INSUBCONTINENT EXCLUSIVE:
Singapore might lose some of its allure for various foreign portfolio investors as a preferred destination to route their investments into
With the Multi-Lateral Agreement (MLI) between the two countries set to come into force from April 1, fund managers in Singapore, who invest
in India, could face a stiffer task of convincing local tax authorities that they have not set up shop in the island nation to avail the tax
benefits.
Investors based out of Singapore continue to avail several tax benefits for putting money in India
These include exemption from capital gains tax on derivatives and lower capital gains tax rate for equities
But, these exemptions will be applicable only if the Indian taxman are convinced that they are not in Singapore to avoid taxes
While the government has already implemented the General Anti-Avoidance Rules (GAAR) to curb tax avoidance, MLI comes with much stricter
provisions and is believed to override GAAR, say experts
GAAR, implemented in 2017, requires foreign investors to prove that they are in a jurisdiction not just to take advantage of the tax
treaty.
The Indian and Singapore governments ratified the Multi-Lateral Agreement in December 2019 and its provisions come into force from
MLI, an international tax law under the umbrella of Organization for Economic Cooperation and Development (OECD), comes with strict tax
As per the MLI, an entity can be declined treaty tax benefits if one of the reasons for choosing a jurisdiction is tax benefit.
The move
commercial interest in Singapore
Singapore is the fourthlargest source of FPI inflows with assets under management worth Rs 3.15 lakh crore.
The MLI comes with the so-called
avoidance purposes or not
As per the PPT, even if tax is amongst one of the key reasons for an entity to choose Singapore, then such an entity can be declined tax
GAAR, on the other hand, provides for much liberal interpretation in terms of tax avoidance since it can be invoked only if tax avoidance is
However, GAAR can used only if the main purpose of an arrangement is tax avoidance and also the arrangement does not have commercial
The main reasons behind X choosing Singapore include availability of efficient manpower, good infrastructure and favorable tax agreement
In this scenario, if GAAR was the guiding law then the arrangement adopted by X may not be considered for tax avoidance since tax is not the
only reason for choosing Singapore
However, under MLI, this arrangement could be termed for tax avoidance since tax is one of the reasons
curb tax avoidance, especially amongst multi-national companies (MNCs) who explore the gaps in the tax laws among different countries
Currently, 87countries including Australia, France, Japan and the United Kingdom are signatories to the initiative.
