Complying with tough new rules aimed at stamping out tax evasion will be costly and onerous, but banks and regulators have no choice if Singapore is to become a world-class financial hub.
The assessment came from a panel of tax experts at the Society of Trust and Estate Practitioners Asia Conference on Thursday.
The process of compliance was set in motion earlier this year when Singapore signed the Organisation for Economic Cooperation and Development's (OECD) multilateral treaty on sharing tax details.
This pact makes it easier for Singapore regulators to share with other jurisdictions information about foreign nationals with funds here who are being investigated for tax evasion.
KhattarWong senior partner Gurbachan Singh noted that this treaty came about in the wake of the 2008 financial crisis, when Western economies were strapped for cash and needed to recoup as much tax revenue as they could.
Singapore, with its ambitions to become a regional wealth management centre, must comply with the new rules, even though the move will be "at our cost, to their benefit", Mr Singh said, referring to Western nations.
"At the end of the day, there'll be one standard, and I think anyone who falls below that standard risks being the subject of international scrutiny."
Another panellist, tax lawyer Richard Hay from law firm Stikeman Elliott London, echoed these views, saying that countries keen to play in the global financial arena must get serious about stopping toxic money from flowing into their markets.
Nevertheless, some of the new rules have come at a great cost to financial institutions and regulators worldwide, he acknowledged.
Take the Foreign Account Tax Compliance Act (Fatca), a United States law that takes effect next year. It will oblige financial institutions based outside the country to report information about assets owned by American taxpayers to the US Inland Revenue Service (IRS).
Singapore is in talks with the US to sign a deal that would make it simpler for financial institutions here to comply with Fatca.
Mr Hay said studies have shown that the total cost to international organisations of having to upgrade their systems to prepare for Fatca will be greater than the tax revenues the IRS is expected to collect as a result.
"Asia is being pressed to shoulder the cost of collecting data to finance Western government spending," he added.
Still, complying with Fatca and other international standards will pay off in the long run, he said, noting that Switzerland has provided a good example of the costs of non-compliance.
"Swiss indifference to foreign tax evasion has created a nightmare for the local industry. US fines are massive and getting worse."
Banks and finance professionals have been prosecuted. UBS, for example, was fined US$780 million (S$980 million) in 2009 after it admitted it had sheltered US tax cheats.
Under a settlement reached earlier this year, Swiss banks can avoid prosecution if they reveal names of US citizens holding accounts with them, but they could still be fined up to half of the customer's asset value.
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