Singapore’s government says it’s not a tax haven, it’s a value-adding hub

Singapore is not a tax haven, it’s a value-adding hub.

That is the claim of the island nation’s Economic Development Board, the Singaporean government agency that’s been charged with attracting business and investment. It has disputed recent claims at the Senate inquiry into corporate tax avoidance that it’s being used as a tax haven channelling billions of dollars for Australian companies.

Singapore offers low personal and company tax rates, and a range of other tax incentives that allow companies doing business there to pay no or very little tax.

Companies such as Google, Apple, Microsoft, BHP Billiton and Rio Tinto have all admitted in recent hearings as part of the Senate inquiry into corporate tax avoidance that they are under audit by the ATO for their use of Singapore “marketing” and “service” hubs, where they route hundreds of millions of dollars of income.

A spokesperson for Singapore’s Economic Development Board told Fairfax Media that its tax incentives were legal and in the spirit of fair tax competition.

They were given to a limited number of companies and aimed at supporting Singapore’s economic growth and promoting investment.

“Tax incentives are given to companies with substantive economic activities in Singapore, which will significantly add value to our economy, such as bringing in new capabilities into Singapore or creating good jobs for Singaporeans,” the spokesperson said.

Australia’s corporate tax rate is 30 per cent, whereas Singapore’s corporate tax rate is capped at 17 per cent, and there is no capital gains tax. For personal income tax, Australia’s highest marginal rate is 45 per cent, but in Singapore it’s capped at 20 per cent (for residents earning above $S320,000). Non-residents are capped at 15 per cent.

Tax was not the only reason companies had chosen Singapore. “Singapore is a natural gateway for companies looking to expand in emerging Asia,” the spokesperson said.

The multinationals using Singapore hubs have said it’s a legitimate regional place of business that they use to enhance their products and services. But Tax Commissioner Chris Jordan has disputed the amount of income that is being channelled through these hubs. He wants to get more of the tax paid on profits in Australia.

BHP Billiton, for example, is paying an effective tax rate of just 0.002 per cent on the hundreds of billions of dollars in sales of Australian resources it directs through its Singapore “marketing hub”. Between 2006 and 2014, the company booked profits of $US5.7 billion in Singapore, and the ATO is chasing it for $500 million in unpaid taxes and fines.

The EDB spokesperson said Singapore was working within the OECD plan, tasked by G20 governments, to tackle profit shifting. “Singapore has a good working relationship with foreign tax authorities and is fully committed to working with the international community to fight cross-border tax offences,” the spokesperson said.

Greens leader Christine Milne said: “It’s hardly surprising that the Singaporean department that negotiates the tax arrangements for big business defends those arrangements.”

While they were not illegal, Seantor Milne said tax was the reason why Australian corporations have set up marketing hubs in Singapore and are offshoring billions of dollars on which they should be paying a higher rate of tax in Australia.

Tax Justice Network spokesman Mark Zirnsak said Singapore in recent years had made “commendable improvements in transparency and a willingness to co-operate with other governments on cases of tax evasion and money laundering”. “However, as demonstrated by the Senate inquiry, Singapore continues to be willing to offer special tax deals to multinational corporations that provide incentives for profit shifting and tax avoidance,” he said.

Documents leaked to the International Consortium of Investigative Journalists in 2013 exposed the Singapore-based Portcullis TrustNet as having set up offshore companies and trusts and hard-to-trace bank accounts in Singapore and other tax havens, Mr Zirnsak said.

He said information-sharing agreements with other countries come hedged with special Singaporean “safeguards” which can make it hard for other governments to extract the necessary information from Singapore for tax avoidance cases.

“Singapore offers many tax exemptions to foreigners and multinational companies, making it an attractive location for profit shifting and tax avoidance,” he said.

The use of Singapore hubs by multinationals continues to grow. Australian companies have more than $100 billion worth of transactions with related parties in Singapore, according to the Australian Taxation Office submission to the inquiry.

And Taxation Statistics 2012-13, which break down the funds going in and out of Australia, show that multinational companies sent $55.1 billion to related parties in the island nation in 2013. This is up from almost $40 billion the year before.

Australian companies also have large workforces in Singapore. BHP has more staff there than its Melbourne headquarters. There are about 600 employees and 400 contractors in Singapore. Apart from being a marketing hub, it also has its business information systems based there. Meanwhile, Rio Tinto employs more than 300 staff in Singapore.

As well as attracting multinationals, Singapore has been popular with a number of Australian rich listers.

Despite being small in size, and holding little in natural resources, each year Singapore tops the list of the nation with the highest number of millionaires thanks to its low tax rates and government’s focus on attracting business.