de droit fi scal international

Offprint

cahiersvolume 100b

International Fiscal Association

2015 Basel Congress

The practical protection of taxpayers’

fundamental rights

1938-2015

Cahiers de droit fi scal

international

volume 100

b

International Fiscal Association

1938-2015

2015 Basel

Congress

Omslag IFA 100B Offprint 1Omslag IFA 100B Offprint 1 03-06-15 10:4703-06-15 10:47

Singapore

Branch ReporterSim Ho Ong*

709IFA © 2015

* Tax lawyer1 Government of Singapore, White Paper on Shared Values, Cmd 1 of 1991, at para. 41. This

reporter cites this as a matter of background and does not express any view as to whether this gov-ernance phil osophy is of greater merit than others.

1. General introduction

This report covers the practical protection of taxpayers’ rights in Singapore as partof subject 2 of the IFA Congress 2015 Basel. The directed focus of the topic is theidentification of:(a) internal best practices in the protection of taxpayers’ rights; and(b) international minimum standards of the protection of taxpayers’ rights. The reporters have been directed to eschew theoretical critique, legal analysis ofprovisions and general principles of the tax law in this area. Hence, this reportapproaches the topic, as directed, practically and with the above-mentioned focusin mind.

The following areas have been identified for discussion:(a) the audit and investigation process; (b) the review and appeal process;(c) the decision to prosecute; (d) confidentiality of information; and (e) exchange of information. The focus of this report is on income tax as governed by the Singapore Income TaxAct and the regulations and administrative policies made thereunder.

Despite the focus on the practical aspects of the subject matter there is a place inthis introduction for a brief observation of the governance culture in Singapore asan overlay to how taxpayers’ rights are regarded. This is especially pertinent astaxation law and practice are not regarded, either by the citizenry or the govern-ment, as enjoying any special or higher societal or jurisprudential significance.

The philosophy adopted by the government concerning its role has been artic -ulated as follows:

“The concept of government by honourable men (junzi), who have a duty to doright for the people, and who have the trust and respect of the population, fits[Singapore] better than the Western idea that a government should be given aslimited powers as possible, and should always be treated with suspicion unlessproven otherwise.”1

A practical and useful demarcation to consider in so far as taxpayers’ rights areconcerned is to view taxpayers’ engagement with the Revenue authority in twophases, i.e. the administrative and the litigation phases. In the former, the case hasnot reached the judicial adjudication process. Taxpayers’ rights in Singapore canbe said to be highly unregulated and rely for their existence and value on the ethosand professionalism of the Revenue authority. The protection at the litigationphase, on the other hand, is highly codified and largely in line with internationalnorms in the area of judicial dispute resolution.

Hence, it is not that there are no due process or legal and institutional checks andbalances in Singapore. It does mean that the practical protection of taxpayers’rights in Singapore (as in other areas of interface and interaction between the cit -izenry and the government) ultimately depends much upon the fairness and profes-sionalism of the tax officers until the matter reaches the litigation phase. This maycome across as an unpalatable situation to many, particularly for those who comefrom a background where due process is not only practised (as in Singapore) but isaccorded primacy and constitutes an endemic characteristic of the legal system.

2. Audit and investigation

Taxpayers’ rights are particularly vulnerable in the area of audits and investiga-tions. The Inland Revenue Authority of Singapore (IRAS) – the statutory bodycharged with the responsibility to assess and collect tax in Singapore – hasextremely wide powers of search and seizure. Such powers include the right tohave at all times full and free access to all buildings, places, documents and com-puters in Singapore and the right to seize documents and computers without a war-rant or court order.

The initiation of an audit or investigation does not require judicial or quasi-judi-cial authorisation. In practice the IRAS has internal guidelines to ensure that auditsand investigations are not commenced for improper purposes.

2.1. Selection of taxpayers for audits and investigations

The Act does not provide any guidance as to how taxpayers may be selected foraudit or investigation. It falls upon the IRAS to decide from time to time whoshould be subject to examination. The question then is whether such discretionexposes taxpayers to arbitrary discrimination and harassment by the IRAS. In prac-tice, there are two safeguards against such abuses.

First, it has been claimed that the IRAS has a “rigorous risk assessment system”and a “robust evaluation process” for selecting cases for audit or investigationrespectively.2 Factors that contribute to a high risk assessment include the propen-sity to use cash, lack of proper record keeping, specific industry practices that posea high risk and the time gap since the last audit.3 Although taxpayers are not privy

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2 Wilson Ong and Tham Siok Peng, “Issues in Tax Investigations and Tax Audits”, in S. Y. Pok etal., The Law and Practice of Singapore Income Tax, 2011, Chapter 23, pp. 1123–1160, at p. 1129.

3 Ibid.

to the details of the risk assessment system and the evaluation process, it is fair toobserve that tax professionals do not generally consider discrimination or harass-ment by the IRAS a real problem in Singapore.

Second, taxpayers have a constitutional right against discrimination. Article 12of the Constitution of the Republic of Singapore states that all persons are equalbefore the law and are entitled to the equal protection of the law. Where a taxpayerfeels that he or she is being discriminated against, the taxpayer may apply for jud -icial review of the IRAS’s decision to audit or investigate him or her. However, itis highly unlikely that a decision to commence an audit or investigation can ever besuccessfully challenged by way of judicial review save in the most egregious ofcases (there has not been any attempt to date to begin such legal proceedings). Thisis because the threshold hurdle for judicial intervention is very high under theapplicable common law – the tax office has to be shown to be acting maliciously orthat the decision to investigate was so unreasonable that no right-minded officialwould have decided to investigate.

2.2. Investigation powers

Article 13(2) of the model taxpayer charter4 requires that “a taxpayer shall not besubject to unreasonable search and seizure without due process of law, which willnormally require a search warrant signed by a judge or a Justice of the Peace”. Thisis not the requirement in Singapore. The IRAS has wide statutory powers to con-duct a search-and-seizure without a court order. The model that Singapore adoptsfor law enforcement is closer to the “crime control model” than the “due processmodel” that Herbert Packer expounds.5 The crime control model emphasises therepression of crime rather than the protection of individual rights.

In practice, the following are observed despite the absence of specific legislativeprotection or limit against search and seizure:(a) Even though the IRAS technically has the power to conduct an unannounced

search-and-seizure for the purposes of an audit, the IRAS tends to restrict itsexercise of such power only for the purposes of criminal investigations wherethe preservation of evidence is particularly important.

(b) IRAS officers are equipped with credentials showing their authority to con-duct the search-and-seizure. Taxpayers have the right to inspect such creden-tials and to verify the identity of the person by calling the IRAS. If required,the taxpayer may also ask for copies of the legislation conferring the powersof search on the IRAS.

(c) IRAS officers tend to be professional and courteous in conducting searches.For example, the reporter has observed that even though IRAS officers arenot required to obtain permission from the taxpayer to enter and searcha taxpayer’s home or office, they usually ask for such consent as a matter ofcourtesy.

(d) Computers seized by the IRAS are usually imaged and returned to the tax-payer within a few days so that disruption to the taxpayer is minimised. If the

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4 Asia Oceania Tax Consultants’ Association (AOTCA), Confédération Fiscale Européenne and theSociety of Trust and Estate Practitioners.

5 Chan Sek Keong, “The Criminal Process – The Singapore Model” (1996) 19 SingLRev 433.

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6 Ong and Peng, “Issues in Tax Investigations and Tax Audits”, op. cit., at pp. 1132–3.

computer is required urgently, taxpayers may request the computer to beimaged on site or within a day.

(e) Taxpayers are allowed to review and photocopy documents seized by theIRAS, albeit under video surveillance for the purpose of protecting theevidence.

(f) There are usually present with the officers having conduct of the search andseizure one or more officers who are not directly involved in the case to serveas a form of check.

(g) Despite the absence of any express right to have counsel present during thesearch or interviews the IRAS often permits the presence of legal counselsubject to non-interference.

As expected, taxpayers are allowed to appoint a tax agent or lawyer to representthem during the audit or investigation. In the reporter’s experience, where a taxagent or lawyer has been appointed, the IRAS tends to allow the tax agent orlawyer the opportunity to take instructions from the taxpayer before continuingwith the investigation. In the appropriate case this presents an opportunity to prac-tically change the nature of the proceedings into a self-disclosure process. As amatter of professional courtesy, the IRAS would, upon request by the taxpayer,also direct all correspondence and communications to the tax adviser and wouldschedule interviews with the taxpayer through the tax adviser.

The key safeguard in the investigation process therefore is the fairness and pro-fessionalism of the IRAS officers. Supplementing this would be the right of the tax-payer to be represented by a tax agent or lawyer.

2.3. Length of review

The Act does not impose any time limit for the completion of audits and investiga-tions. That said, as an internal guide the IRAS officers are generally expected tocompletely round up their audit or investigation within two years.6 Although thereis a time bar of four years (reduced from six years in 2007) within which the IRASmust issue an assessment or additional assessment, in practice, the IRAS tendsto issue “protective assessments” before the expiry of the time bar. Taxpayers inSingapore have to pay tax as determined by the IRAS despite any objection andappeal. Although the IRAS has the discretion to defer the collection of the taxassessed, this discretion is only exercised where the taxpayer is deemed to havecompelling reasons for the deferment. The time bar thus does not offer any realassurance for expeditious conduct of an audit or investigation.

2.4. Practical lessons for international readers

Foreign corporations with a Singapore presence should review their global dawnraid guides and procedures for the Singapore context especially where they werelaid down in the United States or a similar legal environment.

Particular training and briefing are necessary for expatriate management orboard representatives on their rights and expectations in the audit and investigationprocess.

Circumspection should be exercised in the matter of document deposit in theSingapore office on a strictly necessary basis in view of the very wide search andseizure powers and in the light of the exchange of information regime.

3. Review and appeals

The ultimate review of IRAS’s decisions and interpretation lies in an appealagainst a disputed tax assessment to the Income Tax Board of Review (and subse-quently to the courts in the specific circumstances discussed below).

There are several procedural hurdles to cross before the appeal is heard beforethe Board.

3.1. Notice of objection

A valid objection against a tax assessment has to be made within the stipulatedtime.7 An objection is considered valid where it (a) is in writing, (b) states pre-cisely the grounds of the taxpayer’s objections to the assessment and (c) is madewithin 30 days from the date of the service of the notice of assessment.8

Unfortunately, the Act does not state what is meant by the phrase “states pre-cisely the grounds”. This creates some uncertainty.

The IRAS has sought to clarify the matter in an e-Tax Guide which states that anotice of objection must contain the following:9

(a) the year of assessment; (b) description of the item(s) under objection;(c) amount of income/deduction for each item under objection; and(d) reason explaining why deduction/allowance/relief ought to be allowed/or the

income should not be subject to tax.Given the amount and detail of information required, it would seem that 30days would in a more complex situation be barely sufficient for the taxpayer toprepare a notice of objection that “states precisely” the grounds of objection.This is especially the case where the taxpayer needs to seek professional advicefor complex matters involving the interpretation and application of the law. TheIRAS as such has extended the deadline requirement to two months (but onlyfor corporations).10

In practice there have been cases where the IRAS had dismissed notices ofobjection as being invalid for allegedly insufficient grounds. This usually occurswhere the taxpayer is not professionally represented. It is therefore timely that theIRAS has chosen to issue detailed guidance as to what would constitute a validnotice of objection.

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7 S. 84(1) of the Act. 8 Ss. 76(2) and (3) of the Act. 9 IRAS e-Tax Guide, “Corporate Income Tax – Objection and Appeal Process” (28 February 2013),

at para. 4.5.1. 10 Ibid., at para. 4.3.2. It is not clear why the time frame has not been extended for individuals. It could

be that the IRAS takes the view that income tax issues for individuals are less complex than for cor-porations. But this is not necessarily true, especially in the context of taxation of partnerships.

3.2. Notice of refusal to amend

After a valid notice of objection has been made it then falls on the IRAS to decidewhether or not to amend the assessment or to refuse to amend it. A taxpayer maycommence appeal proceedings only upon the IRAS issuing a formal notice ofrefusal to amend. This feature is perhaps liable for the greatest criticism as it doesnot provide any time frame within which such decision is to be made. This reporterhas experienced a case where it took the IRAS several years to come to a decisionas to whether to amend the assessments or to refuse to do so.

It is hoped that the situation will now be different following the issue of an e-Tax Guide which sets out the timeline within which the IRAS will, in corporateincome tax cases, issue a notice of refusal to amend.11

3.3. Notice of appeal

Previously, the taxpayer only had seven days from the date of the notice of refusalto amend to file an appeal. This meant that the taxpayer had very little time toobtain advice on the merits of his or her case. In 2011, the time allowed to file anappeal was extended to 30 days.12 This has resulted in a greater protection of thetaxpayer’s rights, particularly since an appeal is the measure of last resort.

In exceptional cases, the Chairman of the Board has the power to allow anappeal to proceed notwithstanding that the notice of appeal was not filed on time.This power is exercisable only where such delay is due to absence, sickness orother reasonable cause and there has been no unreasonable delay on the taxpayer’spart.13

3.4. The constitution of the Board

The Board hearing an appeal comprises the Chairman (or a Deputy Chairman) andtwo other members of the Board. The Chairman and Deputy Chairman are usuallylegally trained persons including sitting judges of the State Court while the mem-bers of the Board usually consist of members from the legal and accounting profes-sions, academia and industry.

Taxpayers are entitled to object to members of the Board who may have a con-flict of interest in the matter. However, the taxpayer is not entitled to object to theChairman or any Deputy Chairman of the Board and to more than one-third of thetotal number of members of the Board.14 In the event that the Chairman, a DeputyChairman and/or more than one-third of the Board has an actual, potential orapparent conflict of interest in hearing the matter, it is expected that the officialwill in the ordinary course recuse himself or herself on that account. Failure orrefusal to do so is, of course, subject to judicial review.

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11 Ibid., at para. 2.1. 12 Income Tax (Amendment) Bill 2011.13 S. 79(11) of the Act. 14 S. 79(3) of the Act.

3.5. Proceedings before the Board

A lawyer or public accountant may represent the taxpayer in hearings before theBoard. Hearings are held in camera so as to preserve confidentiality.15 The in cam-era proceedings extend to all further appeals at the High Court and the Court ofAppeal.

Decisions of the Board are made on a majority decision with every member car-rying a vote.

3.6. Practical lessons for international readers

International taxpayers with experience of the common law adversary systemshould be comfortable with the appeal process in Singapore.

There remains a high reliance on UK case authorities where relevant and a fairlyregular resort to Australian authorities. In more involved cases, it is common forthe opinion and assistance of leading counsel in these jurisdictions to be obtained.

It is possible for foreign Queen’s Counsel or Senior Counsel to be admitted toargue a tax appeal.

The provision of proceedings to be heard in camera is helpful and it is hopedwill remain a permanent feature.

4. Decision to prosecute

The IRAS is a statutory body and a separate legal entity from the government assuch. However, as the prosecution for criminal offences is undertaken by the officeof the Public Prosecutor, the IRAS has to seek the sanction of the Public Prosecutorfor serious offences under the Income Tax Act including offences for tax evasion.This serves as a check against any abusive or unjustified prosecution by the IRAS.It is expected that a review of the evidence and the representations made on behalfof the taxpayers independent of those investigating the matter will inject a dose ofobjectivity and hence protection for taxpayers.

5. Confidentiality

There is a strong element of protection against any unauthorised disclosure of con-fidential taxpayer information by the IRAS. Under section 6(1) of the Act any offi-cial of the IRAS having contact with taxpayer information has to swear adeclaration before a magistrate or the Comptroller to observe the law against unau-thorised disclosure. This formality not only has obvious legal force but also servesto instil the seriousness of the duty of preserving confidentiality in the official.

Pertinently, the prohibition against disclosure extends to disclosure to othergovernment authorities including the police (subject to specific and defined excep-

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15 S. 83(1) of the Act.

tions such as for the investigation of serious offences relating to drug traffickingand money laundering). The unauthorised disclosure of confidential informationby any official is an offence.

6. Exchange of information (EOI)

Since the initial introduction of a more robust EOI protocol in 2009, the Singaporeauthorities have come under intense global pressure to significantly strengthentheir framework for international cooperation to combat cross-border tax offences.

Singapore finally endorsed the internationally agreed standard for EOI in 2013and began the process of renegotiating its tax agreements with treaty partners toimplement the standard.

The most significant changes following the endorsement and implementation ofthe standard from a taxpayers’ rights point of view are:(a) The IRAS is now able to obtain bank and trust information from financial

institutions without having to seek a court order. Thus, the arbiter of whethera request for EOI falls within the standard now lies with the IRAS.

(b) The Singapore Court concluded concurrently with the United States an inter-governmental agreement that requires financial instruments in Singapore tocomply with the Foreign Account Tax Compliance Act. Financial institutionsin Singapore have now to pass on information about financial accounts heldby US persons to the US Inland Revenue Service on a regular basis.

Conclusion

The practical protection of taxpayer rights in Singapore is in large measure a func-tion of the fairness and professionalism of the IRAS and less so of specific rights-based legislated checks and balances. The contextualisation of this observationwithin the governance norm in Singapore explains its acceptability to industry andcitizenry. The protection of taxpayers’ rights is ultimately undergirded by thewidely respected court system and the judiciary.

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de droit fi scal international

Offprint

cahiersvolume 100b

International Fiscal Association

2015 Basel Congress

The practical protection of taxpayers’

fundamental rights

1938-2015

Cahiers de droit fi scal

international

volume 100

b

International Fiscal Association

1938-2015

2015 Basel

Congress

Omslag IFA 100B Offprint 1Omslag IFA 100B Offprint 1 03-06-15 10:4703-06-15 10:47