Amendment of the Tax Treaty between France and Singapore
On 15 January 2015, France and Singapore revised their Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion (or “DTA”). The existing version (“Existing DTA”) was concluded in 1974 and the new version (“New DTA”) will only enter into force once ratified by both countries.
Some of the differences between the Existing DTA and the New DTA are (i) a reduction of the withholding tax rate on dividends, (ii) a new delimitation of the notion of permanent establishment, (iii) new drafting of the article regarding the Exchange of Information and (iv) the inclusion of an anti-abuse clause.
1. Withholding Tax on Dividends
As an initial point, we note that there is no withholding tax on dividends paid to an overseas shareholder in Singapore. As a result, the provision of the DTA regarding withholding taxes on dividends will only apply to dividends paid by a French entity to a Singapore resident (individual or corporation).
The Existing DTA was providing for a
- withholding tax rate not exceeding 10% of the gross amount of dividends paid by a company resident of one of the contracting states to a resident of the other state which is a company owning at least 10 % of the company paying the dividends ; or
- withholding tax rate not exceeding 15% if the shareholder is an individual or a company which own less than 10% of the company paying the dividends.
The New DTA will provide for a withholding tax rate not exceeding 5% the gross amount of dividends paid by a company resident of one contracting state to a resident of the other state which is a company owning at least 10 % of the company paying the dividends. The headline withholding tax rate for individuals or company owning less than 10% of the payer will remain unchanged.
2. Definition of Permanent Establishment
A permanent establishment is a fixed place of business in a contracting state in which a company from the other state carries wholly or partly its business. Depending on the situation, revenues from a company may be partly (or wholly) taxed in the country in which the permanent establishment is located.
A company has a permanent establishment in another state if it has in this other state a fixed place of management, a branch, an office, a factory, etc.
The Existing DTA also provides that a building or construction or assembly project which exist for more than 6 months constitutes a permanent establishment. Whereas in the New DTA the definition of permanent establishment also includes a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities lasts for more than 12 months.
Furthermore, the furnishing of services, including consultancy services, shall encompass the definition of permanent establishment but only if activities of that nature continue within the other country for a duration of more than 365 days within any 15-month period.
3. Redrafting of the article on Exchange of Information
In view of Singapore’s commitment to implement the new global standard on automatic exchange of information by 2018, the New DTA will modernise the existing process. Indeed, the new article 26(4) will oblige a contracting state to use its information gathering measures to obtain information on a taxpayer upon receipt of a request by the other state. Such obligation shall be respected even though the other state may not need such information for its own tax purposes. Such obligation is subject to limitations but the New DTA clearly states that the limitations shall not be used by a contracting state to decline to supply information solely because it has no domestic interest in doing so.
A contracting state cannot also decline to supply such requested information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or fiduciary capacity.
4. Inclusion of an anti-abuse clause
The New DTA will also contain an anti-abuse clause in its article 28. This clause states that the benefits of the treaty shall not be available where the main purpose for entering into certain transactions or arrangements was to secure a more favourable tax position.
Other dispositions will also be amended by the New DTA, such as the inclusion of an appropriate adjustment clause on transfer pricing between associated enterprises or regarding taxation of capital gains on the alienation of shares of a real estate company.
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