Court clarifies Singapore's approach to tax information exchange

The decision (61-page / 765KB PDF) helps shed light on the manner in which the Singapore tax authorities deal with EOI requests from foreign governments, particularly where the EOI process was executed 'covertly' without notice to the subject of the EOI request, according to tax and private wealth expert Valerie Wu of Pinsent Masons, the law firm behind Out-Law.com.

"Given the drive towards tax transparency spear-headed by the OECD, increasing prominence of international taxation agreements – for example, the Singapore-Brazil Avoidance of Double Taxation Agreement just inked in the first week of May 2018 – and the rising affluence of individuals with assets all over the world, it is not uncommon to see a rise in tax investigations by treaty partners and the issuance of covert EOI requests," she said.

It is thus critical that parties are aware of their legal rights and options, in the context of the EOI process, particularly in Singapore. The decision clarifies the rights of the taxpayer in situations where the EOI process is carried out without his or her knowledge."

The National Tax Service of the Republic of Korea (NTS) submitted an EOI request to the Comptroller in September 2013, under a tax treaty between the Singapore and Korean governments. The request was submitted as part of a criminal tax investigation by the NTS into five individuals, including three members of the same family and two officials of a group of companies owned by that family.

The NTS suspected that these five individuals, as well as 51 nominee companies incorporated by the family, were using Singapore bank accounts to conceal unreported income and evade taxes. The EOI request sought the bank account information of these individuals and companies. The Comptroller ultimately was satisfied with the validity of the EOI request, following several rounds of communication with the NTS seeking clarification on various aspects of the request as well as further information and supporting documents, and issued follow-on 'production notices' to the banks seeking the bank account information.

The subjects of the EOI request did not become aware of it until a later date, as the EOI process was carried out on a confidential basis. They later applied to the High Court in Singapore for leave to bring judicial review proceedings against the Comptroller, arguing that the Comptroller acted "illegally and irrationally" by granting the request and seeking, among other things, an order quashing the production notices. The High Court dismissed the application, as it was of the view that the individuals had not made out an arguable case of reasonable suspicion in favour of granting the remedies sought, as required by Singapore law.

The Court of Appeal has now dismissed an appeal by the individuals against the High Court's decision. It did so by first clarifying the principles governing Singapore's EOI regime, and then considering whether subsequent objections and issues raised by the individuals after the Comptroller made his decision to proceed were relevant and admissible in the judicial review proceedings. The Court of Appeal concluded that, as the EOI process had proceeded covertly, the individuals were entitled to raise their objections after the decision to proceed had been taken, but that the Comptroller correctly stood by his original decision after he took this additional material into account.

The current EOI regime in Singapore is governed by the 2009 Income Tax (Amendment) (Exchange of Information) Act, as modified by various amendments in 2013. The statutory regime requires the Comptroller to consider, among other issues, whether the requested information is "foreseeably relevant" to enable the requesting state to carry out the provisions of the tax treaty concerned, or to enforce its domestic tax laws. When making an EOI request, the requesting state is required to provide a statement that its request is in conformity with its own laws, and that it has pursued all means available in its own territory to obtain the information except those that would give rise to disproportionate difficulties.

The Court of Appeal has now explained that the Comptroller is not expected to "embark on an independent investigation or a mini-trial to establish the veracity" of the requesting state's statement in its EOI request. That said, the Comptroller cannot act "uncritically or unthinkingly" in assessing an EOI request, the Court of Appeal elaborated. Instead, the Comptroller should where appropriate, make "reasonable inquiries" to satisfy itself of the validity of the EOI request.

Each EOI request should generally be assessed at the time that it is made, and any subsequent matters which impact on the actual relevance of the requested information once it has been provided will generally be immaterial if the Comptroller's initial decision on the request is later reviewed.

However, the Court of Appeal has now clarified that in exceptional circumstances such as this i.e. where the "person of interest" was not served with notice of the EOI request and only became aware of it at a later date, he or she should still be given the opportunity to raise concerns about the validity of the request "within a reasonable time".

Complex commercial disputes expert Wee Jian Ang of Pinsent Masons MPillay, the Singapore joint venture partner of Pinsent Masons, pointed out, however that the Court of Appeal had not elaborated on what constitutes a "reasonable time" for the concerns to be raised to the Comptroller

"As such, out of an abundance of caution, parties who are the subject of covert EOI requests, and who subsequently learn of the EOI request after the Comptroller has already decided to accede to it, should always raise concerns as to the validity of the EOI request to the Comptroller as soon as possible," he said.

Tax expert Zhu Lin of Pinsent Masons MPillay added that the case "marks the first time the highest court in Singapore considers the scope of the Comptroller's discretion and the internal protocol for managing an EOI request in the present EOI regime".

The Court of Appeal ultimately concluded that it was clear from the communications between the Comptroller and the NTS that the Comptroller had "evaluated the request carefully", and made the further appropriate inquiries of the NTS to inform its decision. It was apparent that the request was "not a fishing expedition, and that the requested information was foreseeably relevant to the NTS' ongoing tax investigations", the court said.

"We thus find that the Comptroller had applied his mind to ensure that the request complied with [the Income Tax Act] and the Convention, and could not be said to have improperly delegated his decision-making power to the NTS," it said. "It could not be said that [the taxpayers] had established an arguable or prima facie case of reasonable suspicion that the Comptroller's decision was tainted by any illegality or irrationality so as to afford grounds for judicial review."