Singapore’s Prime Minister Lee Hsien Loong, who last week concluded his otherwise very successful three-day visit to India, has expressed his government’s dismay for being described by India as a tax haven in its “White Paper on Black Money.”
According to the recently released publication by the Indian Ministry of Finance, 9.17% or approximately US$11.9 billion of cumulative FDI equity inflows to India between April 2000 to March 2011 came from Singapore. This in turn, puts the republic in second place, next to Mauritius.
The paper further stated the following points:
- small economies such as Singapore and Mauritius cannot be the sources of such investments;
- investments are apparently routed or “round tripped” through these jurisdictions for avoidance of taxes and/or for concealing the identities of the ultimate investors from the revenue authorities and
- many of the investors could be Indian residents who have invested in their own companies.
PM Lee, who has clarified the issue during discussions with his Indian counterpart Manmohan Singh said, “We have explained to the Indian government why Singapore being a tax haven for Indian companies is not true and asked them to put the record straight. I raised this issue with PM Singh, explained to him how we should see significant and big investments from Singapore as a good thing, and why we think this is bonafide. He acknowledged our concerns, accepted the explanation and conceded that the Indian authorities should not have been cited Singapore in this way in the White Paper.”
Mr. Lee further asserted that Singapore has neither interest in being a money-laundering center nor would want any shady money to come to the city-state. “I think shady money would rather go somewhere else rather than risk being scrutinized by our regulators,” he added.
Mr. Satish Bakhda, Head of Operations at Rikvin, a Singapore company incorporation specialist asserted, “While this is a contentious issue, which we hope will not strain good relations between India and Singapore, we must assert that Singapore has for long been a regional financial hub with very stringent regulations and sound corporate governance practices in place. There is transparency at all levels, coupled with seamless flow of information in accordance with OECD Standard for Exchange of Information. This ensures that every entity that opts for Singapore Company Registration is a bonafide company and not just a shell company formed to route money between places.”
Further analysis by Rikvin reveals that overall investment outflows from Singapore during the said period amounts to US$316 billion. “Investment outflows to India forms approximately 3% of that, which is certainly not a disproportionate amount. Additionally, Singapore accounts for 10% of India’s total inward FDI. This makes it India’s largest trading partner in ASEAN and second largest investor. Vice versa, Singapore is India’s gateway to ASEAN, China and APEC and many Indian companies use the republic as a base for operations in Southeast Asia, ” added Mr. Bakhda.
“The Comprehensive Economic Cooperation Agreement signed in 2005 also includes an Avoidance of Double Taxation Avoidance (DTA) agreement, which provides for rules for tax treatment of investments in India by Singaporean companies or companies based in Singapore. Furthermore, bilateral trade post CECA has been growing at 20% annually.”
“Investors choose Singapore as the place in which to manage their wealth because of the country’s economic and political stability, sound regulations, respect for rule of law, and the availability of fund management expertise. While the government on one hand, sees it prudent to keep the Singapore corporate tax burden on companies as low as possible, it strictly does not allow the abuse of its financial system to facilitate tax evasion or other crimes.”
“Likewise, while Singapore privacy laws provide bank customers the right to confidentiality of information, banking confidentiality has never prevented the Singapore authorities from providing information to assist domestic or foreign authorities in bonafide investigations of potential criminal activities. Hence, bypassing the regulators is just not possible,” affirmed Mr. Bakhda.