INCOME TAX (AMENDMENT) (EXCHANGE OF INFORMATION) BILL

INCOME TAX (AMENDMENT) (EXCHANGE OF INFORMATION) BILL: Order for Second Reading read.

The Minister for Finance (Mr Tharman Shanmugaratnam): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time".

The Income Tax (Amendment) (Exchange of Information) Bill proposes amendments to the Income Tax Act that will allow Singapore to implement the internationally agreed Standard for the exchange of information for tax purposes upon request.

The Bill was released for public consultation from 29th June to 28th July this year. The Ministry of Finance (MOF) has revised the Bill to incorporate the public feedback received.

Internationally agreed Standard

Sir, for the benefit of Members who may not be familiar with the internationally agreed Standard for the exchange of information, allow me to first explain how it came about.

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The principles of transparency and exchange of information for tax purposes have evolved over the years. The Standard in its current form was first published by the Organisation of Economic Cooperation and Development (OECD) in 2005. It was most recently articulated in the OECD 2008 Model Tax Convention on Income and on Capital, and sets out how tax jurisdictions should address cross border tax evasion by entering into effective information sharing arrangements through their Avoidance of Double Taxation Agreements (DTAs).

When the Standard was first published by the OECD in 2005, jurisdictions which were not members of the OECD did not have to adopt it in their DTAs. Not all jurisdictions accepted the Standard. In fact, even some OECD jurisdictions expressed reservations on the Standard. Singapore noted the Standard, but did not adopt it because it was one promulgated by the OECD which we are not a member of, and was not a worldwide Standard then.

The Standard only gained recognition as an internationally agreed Standard when the United Nations Committee of Experts on International Cooperation in Tax Matters endorsed the Standard in October last year.

Following the UN Committee's move, Singapore decided to endorse the Standard in March this year. It has always been our practice to adopt relevant international standards, in keeping with our role as a trusted international financial centre and a responsible jurisdiction.

Our financial sector is built upon the quality, depth and breadth of services we offer, strong and consistent regulatory policies and a firm commitment to the rule of law. Our strict anti-money laundering regime, for instance, is held in high regard by the Financial Action Task Force (FATF) which is an international body, which

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rates Singapore's compliance score equal to the US and second to none. Our confidentiality laws are not intended to shelter tax criminals.

What the Standard means for Singapore

It is important to note that Singapore was able to exchange information with foreign jurisdictions on tax matters even before we endorsed the internationally agreed Standard. We can and already provide tax information in response to foreign requests through our DTAs. However, assistance through DTAs was subjected to the domestic interest condition, meaning that the information had to be relevant to the enforcement of domestic tax laws before the Inland Revenue Authority of Singapore (IRAS) can gather and exchange it with DTA partners. Where there was a domestic interest, our banking and trust confidentiality laws allowed for information to be obtained for the purposes of investigating or prosecuting a tax offence.

The new internationally agreed Standard for exchange of information enhances the scope of information exchange cooperation under DTAs by lifting the domestic interest condition and allowing for access to information from banks and trust companies under certain conditions. This enhanced scope of cooperation will not only allow Singapore to provide greater assistance to its prescribed treaty partners, but also help Singapore obtain information for the enforcement of our domestic tax laws.

An integral aspect of the internationally agreed Standard is its respect for taxpayers' rights. The Bill contains important safeguards in this respect. Spurious or frivolous requests for information will not be acceded to. Further, it does not allow for what is called "fishing expeditions" – it requires requests for information to be specific,

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detailed and relevant to the tax affairs of the taxpayer in question. Consistent with the tax Standard, we will only provide assistance where there is a genuine case at hand, and the requested information is specific and relevant to the case.

Additionally, the Standard also does not allow jurisdictions to take advantage of the information system of another jurisdiction if it is wider than their own system. Hence, we will only exchange information that a requesting jurisdiction would have ordinarily been able to obtain under its own laws or administrative practices, had the information resided in that jurisdiction in the first place. Jurisdictions must also have pursued all domestic means to access the requested information before putting forth a request to us.

Such safeguards do not impede the effective exchange of information. They are provided for by the internationally agreed Standard to uphold the principle of respecting taxpayers' rights. With the amendments proposed in this Bill, Singapore is committed to respecting these rights, while fully meeting our obligations under the Standard and playing our full role as a trusted and responsible jurisdiction.

The Standard also sets out clear limits on the types of information that jurisdictions are obliged to exchange. Jurisdictions are not obliged to exchange trade or business secrets, or information that is subject to legal privilege. They may also decline to exchange certain information if doing so would be contrary to public policy. Some examples of such information include state secrets or information sought for the purposes of political, religious or racial persecution. However, these are serious grounds of refusal, and we do not expect to invoke them under normal circumstances.

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Implementing the Standard through DTAs

The legislative amendments contained in this Bill will enhance the level of assistance that Singapore can provide to foreign jurisdictions whose DTAs with us incorporate the new Standard. To date, we have reached agreement with 20 jurisdictions to incorporate the Standard under our DTAs, and have formally signed such agreements with 11 of these jurisdictions.

Most of these jurisdictions are those we already have full DTAs with and therefore have broader cooperative arrangements with on matters of tax, and with whom we have established a good understanding on each others' systems and processes of law. Of the 20 jurisdictions that we have reached agreement with, 15 are in fact OECD members.

Sir, the changes Singapore is making are essentially similar to those being made by other major financial centres. For example, Hong Kong is making the same moves. It is amending its legislation and intends to conclude DTAs to give effect to its amended legislation. Switzerland and Austria have each signed more than 12 DTAs that incorporate the internationally agreed Standard, and will be able to fulfil their obligations under the Standard once these DTAs are ratified.

Enhancing the scope for foreign assistance

Sir, I will now explain the two categories of specific amendments to the Act that will allow us to implement the internationally agreed Standard. The first category enhances the scope of assistance that Singapore can provide to foreign jurisdictions under DTAs that incorporate the Standard, or "prescribed DTAs" for short.

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Lifting of domestic interest

Firstly, as I have explained earlier, under our current laws, exchange of information with our treaty partners is subjected to the domestic interest condition. The new section 105F lifts this domestic interest condition to enable IRAS to satisfy its obligations under the prescribed DTAs.

Access to information held by banks and trust companies

Secondly, under existing laws, IRAS may only obtain banking and trust information for the purpose of investigating or prosecuting a suspected domestic tax offence. The internationally agreed Standard requires the exchange of information which is foreseeably relevant to the administration of the requesting jurisdiction's own tax laws, without it being predicated on the taxpayer having committed an offence. IRAS' information gathering powers will be widened under the new Part XXB to enable it to access bank and trust information to accommodate requests on tax administration matters under prescribed DTAs and domestic tax administration matters.

Allowing exchange of information for other taxes in addition to income tax

Thirdly, as the internationally agreed Standard applies to all forms of taxes, IRAS will be allowed to share information obtained under the Goods and Services Tax Act, Stamp Duties Act and Property Tax Act to fulfil Singapore's exchange of information obligations under the prescribed DTAs. The new section 105G provides for this change.

Safeguards

The second category of amendments sets out safeguards to ensure that requests for information are only acceded to where they are clear, specific, relevant

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and consistent with the internationally agreed Standard. Proper safeguards, including due legal process, are crucial to protecting the rights of taxpayers, and in maintaining confidence in our tax and legal systems.

Documentary requirements

The new Eighth Schedule sets out the documentary requirements which a requesting jurisdiction must fulfil for all requests. These requirements ensure that requests are justified, that is, clear, specific, relevant, legitimate and consistent with the Standard. They will help screen out "fishing expeditions".

Access to banking and trust information

There will be safeguards for assisting in requests relating to information that is protected from unauthorised disclosure under the Banking Act and the Trust Companies Act. The new Part XXB sets up a judicial process for IRAS to obtain such information in response to requests under prescribed DTAs. The affected taxpayer and bank or trust company will be notified of the request, unless there are exceptional circumstances, such as if doing so would prejudice an investigation into any breach of tax laws, or prevent or unduly delay the effective exchange of information. IRAS will make an application to the High Court for a production order to access the requested information. The affected taxpayer and bank or trust company will have the right to apply to the Court to discharge or vary the Court order.

I should emphasise that these procedures are not meant to frustrate or delay the information exchange process. Rather, they are intended to provide a fair and independent assessment of the validity of requests, and allow us to render effective assistance to valid requests. They are essentially similar to procedures used in the United Kingdom,

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which relies on a tribunal process, or the United States which relies on the courts.

Sir, the proposed amendments that the Bill contains will allow Singapore to implement the new internationally agreed Standard. Other leading financial centres are moving in tandem to implement the Standard. The changes we are enacting are fully in keeping with Singapore's status and reputation as a trusted and responsible business and financial hub committed to the international effort to combat cross-border tax evasion.

Sir, I beg to move.

Question proposed.

3.13 pm

Mr Liang Eng Hwa: Sir, I commend the Government for its swift and sensible action to amend this Act. This amendment inserts key provisions that strengthen the ability of IRAS to comply with requests for information under the Avoidance of DTAs.

These legislative changes are inevitable and necessary if we do not want to be singled out by OECD as countries that are less than cooperative on the tax front. As a small and open economy that heavily depends on international trade, services and global investments to sustain our economic livelihood, the ramifications are serious if Singapore is being categorised as an uncooperative tax regime.

Since the publication of the grey list at the G20 London Summit in April, the number of jurisdictions in the list has acted equally fast to amend their law and implement the exchange of information (EOI). Like Singapore, countries such as Switzerland, Belgium and Luxembourg have no choice but to expedite the implementation of the exchange of information.

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While getting out of the grey list may be the key motivation for this amendment, I feel that these changes are also a step in the right direction if we want to build a respected and admired tax regime that is sustainable and healthy.

Our value proposition as an international financial centre cannot be based on "beggar-thy-neighbours" approach. Neither should it be at the expense of other jurisdictions’ tax policy. Rather it should be built on the quality and expertise of our financial institutions as well as the strong and fair legal system that we have established.

In today's environment where business transactions are increasingly international in nature, tax authorities around the world face greater challenges to enforce cross border tax laws. There would be increasing dependence on international co-operation. And having a commonly accepted international standard on the effective exchange of information would enhance certainty and stability as countries interact and cooperate. This would not only benefit our trading partners but Singapore as well.

As an international financial centre, one of our strong credentials among others is the tough confidentiality laws. This is probably one important ingredient that made Singapore a vibrant wealth management centre that it is today. So the key concern with the EOI is whether this would jeopardise financial privacy and undermine the attractiveness of our private wealth management industry. A relevant question would be whether any competing financial centres will benefit at our expense when the EOI is rolled out here.

Judging by the recent successes of Global Forums to urge both OECD and non-OECD countries to substantially implement the standards, no jurisdictions which aspire to be a financial centre or

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commercial centre can get away with just remaining in the status quo. Coupled with the synchronised approach among the so-called Peer Review Group, in which Singapore is the Vice Chairman of the group, it is unlikely any late mover would be able to profit from these developments. For example, Hong Kong, like us, has also put forward legislative changes. In fact, there are no countries left in the list of un-cooperative jurisdictions maintained by OECD.

In any case, we do not want a reputation where our banking secrecy laws will be abused to facilitate tax evasions or other crimes. The existence of EOI with our treaty partners would encourage compliance and deter taxpayers from withholding information from their tax authorities.

However, I do have some concerns to raise. We need to be watchful of any cases of disguised protectionism when countries seek information under the EOI. We read about reports where foreign governments when faced with daunting economic challenges would put the blame on low tax jurisdictions for their problems. In particular, it is sometimes perceived that tax benefits enjoyed by these companies, outside their home country, led to the loss of jobs and tax revenues. Foreign corporate taxpayers that are subjected to the request for sensitive information by their government will fear the loss of financial privacy and that may discourage other companies from moving offshore.

How would the Government safeguard against requests for information which has this protectionist intent?

My second concern is the so-called "fishing expeditions" that the Minister mentioned. The safeguards against the so-called "fishing expeditions" by the requesting party are provided for at the Eighth Schedule with the list of 11

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questions. I felt that the safeguards can be made even more explicit by making the requesting jurisdiction declare that they are not on a "fishing expedition". Also, as issues related to such "fishing expeditions" can cut across different areas of Government, is there the need for the involvement of other agencies other then IRAS to ascertain that request is not a "fishing expedition"? We may want to err on the rigorous side to prevent any abuses.

At the individual level, I welcome the clarity and legal security provided for by section 105J for the individuals, which essentially provides for the right of the party against whom the order is made and the information is sought to apply to the High Court to vary and discharge the order within seven days. This right must be highlighted to the taxpayer whenever the situation arises.

My third concern is in regard to the need to regulate and monitor the information flow to avoid it falling into the wrong hands.

There is this real risk that the information sought by the requesting state may be lost, leaked, stolen or misused. Such sensitive information in the wrong hands could cause damage to the taxpayer's good name, reputation and his business activities.

I would like to ask the Minister whether we would require the requesting state to sign an undertaking acknowledging the duty of secrecy as well as indemnifying IRAS from any claims should this sensitive information be mishandled.

With the EOI in place, the requests for such information are expected to increase significantly. So my next question is whether these jurisdictions would have the ability as well as the capacity to reciprocate when the request is made. In

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particular, do these countries have the administrative practices and the legal mechanism to professionally carry out the exchange of information? This was an issue raised in some forums by a few concerned jurisdictions. As Singapore is a member of the steering group in the Global Forum, we should strongly emphasise that reciprocity of EOI is an important building block. Non-reciprocity can alter the level playing field and lead to parties second guessing each other and therefore mistrust.

With the EOI in place, it should smooth the path for more DTAs to be signed and therefore enhance Singapore status as an international business centre.

Singapore has yet to enter into the Comprehensive Avoidance of Double Taxation Agreement with the US. I would like to ask the Minister if EOI is the stumbling block in the earlier negotiations. Would the implementation of this new EOI standard open the door to reviving negotiations with the US and increase the prospects of entering an agreement with the US?

Finally, in a way, this financial crisis and recession have hastened these developments. The various corporate bailouts and economic stimulus measures have left many governments with huge fiscal deficits. These gaps need to be filled quickly and hence the push by politicians in these countries to focus on tax leakages and finding ways to discourage the use of tax havens or low tax offshore financial centres.

In a short span of a few months, OECD has "forced" upon a certain level playing field. We have no choice but to adjust and adapt accordingly to the new tax world.

In any case, in this ever dynamic and competitive environment, with or without the EOI, Singapore will still need to

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continually find our own niches and comparative advantages to stay as the top financial centre.

Sir, I support the Bill.

Mdm Ho Geok Choo: Mr Speaker, Sir, I applaud the amendment tabled to facilitate the exchange of information under double taxation agreements. It clearly shows Singapore’s strong commitment to the eradication of tax evasion, and tax authorities worldwide will see this as a reassuring move on our part.

However, in this era of globalisation where security considerations are of paramount importance, good intentions could be read wrongly and I do have a number of clarifications regarding this Amendment Bill.

First, to protect the privacy of persons affected by the request of information by foreign tax authorities, we must be sure that the request is bona fide and is not a "fishing" exercise to extract and store the persons’ personal details and other relevant information. To this end, the new section 105D(2) requires that the foreign authorities provide in their request certain information as prescribed in the new Eighth Schedule. While detailed, I feel that some clarity is required in the terms used.

In Article 8, one of the required pieces of information is "[a] statement that the country has pursued all means available in its own territory to obtain the information including getting the information directly from the person in relation to whom the information is requested".

My question is, Sir, does "the country" refer to all relevant authorities in the country (ie, tax authorities, police, any other relevant regulatory agencies), or just the "competent authority" as defined

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under the Income Tax Act? If we want to prevent information extracting exercises, it should be stipulated that the requesting country exhausts all possible means within its means and authority before approaching Singapore for information.

In Article 9 of the Eighth Schedule, another piece of vital information required is, "the details of the period within which that country wishes the request to be met". Does "the period" refer to the time frame that includes the relevant tax positions, or does it refer to how soon that country wishes the request to be met by the Comptroller? I would also repeat my earlier query about the definition of "the country" in regard to this Article.

Sir, my second query relates to the new section 105G, which empowers the Comptroller to request for information in the possession of other local tax authorities in order to comply with a request for information by a foreign authority.

Sir, I would like to clarify if the other local tax authorities have a duty to actively procure the information from the persons concerned, or is "information in his possession" to be read narrowly to only apply to information that the other local tax authorities may already have.

My third query relates to the new section 105J(3), which lists as one of the conditions of the High Court must be satisfied before issuing an order to disclose protected information is that the disclosure not be "contrary to the public interest".

Sir, I note that the EOI provision in some of our double taxation agreements, as well as the OECD recommendations on the exchange of information, uses the phrase "public policy" rather than "public interest". The OECD has also mentioned that "public policy" generally refers to the vital interests of a country, for instance,

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where information requested relates to a state secret.

Sir, a case of "public policy" may also arise, for example, where a tax investigation in another country was motivated by racial or political persecution.

I would like to clarify if "public interest" under the new section 105J(3) is meant to have the same meaning as public policy as defined by the OECD, such that (a) it is wide enough to encapsulate national security interests, and (b) it is wide enough to allow the High Court to refuse to grant the order on the grounds that the request for information is rooted in reasons that are not bona fide .

My last query relates to the status of information protected by legal privilege.

Sir, I note the deliberate exclusion of information subject to legal privilege from the new section 105J(1)(b) that allows the Comptroller to apply to the High Court for an order to produce information, and the new section 105K(3)(4)(a) which explicitly states that information, subject to legal privilege, need not be disclosed as a result of the court order obtained under section 105J(2).

However, the new section 105K(3) and section 105K(4)(b) appear to take the opposite position – that information is to be disclosed even if it is protected by law or otherwise. I would like to ask the Minister for a clarification on the status of information protected by legal privilege, where an order has been issued for the production of that information under the new section 105J(2).

Mr Speaker, Sir, I would also like to applaud the safeguards put in place to ensure a rigorous processing of the request for information before sensitive, confidential information is provided to foreign authorities, especially when no notice is given to the person against

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whom the information is required, and I also note the limited extent to which a person can lodge a protest against the exchange of information to the foreign authorities.

Sir, under the new section 105E(4), notice need not be served on a person if it could impede effective exchange of information or be prejudicial to investigations in the foreign country. Furthermore, even if the Comptroller applies to the High Court for an order for the disclosure of protected information, it appears that this application is intended to be made ex parte (ie, only one party appears before the court, and it is the Comptroller in this case).

Sir, therefore, the person whose information is at stake may never get to hear about it, even though he can appeal against the order, if by some stroke of luck he gets wind of the order. Sir, I understand the rationale for this seemingly harsh approach, which is to prevent surreptitious efforts to hide the request information but I am glad to note that the harshness of this approach is ameliorated by the fact that an order to produce information, otherwise protected under our laws, has to be issued by the High Court and not just the Subordinate Courts; and also that there is a right to apply for the order to be discharged or varied.

On this note, I support the Bill.

Mr Tharman Shanmugaratnam: Mr Speaker, Sir, I would like to thank Mr Liang Eng Hwa and Mdm Ho Geok Choo, both for their statements of perspective on the matter as well as their specific queries.

Let me first say that our decision to endorse and implement the new internationally agreed standard is a natural consequence of our long-standing policies. It is the right thing to do and it is in our

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interests to do so without delay. In fact, we announced our intention to endorse the Standard in February this year before the OECD had put out its listing of countries according to their compliance with the new Standard in April 2009.

After the G20 London Summit in April this year, the OECD published a list of tax jurisdictions classified according to whether they had committed to the internationally agreed Standard and whether they had already substantially implemented it. White-listed countries were those that had already substantially implemented the Standard – the benchmark being at least 12 signed agreements with others that incorporate the Standard. Grey-list jurisdictions were those that had already committed to the Standard, but had not substantially implemented it yet.

Singapore was on the grey list together with several other financial centres. However, as I have said earlier, we have since reached agreement with 20 jurisdictions to incorporate the Standard under our DTAs, and have formally signed 11 of these agreements. We are confident that we will formally conclude more than 12 agreements before the end of this year. Further, most of our agreements are with major economic jurisdictions, such as the United Kingdom, the Netherlands, Australia, New Zealand, Denmark and Norway. We have not treated this as a numbers game or sought to sign DTAs indiscriminately.

Mr Liang Eng Hwa was concerned, with good reason, that some countries would adopt protectionist moves under the guise of taking counter-measures against jurisdictions that they deem to have unfair tax systems. The diversity of fiscal and tax systems internationally, and competition between fiscal and tax

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systems internationally, is a strength of the world economy. It is entirely distinct from the need for concerted action to tackle the global problem of tax evasion or financial crimes. Tax diversity is a real positive for global economic growth. However, everyone knows that the fact that countries have diverse tax systems is something which can be easily politicised, and we have already seen this happen between countries which have a long history of differences on the matter.

As of this point, there is no indication of a descent into concrete protectionist measures. There is also no reason for any country to adopt protectionist measures against Singapore. We are a jurisdiction committed to international cooperation according to the internationally agreed Standard; we will soon meet, in fact, more than meet, the OECD target of 12 DTAs incorporating the new Standard.

It is also well-recognised internationally that Singapore is not a tax haven. We will not otherwise be having comprehensive DTAs with major countries – not merely Tax Information Exchange Agreements (TIEAs). The Tax Information Exchange Agreements are concluded between countries which are unable to conclude comprehensive DTAs. We have not taken that route. We have instead stuck to comprehensive DTAs and incorporated the Standard within them. And we would not be able to do so with major economies if we were regarded as a tax haven. They regard us as a substantive and well-diversified economy, not a name-plate jurisdiction.

What we have always believed in is that the global issue of cross-border tax evasion has to be addressed through the rule of law and on the basis of a level-playing field internationally. As Mr Liang has pointed out, our move to adopt and implement the internationally agreed

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Standard for exchange of information is being taken together with other financial hubs such as Hong Kong and Switzerland, which are taking similar steps to enhance their respective tax cooperation regimes. A level playing field will be maintained.

Mr Liang Eng Hwa also asked whether Singapore's implementation of the internationally agreed Standard would pave the way for negotiations with the United States on a comprehensive DTA. We do think that such a DTA would be in the interest of both US and Singapore taxpayers, and would deepen the strategic relationship between the two countries. Both Singapore and the US are keen to explore a comprehensive DTA and I expect the process to get underway next year.

Mdm Ho Geok Choo had several specific questions on the Bill which I will now address. I will first address her question on Paragraph 8 of the new Eighth Schedule, which requires requesting countries to have pursued all means available in their own territories to obtain the information they are requesting. Requests between countries must be made through their Competent Authorities as defined under the DTA between the two countries.

They may be made on behalf of other agencies that require the information for the enforcement of tax laws, such as the Justice Department or other relevant agencies. All of these agencies, and not just the Competent Authority, must have employed all legal means under the country's domestic laws to gather the relevant information before they can make a request to us. In fact, the internationally agreed Standard recognises that it is reasonable to expect a country to do this before it sends a request to another country.

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With regard to Mdm Ho's question on Paragraph 9 of the Eighth Schedule, the term "period" refers to how soon a requesting country wishes the request to be met. Mdm Ho also asked whether the new section 105G would oblige other local tax authorities besides the Comptroller of Income Tax – in other words, the Comptroller of Goods and Services Tax and the Comptroller of Property Tax for instance – to actively gather information that they do not possess in order to fulfil a request. The Standard obliges us to cooperate on information exchange, regardless of the type of tax information. Section 105G(1) spells out that the Comptroller of Goods and Services Tax, the Comptroller of Property Tax and the Commissioner of Stamp Duties are only obliged to transmit information already in their possession to the Comptroller of Income Tax. For any other information not in their possession that is required to comply with the request, the Comptroller of Income Tax, himself, may directly obtain the information, before transmitting all information requested to the foreign jurisdiction. These powers are provided for under section 105F(2).

Next, on the definition of "public interest", which was raised by Mdm Ho. "Public interest" under the Act covers the same grounds as "public policy" as stated in the internationally agreed Standard. The internationally agreed Standard has the concept of "public policy" or what they call in French, ordre public . It covers especially national security interests, or sensitive information held in the vital interests of the requested country. We have used the term "public interest" only so as to be consistent with our Mutual Assistance for Criminal Matters Act (MACMA), which is an existing act. "Public interest", as used in the Act, does not depart in substance from what is

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envisaged under the internationally agreed Standard, under its public policy provision.

Public interest, however, is unrelated to the rejection of requests that are not bona fide , or fishing expeditions. Such requests should be screened out in the first instance by the Eighth Schedule, which spells out very clearly the information that a requesting jurisdiction has to provide to IRAS when it makes its request. These requirements are intended to ensure that any request carries the necessary specificity and has clear relevance to the tax matter at hand. In addition, under section 105J(3)(a), the High Court has the power to reject unjustified requests.

Fishing expeditions can therefore be stopped at two levels – first by IRAS, then by the High Court if it relates to information protected under the Banking Act and Trust Companies Act. This arrangement offers robust safeguards without compromising on the efficiency and responsiveness of our information exchange regime. It is in essence similar to the processes in other major jurisdictions such as the US and the UK, and is not aimed at stifling the effective exchange of information.

To answer Mr Liang Eng Hwa’s query, IRAS, rather than other agencies, will determine if a request is a fishing expedition. IRAS has substantial experience in handling foreign requests and tax administration, and will be competent in making an assessment of whether a request constitutes a fishing expedition.

Mr Liang rightly points out that it is important that information shared with the requesting authority does not fall into the wrong hands. The internationally agreed Standard recognises this as a key concern

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for many countries, and has hence made the confidentiality of any exchanged information a key tenet of the Standard. This is therefore explicitly spelt out in our DTAs which incorporate the Standard. Any information received by any jurisdiction in the course of processing or making a request shall be treated as secret in the same manner as information obtained under the domestic laws of that jurisdiction, and may only be disclosed to persons or authorities concerned with the assessment and collection of, enforcement or prosecution in respect of, determination of appeals in relation to the relevant taxes. Such persons and authorities shall use the information only for such purposes.

Next, the question of legal privilege that was raised by Mdm Ho. The protection of information subject to legal privilege is provided for under the internationally agreed Standard, and is spelt out in our DTAs which have legal effect under section 49 of the Income Tax Act. The Comptroller is not obliged under the DTAs to obtain or exchange information that is subject to legal privilege. There is no need to repeat this requirement in section 105J of the current Act. In addition, where a court order is served on a person, he is entitled to refuse to comply with the order insofar as he can claim legal privilege.

Mdm Ho had also asked about sections 105K(3) and 105K(4)(b). Section 105K(3) provides that a person cannot refuse to comply with a court order because he is under a duty to protect the information. It is clearly subject to section 105K(4)(a) which preserves legal professional privilege. Other than legal privilege, a person served with the Court order cannot refuse to comply with it on any other grounds. So section 105K(4)(a) ensures that if you have legal professional

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privilege, that does provide basis for not being forced to provide the information to the Court.

The safeguards I have described are perfectly consistent with the internationally agreed Standard, which makes it clear that high Standards of transparency and exchange of information must encompass respect for taxpayers' rights.

As Mr Liang has pointed out, our treaty partners must have the administrative practices and legal mechanisms to professionally carry out the effective exchange of information according to the Standard. Exchange of information under our DTAs is premised on reciprocity. We stand ready to provide the fullest cooperation on bona fide requests, but we are obliged, just like any other country which subscribes to the Standard, to draw a clear line should a requesting jurisdiction be abusing the new provisions.

Mr Speaker, Sir, this Bill is about adhering to the principles we uphold. Trust, openness and the rule of law are the foundations upon which we have built up our financial centre, and indeed our broader economy as a whole. These principles and practices have served us well and will continue to support our efforts to further grow and develop our financial sector.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [ Mr Tharman Shanmugaratnam].

Bill considered in Committee; reported without amendment; read a Third time and passed.