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 somber city-state of 5.5 million, money is no laughing matter, and the same's true for its bank secrecy laws. Which at least partly helps explain why Singapore is fastest growing among the five-biggest wealth centers globally.
Now, however, there's a fly in the ointment. This week, the Internal Revenue Service sought to make UBS turn over the Singapore bank account records of U.S. citizen Ching-Ye Hsiaw. As Bloomberg News reported, 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 shouldn't 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, U.S. 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 U.S. 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 only share information with jurisdictions it believes to have a strong rule of law to prevent abuses. Presumably, the U.S. 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's being singled out. The spirit of international cooperation, without which the OECD 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 percent annual growth in wealth assets to $1.62 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 U.S. fine.
If the U.S. is serious about plugging loopholes, why not take former Treasury Secretary Larry Summers's advice and end the seven-year-long legislative dithering on taxing U.S. 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.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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