Speech by Mrs Josephine Teo, Minister of State for Finance And Transport At The Tax Academy & IFA Singapore Asia-Pacific Regional Tax Conference

Chairman of Tax Academy Board, Mrs Fang Ai-Lian
Chairman of IFA Singapore, Mr Shanker Iyer
Commissioner of Inland Revenue, Dr Tan Kim Siew
Distinguished Guests
Ladies and Gentlemen,

1      I am happy to join you this morning at the Asia-Pacific Regional Tax Conference. Jointly organised by the Tax Academy of Singapore & IFA Singapore, this conference provides a valuable platform to discuss current taxation issues in the Asia-Pacific region that are important to businesses. Let me extend a very warm welcome to all delegates and speakers, especially our overseas guests. 

Facilitating International Business Growth and Cross-Border Transactions

2      Since independence, Singapore has kept our economy open to foreign investments and international trade.  We have kept tax rates competitive and at the same time, built up a robust and transparent regulatory environment.  This has helped Singapore to become a global business hub and home to many multinational companies.  

3      Our region has many emerging economies that present exciting growth opportunities for businesses across a broad spectrum.  Many MNCs in Singapore take advantage of their proximity to these economies to expand their regional presence. 

4      Singapore companies too are internationalising their businesses.  In 1990, Singapore’s cumulative stock of Direct Investments Abroad (DIA) was about S$16 billion. By 2000, the DIA stock had grown to about S$100 billion. In the last decade, DIA has grown at a dramatic pace to reach over S$400 billion^[1] - a four-fold increase from a base of about S$100 billion a decade ago. To put this number in clearer context, the total stock of foreign direct investments (FDI) into Singapore was just over S$650 billion, as at 2011. This shows that Singapore is very much an internationalised economy – not only in trade terms, but also in terms of investments and capital flows.

5      Asia remains a bright spot for Singapore’s investments abroad, accounting for more than half of Singapore’s DIA at S$240 billion. As of end 2011, the top three outbound investment destinations for Singapore companies within Asia were China, Malaysia and Indonesia, which together accounted for 60% of Singapore’s DIA in Asia.

6      With more Singaporean businesses internationalising, cross-border business transactions and investment activities have increased in volume.  More Singapore companies have foreign sources of income and are subject to tax rules in more than one tax jurisdiction. 

7      While it is right for every tax authority to collect on what is due, multiple jurisdictions imposing separate and sometimes conflicting tax rules can result in double taxation for businesses. This creates lose-lose situations as businesses could be deterred from further cross-border activities, and tax authorities ultimately end up with a smaller tax base than otherwise possible.

8      To overcome instances of double taxation, Singapore has a wide treaty network. This wide treaty network facilitates cross border businesses by providing greater tax certainty and by reducing the cost of doing business both in Singapore and overseas. To date, we have signed 74 comprehensive Avoidance of Double Taxation Agreements (DTAs). IRAS will continue to expand Singapore’s network of treaties to facilitate cross border businesses.

9      However, treaties alone are not enough and implementation matters just as much.  In recent years, tax authorities worldwide have increased their enforcement activities to ensure that transfer prices have not been set to avoid tax. With the imposition of stricter penalties and documentation requirements, as well as increased audit activities, transfer pricing has now become a leading risk management issue for cross-border businesses.

10      Since 2006, IRAS has put in place several guidelines to help businesses better understand their transfer pricing risks, and to adopt sound practices that will manage their risks of double taxation.  If in doubt, businesses can approach IRAS to seek upfront tax certainty on their pricing arrangements through Advance Pricing Arrangements. Where necessary, IRAS also helps businesses resolve cross-border transfer pricing disputes through the Mutual Agreement Procedure (or MAP) with Singapore’s treaty partners.  

11      From 2007 to March this year, IRAS has concluded 10 transfer pricing cases under MAP, and 27 bilateral Advance Pricing Arrangements involving seven other jurisdictions. 

12      Businesses will be pleased to know that IRAS intends to deepen its transfer pricing capability to assist businesses with cross-border transfer pricing issues.  This stems from Singapore’s commitment to support real and substantive businesses operating in a cross-border context.  In other words, we support cross-border businesses that are engaged in activities with real economic substance.  General anti-avoidance provisions in our tax regime are set up to prevent abusive business transactions, and to ensure that our corporate sector remains healthy and robust.

Developing International Tax Expertise

13      In line with our strategy to promote investments and to help our companies internationalise, it is essential to also grow international tax expertise within Singapore to better support our role as a global business hub.   The Tax Academy can contribute to this important effort by providing a platform for tax practitioners, government officials and academics to share their experiences and deepen their knowledge.  Its partnership with the IFA to present high quality tax programmes is also commendable and to be encouraged. 

Conclusion

14      I urge the Tax Academy to continue its good work to be the catalyst for Singapore to become the regional centre of excellence in tax education and leading regional tax knowledge hub.

15      On this note, it is my pleasure to declare open the first Asia-Pacific Regional Tax Conference.  I wish you all a fruitful discussion.

Thank you.

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^[1] Despite the global slowdown, Singapore’s cumulative stock of Direct Investments Abroad (DIA) rose by 1.7% to reach S$416.4 billion as of end-2011. (Source: DOS, IE Singapore)