule of law in Singapore.
According to press reports, Mr. Anuj Kagalwala, corporate tax
partner at PricewaterhouseCoopers, suggested that endorsing
OECD standards should be a positive for Singapore as it could
create greater acceptance of Singapore as a private banking
center from the governments of the developed world.

Comment
--------------


8. (SBU) While Singapore has plans to amend its bank secrecy
legislation to provide for greater transparency and
information exchange, we remain doubtful about how far the GOS
will go in sharing information on criminal investigation
requests by foreign jurisdictions. Generally, the GOS adheres
to the letter of the law. In its statement endorsing the OECD
standard, the MoF seemed to imply that it will pick and choose
the foreign jurisdictions to which it will extend cooperation
in the exchange of information. Doubts among the
international community will remain until the GOS proves the
effectiveness of its new laws and its seriousness in
implementing them.

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