Contrary to OECD CRS, Singapore permits zero report for settlor of irrevocable trust



Contrary to the OECD CRS, Singapore allows a zero report for Settlors of irrevocable trusts

Financial Institutions and tax planners promote the use an irrevocable Singapore trust because Singapore CRS guidance permits the trustee to report a nil value for the settlor.

Promoters convince their clients that this nil value will not result in any further query from the client's home tax authorities because the nil report will be treated as an empty trust. This is the same report that will be reported for an empty bank account held by an individual.
Singapore trusts as a solution for Settlors?

Many CRS practioners are ignorant and short-sighted in advocating Singapore trusts as a solution for CRS. Tax advisors, bankers and trustees commonly advise clients to either establish a Singapore trust or have any foreign Passive NFE trust bank in Singapore. This is to take advantage of Singapore mistakenly permitting a zero value report for settlors of irrevocable trusts.

Why this is a considered a "solution" for CRS

  1. OECD is unambiguous that the trust value be reported for all types of settlors: OECD is clear the entire value of the trust must reported, to determine whether assets settled in a cross-border trust were regulated/taxed.
  2. Singapore stands out with this loophole: Singapore is 1 of 3 countries out of 105 participating jurisdictions that blatantly contradict the OECD in permitting a zero value for these settlors
  3. Singapore contradicts its own guidleines: Singapore states in its CRS guidelines that the OECD implementation handbook, CRS commentary and OECD FAQ is an integral part of the CRS which repeatedly states in various places the value of the trust must be reported for all settlors, whether they have access or not, yet in the next sentence of its domestic guidance Singapore contradicts this by guiding that settlors of irrevocable trust must have zero reported
  4. Zero report from Singapore on settlor will trigger an Information on Request: A zero report on settlor from Singapore will likely trigger an Information on Request from Settlors tax authorities which is permitted by the Multilateral Competent Authority Agreement



OECD CRS Implementation Handbook mandates trust value reported for settlor of irrevocable trusts

1A. CRS Implementation Handbook describes settlors of irrevocable trust reportable

CRS Implementation Handbook pg. 77 par (200) defines Irrevocable trust as one where settlor has disposed of all interest in trust property

missing impl handbook pg. 77 par 200



CRS Implementation Handbook pg. 84 par(229) states settlor of irrevocable trust must be reported


missing impl handbook pg. 84 par 229
1B. OECD CRS states trust value reported for settlors

CRS implementation handbook states entire trust account value must be reported for any type of settlor of Passive NFE trusts

missing Passive NFE trust CRS


CRS implementation handbook states entire trust property value must be reported for any type of settlors of Investment Entity trusts


missing investment entity trust CRS
1C. Singapore CRS FAQ states reporting Financial Institutions must rely on the OECD Implementation Handbook Pg. 2 A2 - Reliance on the Commentaries on the CRS, CRS Implementation Handbook, and CRS-related FAQs

Are Reporting SGFIs expected to rely on the OECD’s Commentaries in OECD’s AEOI Standard, the Standard for Automatic Exchange of Financial Account Information in Tax Matters Implementation Handbook (“CRS Implementation Handbook”), and OECD’s CRS-related FAQs for guidance in implementing the CRS?

Yes. Given that the CRS as set out in the First Schedule is part of the Income Tax (International Tax Compliance Agreements)(Common Reporting Standard) Regulations 2016 (“CRS Regulations”) and is the international AEOI Standard developed by the OECD, the OECD’s Commentaries (“the Commentary”) on the CRS, the CRS Implementation Handbook, and OECD’s CRS-related FAQs are integral to Singapore’s CRS implementation. Reporting SGFIs are expected to rely closely on these materials for interpretative guidance on the due-diligence and reporting requirements of the CRS
Clearly the OECD CRS Implemetation Handbook states the total value of the trust must be reported for settlors of irrevocable trusts. Also clearly, the Singapore guidance says reporting FIs are expcted to rely closely on the OECD CRS Implemetation Handbook for interpretative guidance.

So where do things go incorrect for Singapore guidance?

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Singapore creates a state-sanctioned loophole by contradicting its own FAQ to rely on the OECD Implementation Handbook
2. Singapore CRS FAQ:

Pg. 33 F9 - Where the trust is an Investment Entity, can the account balance information to be reported for each Account Holder of the trust be different, depending on whether the trust is revocable or irrevocable, whether the settlor is a beneficiary or not, and whether the trust is discretionary or not?

Yes. Where the value or balance attributable to each Account Holder is individually derived based on the nature or arrangement of the trust, such value or balance can be reported. For example, where the settlor is not a beneficiary of an irrevocable trust, the account balance attributable to him can be reported as nil.
Singapore is mixing up beneficiaries which are not reportable and settlors which are reportable. Singapore comes up with its own rule that a settlor is like a beneficiary and does not get reported if not get distribution but then says if Settlor reportable then report zero.

This is incorrect and deliberately creates a loophole.



So what is future of this loophole?

3A. Exchange on Request

The Convention on Mutual Administrative Assistance in Tax Matters is the legal basis for jurisdictions to exchange information.

It also contains the facility for Exchange on Request.

So once a tax authority receives a zero value report from Singapore on a trust, the tax authority will demand exchange of information on request regarding the trust.
3B. OECD to close loopholes

The 2016 OECD report to the G20 Finance Ministers, updating on automatic exchange of information that in order to maintain the integrity of the CRS and to avoid a situation where tax evasion behaviour is displaced instead of resolved we will redouble our efforts to maintain the integrity of the CRS. This would include addressing potential loopholes, both actual and perceived and taking action whenever necessary. Moreover we stand ready to provide further guidance on the application of the CRS to trusts and foundations and to develop best practice “anti-abuse” provisions which jurisdictions could draw on in implementing that part of the CRS which requires that “a jurisdiction must have rules in place to prevent any Financial Institutions, persons or intermediaries from adopting practices intended to circumvent the reporting and due diligence procedures".


April 2016 OECD report to G20 Finance Ministers



In order to maintain the integrity of the CRS and to avoid a situation where tax evasion behaviour is displaced instead of resolved we will redouble our efforts to maintain the integrity of the CRS. This would include addressing potential loopholes, both actual and perceived and taking action whenever necessary. Moreover we stand ready to provide further guidance on the application of the CRS to trusts and foundations and to develop best practice “anti-abuse” provisions which jurisdictions could draw on in implementing that part of the CRS which requires that “a jurisdiction must have rules in place to prevent any Financial Institutions, persons or intermediaries from adopting practices intended to circumvent the reporting and due diligence procedures”.
4. Spanish tax on trusts.

Page 7 Settlement of Trusts

Civil law countries like Spain do not recognise trusts. It is taxed as if the trust never existed. Consequently they tax the settlor on wealth tax and income tax.

But this is not possible as Singapore reports nil for settlors of irrevocable trusts.
According to the Spanish tax rulings, trusts are disregarded for Spanish tax purposes, and therefore any transfer made by the settlor to the trust would be considered as not carried out from a Spanish tax perspective.

Consequently, the settlor should need to be considered the owner of the assets transferred to the trust until it is understood that there is an effective transfer (ie mortis causa transfer). Therefore, the settlement of the trust should not imply any taxation in Spain for the settlor or the trust in Spain.

Holding Period
Since a trust is disregarded for Spanish tax purposes, the settlor continues to be the owner of the assets transferred to the trust. Income derived by the assets held by the trust – which normally are deemed to be obtained by the trust under the national law regulating the trust – would be considered to be obtained by the settlor and taxed accordingly. If the settlor is tax-resident in Spain, he will be subject to personal income tax (PIT) in Spain on the worldwide income obtained by the trust,
5. France tax on irrevocable offshore trusts. See pt. 6 France wants to know the value of all the assets if settlor is a french resident
6. Germany tax on trusts.

In Germany, the settlor must pay 50% tax inheritance tax on settlement to a irrevocable trust. This shoots down IRAS reporting zero.
As of date of this publication, a German national cannot be a settlor of a testamentary trust because the German rules regarding conflicts of law lead to the application of German inheritance law whenever the deceased is a German national. TAXATION Several civil law jurisdictions, such as Malta and Switzerland, that have enacted comprehensive rules on the taxation of trusts. This is not true of Germany. Settlement of a Trust The settlement of an Opaque Trust and the transfer of assets to an Opaque Trust are subject to German Gift and Inheritance Tax (“G.I.H.T.”).

G.I.H.T. applies if the settlor (i) is a German tax resident or (ii) is a German national whose residency or habitual abode was located in Germany at some point during the most recent five years before settling the trust. If the German national is a U.S. resident, the look-back period is extended from five years to ten years. The tax rate is 30% on transfers below €6 million. Above that amount, a tax rate of 50% applies. Because all gifts made within a period of ten years are aggregated, making several separate transfers to a trust will not reduce the tax rate.

According to German forced heirship rules, spouses and direct descendants, or in their absence, parents, have a claim for a compulsory share of a decedent’s estate. If a settlor dies within ten years after settling a trust, the assets transferred into that trust will form part of the estate for forced heirship purposes.