Singapore is more than just a shining city state, a place of untrammelled commerce and cleanliness, and the jewel of Asia’s economic miracle. It is a tax haven thatpresents an ever-increasing menace to Australia’s revenue base and future prosperity.
“Robbing us blind” would be another way to put it.
Singapore risk is on the rise, according to documents obtained under Freedom of Information from the Australian Tax Office by advocacy group Tax Justice Network:
“Our links with Asia – and risks associated with low tax jurisdictions – are reflected in the large and growing numbers of related entities in Singapore and Hong Kong, while established havens … such as Bermuda and British Virgin Islands continue to be utilised,” says one internal Tax Office document.
The documents are heavily redacted but there is enough data to get the picture. “The top five countries for transfers of intangible property are USA, Singapore, Japan, Switzerland and Ireland.”
Then there are the transfers of money, billions every year. By now, Singapore may have even knocked off Switzerland as the No. 1 tax haven for Australian business.
“In 2012 there were 7834 International Dealing Schedules lodged by taxpayers in Australia covering international related party dealings (IRPD) totalling $272 billion. Singapore accounted for around 33 per cent of total IRPD expenditure. Switzerland accounted for around 35 per cent.”
The significance of these “related party dealings” is that companies are selling more to themselves than ever. You can charge yourself interest too, so when the loan from yourself from overseas is big enough, you can shift hundreds of millions of dollars a year to yourself in another jurisdiction and scarper out of income tax here.
Singapore is fastidious about its reputation but it’s time it was called what it is. On the Tax Justice Network’s global secrecy rankings, the city state sits just one rung below the infamous Cayman Islands as the world’s fifth most secretive place. Jersey is at 9 and Bermuda at 14.
The Tax Office documents also canvass the threat of inducements: “Foreign governments offering tax holidays and incentives to promote the movement of certain business functions to their country (eg the Economic Development Board in Singapore).”
The corporate tax rate in Singapore is 17 per cent, compared with 30 per cent in Australia, but 17 per cent is merely the headline rate. If you push enough business their way they will tax you 5 per cent or 10 per cent. If you move your headquarters there you may pay zero.
Rise of the marketing hub
So it is that Australian and multinational companies operating in this country have been setting up “marketing hubs” in Singapore in their droves. BHP and Rio were pioneers of the Singapore marketing hub. Our third largest miner, Swiss group Glencore, is hard on their heels.
In 2010, Glencore Coal Investments Australia sold 10 per cent of its coal to related Glencore entities. That rose to 16 per cent the following year, through 27 per cent to 46 per cent of its $4.3 billion in sales in 2013.
A Fairfax investigation found that at the same time Glencore was quickly moving to sell almost half its coal to itself, it was also setting up a slew of marketing companies in Singapore.
According to the TJN, Singapore does not require that company accounts be available on public record, nor does it require that company ownership details are publicly available online, nor even that companies maintain their ownership details in official records – so there is no clear picture of what is going on.
However, it must be tempting for companies in general to sell products and resources cheaply from Australia to Singapore then jack up the price on the next leg of the global trip, as both profits and royalty payments can be minimised.
In the case of the oil majors Chevron and Shell, which make revenue in the tens of billions in Australia but register little in the way of profits income tax, is it a coincidence that their trading operations in Singapore are so fabulously profitable?
Mind you, Singapore has been veritably, historically, a trading hub for oil. What it has never been is a large trading partner for real goods. It is no small irony that China is our largest trading partner but when it comes to related party transactions, China is tiny compared with Singapore.
It should be said that all is fair in tax and war. Australia’s corporate tax rate is almost double Singapore’s headline rate. The business lobby is right to a point in calling for a lower tax rate in Australia.
The fact remains that if multinationals paid their fair share and if the Tax Office stamped out uncommercial, tax-driven transactions, this could be achieved. The playing field for business would be levelled in the process, and the budget would be repaired. Yet the business lobby continues to act like the one-trick pony, calling for
lower rates but failing to call for profit shifting to be policed more effectively.
As for Singapore, the ask-no-questions culture that made it a hub for smuggling activity in colonial times persists to this day. Only technology has changed, rendering capital flows faster.