Singapore regulators have been in talks to allow cross-border selling of mutual funds and unit trusts across Asia-Pacific but tax is proving to be a stumbling block.
The Asia Region Funds Passport (ARFP), to be launched next year, will allow fund managers operating in one member country to offer their funds in another under a streamlined authorisation process.
Singapore was one of the original four countries that signed a Statement of Intent on the ARFP back in 2013 and, since then, it has been involved in drafting the framework for it. However, at the Asia-Pacific Economic Cooperation (Apec) finance ministers meeting in Cebu last Friday, Singapore decided not to sign a Statement on Understanding (SOU) on the deal.
The MAS said it remains open to participating in the ARFP when there is commitment to resolve this tax issue.
The SOU commits signatories to work on finalising the ARFP framework and participate in it.
Six other nations signed the statement - Japan, Australia, South Korea, the Philippines, Thailand and New Zealand.
The Monetary Authority of Singapore (MAS) said Singapore declined to sign because taxation arrangements that had been committed to previously, had not been included.
"When we signed the Statement of Intent in 2013, the signatories explicitly committed to reduce the potential impact of taxation arrangements which would otherwise impede the success of the ARFP," the MAS said.
"This was consistent with the feedback that the industry gave, where for the ARFP to be successful, there needs to be a level playing field. This means that foreign funds offered to investors in a jurisdiction should be subject to similar tax treatments as funds managed locally." The SOU did not address this issue and did not provide any commitment to addressing the impediment of unequal tax treatment.
However, the MAS said it remains open to participating in the ARFP when there is commitment to resolve this tax issue.
In the meantime, it said Singapore will continue to develop and finalise the arrangements for the ARFP, including drafting the regulatory framework.
Mr Han Ming Ho, a partner at Sidley Austin Singapore, said sorting out a tax arrangement is critical to creating a level playing field.
If, for example, foreign funds offered to investors in one country are subject to higher taxes than local funds, this "may be a huge impediment to successful traction of the ARFP scheme", he said.
The Investment Management Association of Singapore agreed, saying: "We hope these tax impasse issues can be reviewed and resolved quickly, as a level playing field for tax arrangements on all funds is very important to the success of the ARFP scheme."