1. Singapore’s Position on BEPS Action 15: Multilateral Instrument
Gurbachan Singh
GSM Law LLP
Singapore

2. Singapore’s Position on the BEPS Project
Singapore supports the key principle underlying the BEPS Project that profits should be taxed where the real economic activities generating the profits are performed and where value is created.
Singapore is committed to implementing the four minimum standards under the BEPS Project. The minimum standards are:
Action 5: Countering Harmful Tax Practices More Effectively;
Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances;
Action 13: Transfer Pricing Documentation and Country-by-Country Reporting; and
Action 14: Making Dispute Resolution Mechanisms More Effective.

3. Singapore’s Position on the BEPS Project
Countering harmful tax practices
Singapore uses tax incentives to promote investment in certain areas of the economy. It has traditionally been Singapore’s approach that incentive recipients must anchor substantive operations in Singapore and contribute meaningfully to the growth of the economy.
Singapore’s tax incentives are granted for defined periods of time on qualifying activities, and regularly reviewed to ensure that they remain relevant and competitive.
Preventing treaty abuse
Singapore does not condone treaty shopping. Singapore has signed the Multilateral Instrument, which will modify Singapore’s DTAs to include the anti-treaty shopping provisions.

4. Singapore’s Position on the BEPS Project
Transfer pricing documentation
Singapore adheres to the internationally agreed arm’s length principle and intends to implement Country-by-Country Reporting (“CbCR”) for Singapore- headquartered multinational enterprises with group turnover exceeding S$1,125 million for financial years beginning on or after 1 January 2017.
Such enterprises will be required to file the Country-by-Country (“CbC”) reports with the Inland Revenue Authority of Singapore (“IRAS”).
Singapore has also committed to exchange CbC reports with its relevant treaty partners.
Enhancing dispute resolution
Singapore has been active in engaging foreign tax authorities to resolve cross- border tax disputes via the mutual agreement procedure (“MAP”) provided in its DTAs.
Under the MLI, Singapore has opted for mandatory binding arbitration.

5. Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”)
The MLI allows jurisdictions to transpose results from the OECD-G20 BEPS Project into their existing bilateral tax treaties. The MLI will be applied alongside existing tax treaties between two or more parties to the MLI, to modify the application of such treaties in order to implement the BEPS measures.
The MLI provides flexibility for a jurisdiction to determine which of its DTAs it would like to amend using the MLI.
The MLI will apply only to a DTA that has been specifically listed by all parties to the DTA. Such agreements are referred to as “Covered Tax Agreements” (“CTAs”) in the MLI. A party to a CTA is referred to as a “Contracting Jurisdiction”.

6. Mandatory and Non-mandatory provisions
Where the provision relates to a minimum standard, opting out is allowed only in limited circumstances, such as where a party’s CTAs already meet the minimum standard.
Where the provision does not relate to a minimum standard, parties are generally given the flexibility to opt out of part of that provision or the entire provision. Accordingly, where a party has opt out of a provision of the MLI, that provision will not apply to any of the party’s CTAs.
The MLI does not permit parties to make treaty-by-treaty choices when they decide how they want the MLI to modify their existing tax treaties. Therefore, where a party makes a reservation under the MLI, the reservation shall apply to all the party’s CTAs.
With regards to the mandatory binding arbitration provisions in Part VI of the MLI, these provisions will apply only between parties who have chosen to apply Part VI to their CTAs.

7. Singapore’s Position on the MLI
At the point of signing the MLI on 7 June 2017, Singapore provided a provisional list of DTAs that Singapore would like to amend using the MLI, as well as provisional positions on the articles of the MLI.
In its provisional list of DTAs, Singapore included 68 of its 82 comprehensive DTAs after considering various factors, such as its DTA partners’ commitment to the BEPS Project.

8. Part II. Hybrid Mismatches
Article 3 – Transparent entities
Income derived by or through a transparent entity shall be considered to be income of a resident of a Contracting Jurisdiction, to the extent that the income is treated as that of the resident for purposes of taxation by that Contracting Jurisdiction.
As a provision on transparent entities is not required to meet the minimum standard, Singapore has indicated that it will reserve the right for the entirety of Article 3 not to apply to its CTAs.

9. Part II. Hybrid Mismatches
Article 4 – Dual Resident Entities
In the absence of an agreement between the competent authorities of the Contracting Jurisdictions on the treaty residence of a person resident in more than one Contracting Jurisdiction, the benefits of a CTA shall be denied to that person.
As a provision addressing dual resident entities is not required to meet the minimum standard, Singapore has indicated that it will reserve the right for the entirety of Article 4 not to apply to its CTAs.

10. Part II. Hybrid Mismatches
Article 5 – Application of Methods for Elimination of Double Taxation
Parties may choose Option A or B, or neither, to address problems arising from the inclusion of the exemption method in treaties with respect to income items that are not taxed in the state of source.
Option A – Provisions of a CTA will not apply to exempt income or capital from tax for double taxation if the other jurisdiction will exempt or limit the rate at which such income or capital will be taxed.
Option B – The exemption method will not be applied with respect to dividends that are deductible in the Contracting Jurisdiction of the payer.
As a provision on methods for elimination of double taxation is not required to meet the minimum standard, Singapore has indicated that it will reserve the right for the entirety of Article 5 not to apply to its CTAs.

11. Part III. Treaty Abuse Article 6 – Purpose of a Covered Tax Agreement
The minimum standard under Action 6 requires countries to include in their DTAs an express statement that their common intention is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance.
Singapore has indicated that it will include this statement in the preamble of its CTAs. It will also include the non-mandatory statement, expressing a desire to further develop economic relationship or enhance cooperation in tax matters, in its CTAs.

12. Part III. Treaty Abuse Article 7 – Prevention of Treaty Abuse
Action 6 requires countries to implement, at a minimum:
(i) a principal purpose test (“PPT”), which is a general anti-abuse rule based on the principal purpose of transactions or arrangements;
(ii) a PPT and either a simplified or detailed limitation on benefits (“LOB”) provision, which limits the availability of treaty benefits to persons that meet certain conditions; or
(iii) a detailed LOB provision supplemented by a mechanism that would deal with conduit arrangements not already dealt with in tax treaties.
Singapore has indicated that it will adopt the PPT in its CTAs. The asymmetrical application of the simplified LOB provision will not be allowed.
Singapore will also include the discretionary relief provision, which will give IRAS discretion to grant treaty benefits to a taxpayer, upon their request, despite the taxpayer failing the PPT.

13. Part III. Treaty Abuse Article 8 – Dividend Transfer Transaction
A minimum shareholding period of 365 days has to be satisfied in order for a company to be entitled to a reduced rate on dividends from a subsidiary.
As a provision addressing dividend transfer transactions is not required to meet the minimum standard, Singapore has indicated that it will reserve the right for the entirety of Article 8 not to apply to its CTAs.
Article 9 – Capital Gains from Alienation of Shares or Interests of Entities Deriving their Value Principally from Immovable Property
As a provision addressing capital gains from the alienation of shares deriving their value principally from immovable property is not required to meet the minimum standard, Singapore has indicated that it will reserve the right for Article 9(1) not to apply to its CTAs.

14. Part III. Treaty Abuse
Article 10 – Anti-abuse Rule for Permanent Establishments Situated in Third Jurisdictions
Where income from permanent establishments situated in third jurisdictions are exempt from tax in the first Contracting Jurisdiction, benefits under the CTA shall not apply if the tax imposed on the income in the third jurisdiction is less than 60% of the tax that would be imposed in the first Contracting Jurisdiction.
As a provision addressing permanent establishments situated in third jurisdictions is not required to meet the minimum standard, Singapore has indicated that it reserves the right for the entirety of Article 10 not to apply to its CTAs.

15. Part III. Treaty Abuse
Article 11 – Application of Tax Agreements to Restrict a Party’s Right to Tax its Own Residents
This is a “saving clause” preserving the right of a party to tax its own residents.
As a saving clause is not required to meet the minimum standard, Singapore has indicated that it reserves the right for the entirety of Article 11 not to apply to its CTAs.

16. Part IV. Avoidance of Permanent Establishment Status
Article 12 – Artificial Avoidance of Permanent Establishment Status through Commissionaire Arrangements and Similar Strategies
An enterprise shall be deemed to have a permanent establishment in a Contracting Jurisdiction if a person acts on behalf of the enterprise and, in doing so, habitually concludes contracts in the Contracting Jurisdiction.
As a provision addressing commissionaire arrangements and similar strategies is not required to meet the minimum standard, Singapore has indicated that it reserves the right for the entirety of Article 12 not to apply to its CTAs.

17. Part IV. Avoidance of Permanent Establishment Status
Article 13 – Artificial Avoidance of Permanent Establishment Status through the Specific Activity Exemptions
A party may choose to apply Option A or Option B, or neither, to address the artificial avoidance of permanent establishment status.
Option A – The term “permanent establishment” shall be deemed not to include the listed activities only if they are of a preparatory or auxiliary character.
Option B – Activities referred to under Option A that are intrinsically preparatory or auxiliary are not subject to the condition that they must be of a preparatory or auxiliary character.
In addition, the fragmentation of activities between closely related parties will not result in an avoidance of permanent establishment status.
Given that provisions addressing artificial avoidance of permanent establishment status and fragmentation of activities are not required to meet the minimum standard, Singapore has indicated that it will apply Option B to its CTAs, but will reserve the right for the provision on fragmentation of activities not to apply to its CTAs.

18. Part IV. Avoidance of Permanent Establishment Status
Article 14 – Splitting-up of Contracts
This provides a method for determining whether the period referred to in a CTA that stipulates a period of time after which specific projects or activities shall constitute a permanent establishment has been exceeded.
As a provision addressing splitting-up of contracts is not required to meet the minimum standard, Singapore has indicated that it will reserve the right for the entirety of Article 14 not to apply to its CTAs.
Article 15 – Definition of a Person Closely Related to an Enterprise
This describes the conditions under which a person will be considered to be “closely related” to an enterprise for the purpose of Articles 12, 13 and 14.
Singapore has indicated that it will reserve the right for the entirety of Article 15 not to apply to its CTAs to which reservations in Article 12, 13 and 14 have been made.

19. Part V. Improving Dispute Resolution
Artificial 16 – Mutual Agreement Procedure (“MAP”)
The minimum standard for improving dispute resolution under Action 14 requires jurisdictions to allow a taxpayer to present a case to the competent authority of either Contracting Jurisdiction for mutual agreement assistance. The competent authority shall endeavor to resolve the case by mutual agreement with the other competent authority.
Singapore has indicated that it intends to meet the minimum standard through the alternative method of ensuring that resident taxpayers can approach IRAS for mutual agreement assistance, and that IRAS will implement a bilateral notification or consultation process to inform the other Contracting Jurisdiction when IRAS rejects a MAP application.

20. Part V. Improving Dispute Resolution
Article 17 – Corresponding Adjustments
The minimum standard under Action 14 requires jurisdictions to provide access to the MAP in transfer pricing cases and implement the resulting mutual agreements.
In addition, it would be more efficient if jurisdictions also had the possibility to provide for corresponding adjustments unilaterally in cases where they find the taxpayer’s objection to be justified.
Singapore has indicated that it will include a provision to allow jurisdictions to make corresponding adjustments and consult with one another in the event of a transfer pricing adjustment.

21. Part VI. Arbitration Article 18 – Choice to Apply Part VI
Parties may opt to apply the mandatory binding arbitration. Part VI applies only if all parties to a CTA have expressly chosen to apply it.
Singapore has indicated that it will apply Part VI to its CTAs.
Article 19 – Mandatory Binding Arbitration
Where the competent authorities are unable to reach an agreement on a case pursuant to the MAP under the CTA within a period of two years, unresolved issues will, at the request of the person who presented the case, be submitted to arbitration.

22. Part VI. Arbitration
Singapore has indicated the following reservations:
Any unresolved issues arising from a MAP case shall not be submitted to arbitration if a decision on the issue has already been rendered by a court or administrative tribunal of either jurisdiction;
The arbitration process will terminate if, at any time after a request for arbitration has been made and before the arbitration panel has delivered its decision, a decision concerning the issue is rendered by a court of administrative tribunal of either jurisdiction;
Singapore will also apply the confidentiality provision, which provides that each person presenting the case and their advisors must agree not to disclose to any other person any information received from either jurisdiction or the arbitration panel in the course of the arbitration process.

23. Part VI. Arbitration Article 23 – Type of Arbitration Process
“Final offer” (also known as “last best offer” or “baseball arbitration”) – The competent authorities will each submit to the arbitration panel a proposed resolution which addresses the unresolved issues.
“Independent opinion” – Each competent authority must provide to the arbitration panel any information that the panel may consider necessary to reach its decision.
By default, the “final offer” arbitration process will apply. Parties that are not willing to accept the “final offer” approach may adopt the “independent opinion” approach.

24. Part VI. Arbitration
Singapore has indicated that it will adopt the “final offer” arbitration as the default mode of arbitration.
Where the other Contracting Jurisdiction reserves to apply the “independent opinion” arbitration, Singapore will enter into discussion with the Contracting Jurisdiction to reach an agreement on the type of arbitration process to apply.

25. Part VI. Arbitration Article 24 – Agreement on a Different Resolution
Jurisdictions can depart from the arbitration decision and agree on a different resolution within three calendar months after the decision has been delivered to them.
Singapore has indicated that it will apply this Article to its CTAs.

26. Part VII. Final Provisions
Article 28 – Reservations
Singapore has indicated that it will reserve such that cases which are subject to its domestic general anti-avoidance rules will not be eligible for arbitration.
Article 36 – Entry into Effect of Part VI
Singapore has indicated that the arbitration provisions under Part VI will be available to a case presented before the entry into force of the MLI only if both jurisdictions agree that it will apply to that specific case.