Singapore, by and large, is a very serious nation.
Asia's richest country by per capita income ranked 24th in a recent World Happiness Report, behind much poorer Brazil, Costa Rica and Venezuela. In this sombre city-state of 5.5 million, money is no laughing matter, and the same is true for its bank secrecy laws. Which at least partly helps explain why Singapore is fastest growing among the five biggest wealth centres globally.
Now, however, there is a fly in the ointment. This week, the Internal Revenue Service (IRS) sought to make UBS turn over the Singapore bank account records of US citizen Hsiaw Ching-Ye. The Swiss lender refused. UBS has until March 31 to explain its reasons and the outcome could set the stage for a testy showdown.
The IRS claims that Singapore's bank secrecy laws should not stand in the way of a disclosure required by "international comity", America's interest in combating tax evasion by its citizens "outweighs the interest of Singapore in preserving the privacy of its bank customers", revenue agent James Oertel said in the filing. In other words, the United States' tax laws should carry greater sovereign heft than legislation in Singapore.
This heavy-handed approach is unlikely to go down well. Singapore has already amended its income tax laws to enable financial institutions to comply with the US Foreign Account Tax Compliance Act, and it's also agreed to implement the international standard on the automatic exchange of financial account information from 2018.
Singapore has said it will share information with only jurisdictions it believes to have a strong rule of law to prevent abuses. Presumably, the US qualifies. But if the IRS insists on arm-twisting banks, and forces them to break Singapore laws, then the city might legitimately claim that it is being singled out. The spirit of international cooperation, without which the Organisation for Economic Cooperation and Development standard on disclosures has little hope of succeeding, will break down.
Banks are going to be caught between a rock and a hard place. Saddled with higher capital and liquidity requirements, and struggling to make money in trading, lenders are shifting their focus to private wealth, which means they can't afford to be out of Singapore, not when the nation promises 8 per cent annual growth in wealth assets to US$1.62 trillion (S$2.2 trillion) by 2019, according to the Boston Consulting Group. At the same time, though, no global bank has the appetite for being slapped with yet another large US fine.
If the US is serious about plugging loopholes, why not take former treasury secretary Larry Summers' advice and end the seven-year-long legislative dithering on taxing US corporations' overseas profits? Discussions about interests of international comity are best carried out between nations. Turning the debate into a courtroom battle, with banks drafted into it against their will, is bound to be counterproductive. Use the stick against one jurisdiction, and money will simply flow to another.
Singapore could do without the unhappiness.
BLOOMBERG
