On 7 June 2017, Singapore has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”), with over 60 other jurisdictions.
The signing of this MLI represents Singapore’s commitment to upholding the principles behind BEPS, i.e. profits should be attributable to the jurisdictions where the substantial economic activities giving rise to such profits are conducted.
The Finance Minister, Mr. Heng Swee Keat said
“Singapore strongly supports the principle that profits should be attributable to the jurisdiction where substantive economic activities generating the profits are based. Signing the Multilateral Instrument allows Singapore to swiftly update its wide network of Avoidance of Double Taxation Agreements to internationally agreed standards. Singapore’s signing of the Multilateral Instrument reaffirms Singapore’s commitment and support to the BEPS Project.”
What is the impact on Singapore’s DTA network when Singapore signs the MLI?
The MLI provides flexibility for a jurisdiction to
- determine which of its DTAs it would like to amend using the MLI; and
- indicate which provisions in the MLI it would like to adopt and how such provisions should be adopted.
For example, if both Singapore and Jurisdiction A have signed the MLI, the bilateral DTA between Singapore and Jurisdiction A will be amended only if both Singapore and Jurisdiction A indicate that they would like to amend their bilateral DTA using the MLI.
In the MLI context, such a bilateral DTA is referred to as a “Covered Tax Agreement (CTA)”. A provision in the DTA between Singapore and Jurisdiction A (i.e. the CTA) will be amended by an MLI provision only if both Singapore and Jurisdiction A have taken the same position regarding that provision in the MLI.
At the point of signing the MLI in June 2017, Singapore has provided a provisional list of the DTAs that it would like to amend using the MLI, as well as its provisional positions on the MLI provisions. This provisional list may be amended and will only be confirmed upon ratification of the MLI. Singapore has included 68 of its 82 comprehensive DTAs after considering various factors, such as our DTA partners’ commitment to the BEPS Project. These DTAs will be amended by the MLI only if the respective DTA partners also sign the MLI and have included the respective DTAs under the scope of the MLI.
How did Singapore determine its positions on the MLI?
The MLI allows jurisdictions to swiftly implement the tax treaty related BEPS recommendations, which include both mandatory provisions (i.e. the minimum standards under the BEPS Project) as well as non-mandatory provisions.
Singapore will be adopting these mandatory provisions in the MLI,
(i) Article 6 (Purpose of a covered tax agreement) – To include a statement of intent in the preamble of the covered tax agreement that the DTA is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance
(ii) Article 7 (Preventing treaty abuse) – To include a general anti-abuse rule in the covered tax agreement, commonly known as the Principal Purpose Test (PPT).
(iii) Article 16 (Mutual Agreement Procedure) – To include a mechanism to allow a Singapore resident taxpayer to seek assistance from IRAS when the taxpayer encounters taxation in a DTA jurisdiction that is not in accordance with the intended application of the DTA.
Singapore will also be adopting a number of non-mandatory provisions in the MLI, which it believes will be beneficial for its taxpayers. One such example is the adoption of the mandatory binding arbitration provision in our DTAs. This provision will provide an alternative dispute resolution mechanism if the competent authorities are unable to reach agreement or are unable to do so in a timely manner. The mandatory binding arbitration provision will be included in our DTAs if the respective DTA partners also choose to adopt the provision.
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