singapore law gazette (february 2012)

An Official Publication of The Law Society of Singapore | February 2012

www.lawgazette.com.sgR

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Last month in January, I attended three Openings of the Legal Year (OLY). The first OLY I attended was of course our very own in Singapore, followed by the OLY in Hong Kong, and the third in Kuala Lumpur.

It has now become a tradition for each territory to invite the Bar leader of a neighbouring country to attend its OLY. In particular, the close relations we have with Hong Kong and Malaysia, plus the short distance with these two jurisdictions, make it almost de riguer for us to send a senior representative to their OLYs. Indeed, there are many areas of common interest for these three territories, and we have discussed the possibility of more frequent contact to exchange ideas.

This is the third time that I have attended Hong Kongs OLY. The first was when I was Vice-President, and then-President Michael Hwang asked me to attend as he was otherwise engaged. The Hong Kong OLY is full of pomp and ceremony. There is a march-past by a police contingent to the rousing music of a police band, with bagpipes and drums. The barristers come fully attired in their wigs and black robes. But it is the judiciary that catches the eye with their red, purple and gold trimmings, depending on seniority. However, the Chief Justice does not come in his ceremonial dress he is dressed in his working day black robe, similar to what the barristers wear. He also does not wear a wig.

I have always wondered about the significance of why the Hong Kong Chief Justice does not turn up in full ceremonial dress. Is it a gesture to the ordinary people, or perhaps a gesture to the one country of the one country-two systems principle? In any event, the return of Hong Kong to China has not in any way resulted in a lessening of this very British and imperial ceremony. If anything, one cannot but come away with the feeling that this pageantry is not only tolerated, but is in fact encouraged by all sides of the political spectrum. Somehow, all the different political interests have found convergence in this display of legal pomp.

Opening of the Legal Year: Reflections on Three Jurisdictions

Our Hong Kong hosts were of course very hospitable. As theirs is not a fused profession as in Singapore, we actually had two hosts, the Bar Association and the Law Society.

The Kuala Lumpur OLY is also full of pomp and ceremony. This was the first time I was attending the OLY in Kuala Lumpur. There is a procession by the practising lawyers, lawyers from the Attorney-Generals Chambers and finally the Judiciary. The Judges are as resplendent as the ones in Hong Kong; the difference being that they do not wear wigs, but songkoks. The ceremony is held in the Convention Hall at Putrajaya.

This is the third time that Malaysia is having a formal OLY, after a break. For several years, there was no OLY as the Malaysian Bar refused to attend the OLY. And of course an OLY would not be meaningful if lawyers do not attend. But relations between the Bar and the Judiciary have improved tremendously in the last few years (thanks very much to the leadership of their Chief Justice Tun Zaki, who retired late last year), and so the OLY was revived. Indeed this year, some lawyers had to be turned away because of the better than expected response.

As a close neighbour of Malaysia, I am personally delighted that relations between the Malaysian Bar and the Judiciary have improved so tremendously. Indeed it has improved so much that my counterpart in Malaysia in his speech, was calling for an increase in the salaries of the Judges!

If I thought that my job as President of the Law Society of Singapore is tough, and whenever I feel discouraged, I need only think of the tougher job that my friend the President of the Malaysian Bar has. His is a much tougher job with many pressure points, and better relations with the Judiciary do not necessarily make his job easier. I can only salute the strength, resilience and patience of the Malaysian President and his Council.

Presidents Message

Singapore Law Gazette February 2012

Opening of the Legal Year: Reflections on Three Jurisdictions 01Presidents

Message

Challenging an Adjudication Determination 18Entering the Tigers Den: Foreign Investment in India Through Mauritius or Singapore 24Restraint of Trade Clauses in Employment Contracts 29

Features

Diary and Upcoming Events 04Secretariat Update 05Councils Practice Direction 1 of 2012 06Statutory Obligations to Make Medisave Contributions 09Thank You Dinner for Volunteers 2012 12

News

Disciplinary Do's and Don'ts Offering a Bill of Costs for Taxation A Morality Tale 33Columns

Legal Updates Legislation 35In Practice

Alter Ego Why Be a Lawyer? 37Travel Camel Poop and Other Tourist Traps in Egypt 39Food Cilantro A Fine Dining Experience in KL 44Book Shelf Rereading Administrative Law in the 21st Century 48

Lifestyle

Professional Moves 49Admission of Advocates and Solicitors 50Information on Wills 51

Notices

51Appointments

Contents

The Singapore Law Gazette

An Official Publication of The Law Society of Singapore

The Law Society of Singapore39 South Bridge Road, Singapore 058673Tel: (65) 6538 2500Fax: (65) 6533 5700Website: http://www.lawsociety.org.sgE-mail: [email protected]

The Council of The Law Society of SingaporePresident Mr Wong Meng Meng, SCVice Presidents Mr Lok Vi Ming, SC Mr Leo Cheng SuanTreasurer Mr Kelvin Wong

Mr Rajan Menon, Mr Young Chee Foong, Mr Lim Seng Siew, Ms Kuah Boon Theng, Ms Eng Yaag Ngee Rachel, Mr Thio Shen Yi, SC, Ms Lisa Sam Hui Min, Mr Michael S Chia,

Mr Moiz Haider Sithawalla, Mr Koh Theng Jer Christopher, Mr Anand Nalachandran, Mr Sean Francois LaBrooy, Mr Lee Terk Yang, Mr Ong Pang Yew Shannon, Ms Tang Bik Kwan Hazel, Ms Kang Yixian, Ms Simran Kaur Toor

Editorial BoardMr Gregory Vijayendran, Ms Malathi Das, Mr Rajan Chettiar, Ms Celeste Ang, Mr Chua Sui Tong, Mr Han Wah Teng, Ms Hazel Tang, Mr Looi Teck Kheong, Mr Marcus Yip, Mr Melvin See, Mr Prakash Pillai

The Law Society SecretariatChief Operating Officer / Chief Financial Officer Ms Tan Su-YinChief Legal Officer MrAlvin ChenCommunications MrShawnTohCompliance MrKennethGohConduct MsAmbikaRajendram MsVimalaChandrarajanContinuing Professional Development MsJuliaWanFinance MsJasmineLiew MrCliffordHangInformation Technology Mr Michael HoPro Bono Services Mr TanguyLim Ms Shahrany Binte HassanPublications MsSharmaineLauRepresentation & Law Reform MrAlvinChenPublishing ReedElsevier(Singapore)PteLtd tradingasLexisNexis

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When I compare our own OLY with those in Hong Kong and Kuala Lumpur, there is no doubt that ours is the simplest of the three OLYs. But it is no less poignant and significant. Unlike those in Hong Kong and Kuala Lumpur, ours is a formal Court proceeding, with no clapping. In Hong Kong and Kuala Lumpur, every speech receives a round of applause. So there are always differences, and it is for each jurisdiction to decide what best suits it. In case we forget, the OLY is the occasion at which we lawyers pledge our continuing support for the Judiciary in the cause of justice. It is like a re-affirmation of vows. And for young and new lawyers, I would say that this occasion should be witnessed by them, so that they can better appreciate the special

bond between lawyers and Judiciary, and between the legal profession and the community we serve.

And I think the special bond between the legal profession and our communities is very much alive in all three jurisdictions as all the three Presidents myself, the Hong Kong Law Society President and the Malaysia Bar President spoke of the need to improve our respective pro bono programmes for our citizens.

Wong Meng Meng, Senior Counsel President The Law Society of Singapore

April May 2012

Malaysia/Singapore Bench & Bar Games 2012

Kuching, Sarawak

January 2012

Book-Keeping for Law Practices

Organised by the Continuing Professional Development Committee

9.00am-5.30pmLaw Society Conference Room

Diary

Upcoming Events

January 2012 January 2012

An Exclusive One Day Sailing and Driving Experience with the Audi Ultra Racing Team

4.30pm-7.30pmSentosa Cove

Thank You Dinner for Volunteers

6.30pmThai 1827 Restaurant

Thank You Dinner for Volunteers

Continued from page 1

Presidents Message


Introducing the New Chief Operating Officer/Chief Financial Officer

With the departure of CEO Mary Lim in January 2012, we are pleased to welcome Tan Su-Yin as the Law Societys Chief Operating Officer/Chief Financial Officer (COO/CFO). The Secretariat has been restructured with Su-Yin overseeing the non-legal

departments and the Pro Bono Services Office, and the Chief Legal Officer, Alvin Chen, in charge of all legal matters pertaining to the Society.

Su-Yin was previously a Senior Manager in the Assurance practice of PricewaterhouseCoopers LLP Singapore,

and has extensive experience in providing audit and business advisory services to multinational corporations and entrepreneurial small and medium enterprises. Su-Yin hopes to bring her experience from the Big-4 accounting firm to modernize the Secretariat and improve connectivity with members, so as

to effectively serve members in an increasingly challenging legal landscape.

Council looks forward to working together with both Su-Yin and Alvin.

Tan Su-Yin Alvin Chen

News


Secretariat Update

1. This Practice Direction takes effect on 19 January 2012 and shall apply to all law practices that hold unclaimed conveyancing money in their client account.

2. From 1 August 2011, conveyancing money or anticipatory conveyancing money could no longer be deposited into the client account of a law practice.

3. Rule 11B of the Legal Profession (Solicitors Accounts) Rules in force immediately before 1 August 2011 was in respect of the receipt and holding of conveyancing money in a client account. In accordance with this rule, a law practice had to have at least two signatories to the client account and must have submitted to the Council of the Law Society a statutory declaration: (i) identifying the signatories to the client account; and

(ii) stating that the signatories to the client account are not persons prohibited under r 8 (7) Legal Profession (Solicitors Accounts) Rules from signing a cheque or other instruction effecting a withdrawal from a client account.

3.1. If there was any change in any matter stated in the statutory declaration (for example if there was a change in the signatories or a signatory no longer held a current practising certificate or a signatorys practising certificate was subject to a condition prohibiting him from signing a cheque or instruction effecting a withdrawal from a client account) a further statutory declaration notifying of the change was to be submitted to the Council of the Law Society within seven days of any change.

3.2. Rule 11B of the Legal Profession (Solicitors Accounts) Rules continued to apply for a period of five months from 1 August 2011 in respect of conveyancing money or anticipatory conveyancing money in the client account that was deposited into the client account before 1 August 2011.

4. From 1 January 2012, in accordance with the Legal Profession (Solicitors Accounts) (Amendment No 2) Rules 2011, only unclaimed conveyancing money (that was deposited into the client account before 1 August 2011) may be held in the client account.

5. If a law practice continues to hold such unclaimed conveyancing money in the client account:

Councils Practice Direction 1 of 2012Statutory Declaration for Holding of Unclaimed Conveyancing Money

(i) The law practice must have at least two signatories to the client account; and

(ii) If there is any change in any matter stated in the statutory declaration submitted previously under r 11 B of the Legal Profession (Solicitors Accounts) Rules (in force immediately before 1 August 2011), a further statutory declaration (specimen SD1) notifying of the change is to be submitted to the Council of the Law Society within seven days of any change.

6. If there is any change in any matter stated in a statutory declaration submitted by a law practice in accordance with this Practice Direction, the law practice is to submit to the Council of the Law Society a further statutory declaration (specimen SD2) notifying of the change within seven days of the change.

SPECIMEN STATUTORY DECLARATION (SD1)

Holding of Unclaimed Conveyancing Money

I, (Name) (holder of NRIC No. ) residing at [(residential address)] do solemnly and sincerely declare that:

1. I am the proprietor / managing partner / managing director of . (name of law practice) (Law Practice) and I make this declaration for the purpose of notifying Council of the Law Society of the change in the information provided in the earlier statutory declaration dated . that was submitted in accordance with rule 11B of the Legal Profession (Solicitors Accounts) Rules (in force immediately before 1 August 2011).

2. I hereby declare that:

(i) the following persons are now the signatories to the client accounts of the Law Practice:

(names of signatories) (admission number);

(ii) I reasonably believe that none of the above signatories is a person prohibited under rule 8(7) of the Legal Profession (Solicitors Accounts) Rules from signing a cheque or other instruction effecting a withdrawal from a client account.

AND I make this solemn declaration by virtue of the provisions of the Oaths and Declarations Act, and subject to the penalties provided by that Act for the making of

News


Councils Practice Direction 1 of 2012

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false statements in statutory declarations, conscientiously believing the statements contained in this declaration to be true in every particular.

Declared at Singaporethis day of

Before me,

A Commissioner for Oaths

SPECIMEN STATUTORY DECLARATION (SD2)

Holding of Unclaimed Conveyancing Money

I, (Name) (holder of NRIC No. ) residing at [(residential address)] do solemnly and sincerely declare that:

1. I am the proprietor / managing partner / managing director of . (name of law practice) (Law Practice) and I make this declaration for the purpose of notifying Council of the Law Society of the change in the information provided in the statutory declaration dated . that was submitted in accordance with Practice Direction 1 of 2012.

2. I hereby declare that:

(i) the following persons are now the signatories to the client accounts of the Law Practice:

(names of signatories) (admission number);

(ii) I reasonably believe that none of the above signatories is a person prohibited under rule 8(7) of the Legal Profession (Solicitors Accounts) Rules from signing a cheque or other instruction effecting a withdrawal from a client account.

AND I make this solemn declaration by virtue of the provisions of the Oaths and Declarations Act, and subject to the penalties provided by that Act for the making of false statements in statutory declarations, conscientiously believing the statements contained in this declaration to be true in every particular.

Declared at Singaporethis day of

Before me,

A Commissioner for Oaths

19 January 2012The Council of the Law Society of Singapore

by Vasudha Sriniva

san

Credit to Ms Zareen Islam for the idea!

News


Councils Practice Direction 1 of 2012

Under the Central Provident Fund Act, self-employed persons are required to contribute to Medisave if their annual net trade income is more than $6,000.

Sole proprietors of law firms are self-employed persons. Partners of partnership law firms and limited liability law partnerships are also self-employed persons unless employed under a contract of service.

Central Provident Fund (CPF) Board has informed the Law Society that notwithstanding the provisions of the Central Provident Fund Act, some self-employed lawyers have not paid up their Medisave liabilities. Any person who fails to comply with the statutory obligations to make payment of Medisave contributions may be prosecuted by the CPF Board and upon conviction, liable to payment of a penalty. Although CPF Board could prosecute those who default in making their Medisave contributions, we are informed that the Board has been thus far reluctant to resort to this harsh action as it might adversely affect the standing of the legal profession.

Self-employed lawyers who have not been making payment of their Medisave contributions should approach CPF Board

Statutory Obligations to Make Medisave Contributions

to make the necessary payment arrangements as soon as possible to avoid the consequences of non-compliance with a statutory obligation. Making payments through GIRO would be the most convenient way of ensuring the Medisave contributions are up-to-date. According to CPF Board, any lapses in GIRO payment will result in more stringent arrangements thereafter. In the circumstances, sufficient funds must be maintained to facilitate the GIRO deductions.

Medisave contributions are tax deductible and earn an interest of four per cent per annum. In addition, contributors enjoy an extra one per cent interest on the first $60,000 of their combined CPF balances.

For more information, please visit the CPF website http://www.cpf.gov.sg. Alternatively, you may contact CPF Call Centre at 1800-227 1188 or e-mail [email protected].

Kenneth Goh Director Compliance Department The Law Society of Singapore

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News

Medisave Contributions

The Law Society of Singapore launched its Conditions of Sale 2012 (the 2012 Conditions) on 19 January 2012 as an update to the Law Society of Singapores Conditions of Sale 1999 (the 1999 Conditions). The key features of the 2012 Conditions are as follows:

A. New Conveyancing Regime (Conditions 1 and 2)

In August 2011, new measures to safeguard conveyancing money were introduced by the amendments to the Conveyancing and Law of Property Act (Cap 61) and the Conveyancing and Law of Property (Conveyancing) Rules 2011.

In tandem with these legislative amendments, the 2012 Conditions contain new definitions, namely CVY Account and Conveyancing Money, and provide that payment tendered or made to the Vendors solicitor but not to the Vendors solicitors CVY Account is not invalid for the purposes for which it is tendered or made, and the Vendors solicitor is bound to accept and treat the same as if that payment is tendered or made to the Vendors solicitors CVY Account.

B. Stamp Duty (Conditions 7.4 and 7.5)

In view of the recent requirements stipulated by the Inland Revenue Authority of Singapore on sellers liability to pay for sellers stamp duty (SSD) under Section 22A of the Stamp Duties Act (Cap 312) and the imposition of additional buyers stamp duty on purchase of residential properties, the 2012 Conditions provide for:

(a) the Vendors obligation to notify the purchaser of the amount of SSD payable and the Purchasers entitlement to deduct from the purchase price the amount of SSD charged, including any penalties imposed due to the Vendors failure to pay the SSD; and

(b) the Purchasers obligation to make payment of all applicable stamp duty and to extend a copy of the Certificate(s) of Stamp Duty to the Vendor (if requested).

C. Late Completion Interest (Conditions 9.1 and 9.2)

Taking into account existing market interest rates, the rate for interest payable on late completion due to the default of a party has been revised from 10% per annum (as stated in the 1999 Conditions) to 8% per annum. The interest rate of 8% per annum was decided after extensive consultation with conveyancing practitioners and other interested stakeholders. It is considered that the reduced rate would be adequate compensation for the non-defaulting party, be it the purchaser or the vendor.

D. Other Substantive Changes

Other substantive changes include provisions relating to:

(a) the definitions of Business Day, Completion, Completion Date, Contract, Property and Scheduled Completion Date to ensure consistent use of terms common to conveyancing practice (Condition 1);

(b) the consequences of dishonoured payment (Condition 4);(c) the state and condition of the property to be delivered on completion (Condition 5);(d) the apportionment of liabilities for outgoings, rents and profits until completion (Condition 6);(e) no interest to be payable for:

(i) the postponement of the Scheduled Completion Date for a reasonable period in the event of death of vendor or purchaser (Condition 9.5);

(ii) the Purchasers non-completion of the purchase on the Scheduled Completion Date due to the Vendors omission or failure to furnish the mode of payment of the purchase price to the Purchaser less than five clear Business Days before the Scheduled Completion Date (Condition 9.6);

(iii) any day in which the electronic payment instruction system within the STARS e-lodgement system fails to work, necessitating either the Vendor or Purchaser to proceed by the manual mode, provided that the downtime of the EPI system extends to more than four consecutive hours on that particular day (Condition 9.7); and

(f) the Vendors obligation not to give a Notice to Complete until the expiry of five (5) clear Business Days from delivery of the mode of payment or its variation to the Purchaser (Condition 15.5).

E. Balancing the Interests of the Vendor and Purchaser

The 2012 Conditions have addressed certain prevailing conveyancing practices to balance the rights and interests of the vendor and purchaser as follows:

a) options available to the vendor where the purchaser is unable or unwilling to complete on the Scheduled Completion Date (Condition 6.4);

b) the Purchasers non-liability for late completion interest if delay in completion was due to the Vendors omission or failure to furnish the mode of payment of the purchase price in a timely manner (Condition 9.6);

c) the Vendors representations and warranties in relation to the property (Condition 10);d) the Vendors responsibility for any order for the maintenance of or changes to the Property imposed by demands of

local or statutory authorities (Condition 12); ande) when risk passes from Vendor to Purchaser (Condition 13).

F. General Updates and Amendments

The 2012 Conditions have also been updated to remove redundant provisions pertaining to old practices that are no longer relevant to current conveyancing practice and to introduce current standard conveyancing practices.

In addition, some of the conditions retained from the 1999 Conditions have been updated or modified according to current practices. These amendments concern inspection and production of documents of title (Condition 3), state of property as to repair (Condition 8), interest payable on late completion (Condition 9), misdescription (Condition 11), demands of local or statutory authorities (Condition 12) and notice to complete (Condition 15).

YOUR FREE COPYDownload

www.lawsociety.sg/eShop

In appreciation of the contributions of members of the Law Society who volunteered in the Societys Committees of 2011, the Society held the annual Thank You Dinner at Restaurant 1827 Thai on 19 January 2012.

At the Dinner, a new e-book, The Law Societys Conditions of Sale 2012 was also officially launched by President Mr Wong Meng Meng, SC and Mr Derrick Wong, Chairman of the Law Societys Conveyancing Practice Committee.

President Mr Wong Meng Meng, SC also presented Plaques of Appreciation to the following outgoing Council Members:

1. Mr Michael Hwang, SCPresident (1 January 2008 to 31 July 2010)Vice-President (2007)Member of Council (2007 to 2011)

Thank You Dinner for Volunteers 20122. Mr Gary Allen PrykeTreasurer (1 April 2008 to 31 December 2011)Member of Council (2008 to 2011)

3. Mr Patrick Ang Peng KoonMember of Council (2010 to 2011)

4. Mr Siraj Omar Member Of Council (2010 to 2011)

5. Mr Derek Kang Yu HsienMember of Council (2011)

Guests also had an opportunity at the dinner to view and test-drive various models of Audi cars on display. The Law Society would like to thank Audi for contributing to the event.

News


Thank You Dinner

Contact JLegal e | [email protected] t | singapore 65 6818 9701 www.jlegal.com melbourne sydneysingapore hong kong london uae

What is the best advice you have ever received? Amy Chua states in her (in)famous book Battle Hymn of the Tiger Mother:"What Chinese parents understand is that nothing is fun until you're good at it". While not advice per se, Ms. Chua's quote resonated with me because I think too many lawyers don't enjoy what they're doing and attribute their dissatisfaction to the profession itself. It's often difficult for high achievers to ever admit to themselves that they're not particularly suitable for certain roles in the legal profession, especially in law firms. For me personally, going in-house at IBM was an epiphany, and I've enjoyed being a lawyer ever since. Now if I could only get good at it . . .

In recent times, the role of the General Counsel has diversified into a multi faceted role (where the General Counsel can wear the 'hat' of Lawyer, Legal Manager, Compliance Manager, and Company Secretary). In your opinion, do you believe this has increased your risk profile? Remember George Bush's cringe-worthy taunt to the insurgents in Iraq: "Bring 'em on!"? In this particular case, the statement is not so foolish; generally the more hats a GC can wear, the better informed, and as a result a GC can render better decisions and higher quality advice. So hats are fashionable for us.Perhaps more importantly though, corporate lawyers that inordinately focus on reducing their own personal or career risk profiles often don't become the Michael Claytons of their organisations. Rather, they avoid giving opinions and taking on responsibility, effectively becoming like Gollum, torn between having something and being free of it.

often the first to be called in when someone's hair catches on fire. And in a substantial number of those cases, no legal issue actually exists. Thus, because in-house lawyers are in the business of proposing solutions to legal, commercial, ethical and even personal problems, we're naturally quite creative. When we apply these powers of innovation and insight to our work, we can have a substantial impact on our compa-nies' performance. Just look at some of the places where well-rounded GCs/attorneys rose to become CEOs -- Bank of America, Continental Airlines, Pfizer, etc. That's why we're indispensable in my opinion.

In your opinion, why have in-house lawyers become an increasingly indispensable part of an organisation? IIn the movie Michael Clayton, George Clooney acts as his law firm's "fixer" -- someone who uses connections, influence and knowledge to solve difficult, often

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Mr Michael Hwang, SC (left) receiving a plaque of appreciation from Mr Wong Meng Meng, SC

Mr Patrick Ang (right) receiving a plaque of appreciation from Mr Wong Meng Meng, SC

(L to R): Mr Wong Meng Meng, SC and Mr Dernick Wong, launching the Society's e-book, Conditions of Sale 2012

Mr Derrick Wong, Chair of the Conveyancing Practice Committee, giving an introduction to the Conditions of Sale 2012

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Heron Jan'12_LAWGazette.indd 1 2/6/12 9:28 AM

The scope and extent of the Courts supervisory role over an Adjudicators jurisdiction to hear and determine a Payment Claim under the Building & Construction Industry Security of Payments Act (SOPA) has been the subject of several recent decisions by the Courts in Singapore. The purpose of this article is to examine the different approaches adopted by the Courts in deciding whether the validity of a payment claim under the SOPA affected the Adjudicators jurisdiction to adjudicate on a dispute.

The Adjudication Process Under the SOPA

The SOPA came into effect on 1 April 2005. Its stated objective was the implementation of changes to payment obligations across the construction industry and to ensure the smooth completion of construction projects in Singapore through the improvement of cash flow. The mechanism by which this stated objective was to be achieved was the statutory adjudication process.

Adjudication under the SOPA is clearly intended to be a process distinguishable from arbitration.1 The statutory process places great emphasis on the quick resolution of payment disputes in construction projects. It stipulates short timelines and a failure to comply with these timelines means that the defaulting party will have to face dire consequences. The process is commenced by the claimant serving a payment claim on the respondent. After receiving this payment claim, the respondent will prepare and serve a Payment Response which sets out the reasons that entitle the respondent to withhold payment to the claimant. Upon receipt of the Payment Response, the claimant will have to decide whether to refer the dispute to an adjudicator. If it decides to do so, it will file and serve an Adjudication Application and the respondent will in turn answer the claim by way of an Adjudication Response.

The adjudicators role under the SOPA is to determine the dispute which has been referred to him. He will do so by examining the merits of the payment claim, the

Challenging an Adjudication DeterminationThe Extent of the Courts Supervisory Role

circumstances in question and come to a determination as to the viability of the payment claim. This is known as the Adjudication Determination.

Section 21 of the SOPA provides for a party dissatisfied with the Adjudication Determination to apply to the High Court to set aside the Determination. At the outset, it is important to note that a challenge against the Adjudication Determination is not an appeal against the Determination to the Court. The SOPA provides its own procedures whereby an aggrieved party may apply to the appointing authority for the Adjudication Determination to be reviewed. Once the review is determined, the Determination is binding on both parties to the Adjudication unless a Court refuses to enforce the Adjudication Determination or the dispute is finally resolved in subsequent Court proceedings or arbitration or the parties have decided to settle the dispute.

A challenge against an Adjudication Determination under s 21 of the SOPA is typically advanced on grounds of the adjudicators jurisdiction to determine the dispute or on grounds that the adjudicator had failed to observe the principles of natural justice.

Traditional Approach

Traditionally, the Courts have adopted a limited or restrictive approach towards interfering with an adjudicators Determination. The statutory process of adjudication was intended to be a quick and cost effective resolution to disputes arising in the course of a construction project. The parties substantive right to revisit the dispute in subsequent Court or arbitration proceedings is expressly preserved. The objective was for the claimant to obtain quick interim relief rather than wait for the completion of the project. Given this objective and the preservation of the parties rights to revisit the issue in dispute at the end of the project, the Courts have declined to inquire into the substance of the adjudicators Determination.

This article examines the different approaches adopted by the Courts in deciding whether the validity of a payment claim under the SOPA affected the Adjudicator's jurisdiction to adjudicate on a dispute.

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In determining whether a challenge to an Adjudication Determination falls within this limited supervisory role of the Courts, a distinction is drawn between jurisdictional errors and non-jurisdictional errors. Errors of fact or law made by the adjudicator which impact upon his jurisdiction to hear the dispute are regarded as jurisdictional errors. Conversely, errors of fact or law which do not affect the adjudicators jurisdiction to hear the dispute are considered non-jurisdictional errors. Where the error is jurisdictional in nature, the Courts have been willing to intervene and set aside the adjudicators Determination. Where the error is non-jurisdictional in nature, that is to say an error with regard to the substance of the dispute, the Courts have declined to intervene. As Judith Prakash J in SEF Construction Pte Ltd v Skoy Connected Pte Ltd [2010] 1 SLR 733 observed:

After all, in any case, even if the adjudicator does make an error of fact or law in arriving at his adjudication determination, such an error can be rectified or compensated for in subsequent arbitration or court proceedings initiated in accordance with the contract between the claimant and the respondent and intended to resolve all contractual disputes that have arisen.

This distinction between jurisdictional and non-jurisdictional errors is not without its difficulties in practice. The challenge is in identifying which of an adjudicators errors affects his jurisdiction to hear the dispute and which do not. As the New South Wales Court of Appeal observed in the recent case of Chase Oyster Bar V Hamo Industries [2010] NSWCA 190:

There is no single test or theory or logical process by which the distinction between jurisdictional and non-jurisdictional error can be determined.

This practical difficulty was recently highlighted by a string of cases involving the validity of Payment Claims made under the SOPA. The form and content of a Payment Claim is prescribed in the SOPA and the Regulations issued under the Act. Section 10(3) of the SOPA provides that a Payment Claim shall state the claimed amount and shall be made in such form and manner and contain such information as prescribed. Rule 5(2) of the Building and Construction Industry Security of Payment Regulations [RG1, 2006 Rev Ed] (the Regulations) prescribe that a payment claim shall simply be in writing, identify the contract to which the claim relates and contain details of the claimed amount.

Where a payment claim does not comply with the form and content prescribed in the SOPA and the Regulations, the question is whether an Adjudication Determination on the validity of such a payment claim could be considered

as a Determination that impacts upon the adjudicators jurisdiction to hear the dispute.

This question was first considered by the Court in Chip Hup Hup Kee Construction Pte Ltd V Ssangyong Engineering & Construction Co Ltd [2010] 1 SLR 658 (Chip Hup Hup Kee). Here, the respondent had argued that the adjudicators jurisdiction depended upon whether the claimant had complied with all the statutory requirements governing the form and content of the payment claim. Judith Prakash J ruled as follows:

I took the view that the Adjudicators jurisdiction, in the sense of his power to hear and determine the adjudication, could not depend on such adventitious elements. It appeared to me that ... as the claimant submitted, the Adjudicators jurisdiction arose from his appointment by an authorized body under section 14(1) of the SOP Act and from his acceptance of such appointment. Whether the payment claim was in proper order or not would not have an impact on the Adjudicators jurisdiction, though of course if it was not in order, the Adjudicator would be able to throw out the claim on that basis. (Emphasis added).

In a subsequent decision on the same issue, SEF Construction Pte Ltd v Skoy Connected Pte Ltd [2010] 1 SLR 733 (SEF Construction), Judith Prakash J further observed as follows:

Accordingly, instead of reviewing the merits (in any direct or indirect fashion), it is my view that the courts role must be limited to supervising the appointment and conduct of the adjudicator to ensure that the statutory provisions governing such appointment and conduct are adhered to and that the process of the adjudication, rather than the substance, is proper. After all, in any case, even if the adjudicator does make an error of fact or law in arriving at his adjudication determination, such an error can be rectified or compensated for in subsequent arbitration or court proceedings initiated in accordance with the contract between the claimant and the respondent and intended to resolve all contractual disputes that have arisen.

A Different Approach

The question of whether the validity of a payment claim affected the jurisdiction of the adjudicator, therefore, appeared to be settled until the decision in Sungdo Engineering & Construction (S) Pte Ltd v Italcor Pte Ltd [2010] 3 SLR 459 (Sungdo).

Feature


In Sungdo, the issue was whether the purported claim document in that case constituted a valid payment claim under the SOPA even though the said document had complied with all of the requirements as to form and content prescribed in the SOPA and the Regulations.

Lee Seiu Kin J found that the document did not constitute a payment claim under the SOPA since the claimant did not communicate its intention to the respondent that the document was intended to constitute a payment claim under the SOPA. The learned Judge observed that intention is a necessary element and that a document which complies with all the prescribed requirements will still not be considered a payment claim if the maker of the document does not intend the document to be a payment claim.

More significantly, for present purposes, Lee Seiu Kin J disagreed with the approach adopted in the earlier cases of Chip Hup Hup Kee and SEF Construction. The learned Judge observed that the validity of a payment claim did in fact affect the adjudicators jurisdiction to determine the dispute. This was because the power of the authorised

body to appoint an adjudicator stemmed from the receipt by that body of an adjudication application from a claimant. That application was predicated by the service of a valid payment claim on the respondent. If the claimant had failed to serve on the respondent a valid payment claim, there cannot be a valid adjudication application and the power to appoint the adjudicator, therefore, did not arise. The learned Judge went on to say that if the validity of the payment claim affects the adjudicators jurisdiction, there was no reason why a Court should be precluded from setting aside the Adjudication Determination.

Nevertheless, despite his disagreement in principle with the approach adopted by the Court in Chip Hup Hup Kee and SEF Construction, Lee Seiu Kin J ruled that in practice, where a document purports to be payment claim under the SOPA, the Courts should only review the Adjudicators Determination on the validity of such a payment claim on the basis of unreasonableness as defined in the English case of Associated Provincial Picture Houses, Limited v Wednesbury Corporation [1948] 1 KB 223.

Feature


That case was concerned with a complaint by the owners of a cinema in Wednesbury that it was unreasonable of the local authority to licence performances on Sunday only subject to a condition that no children under the age of 15 years shall be admitted to any entertainment whether accompanied by an adult or not. Lord Greene MR in that case summarized the principle of unreasonableness as follows:

The Court is entitled to investigate the action of the local authority with a view to seeing whether or not they have taken into account matters which they ought not to have taken into account, or, conversely, have refused to take into account or neglected to take into account matters which they ought to take into account. Once that question is answered in favour of the local authority, it may still be possible to say that, although the local authority had kept within the four comers of the matters which they ought to consider, they have nevertheless come to a conclusion so unreasonable that no reasonable authority could ever have come to it. In such a case, again, I think the court can interfere. (Emphasis added).

This principle of unreasonableness which is often referred to as Wednesbury unreasonableness, is a public law concept particularly adopted by the Courts in the judicial review of decisions and actions of public authorities or statutory bodies. Here, it is significant to note that the principle of reasonableness may be applied to all aspects of a public authoritys decision or the exercise of its statutory powers. It is not limited solely to the issue of jurisdiction. The introduction of this public law concept in applications to challenge an Adjudication Determination on disputes between two private entities or individuals was, therefore, an unprecedented development.

In the most recent decision on this issue, Chua Say Eng (formerly trading as Weng Fatt Construction Engineering) v Lee Wee Lick Terence (alias Li Weili Terence) [2011] SGHC 109, the Court revisited the different judicial approaches on the effect of an invalid payment claim on the adjudicators jurisdiction. That case involved a reconstruction of a two storey residential house into a three-storey house. During the progress of the works, the relationship between the claimant, the contractor, and the respondent owner had

soured and this led to the respondent terminating the building contract and demanding that the claimant vacate the construction site. The claimant subsequently submitted a Payment Claim No. 6 to the respondent. The respondent failed to serve a payment response. The claimant then made an adjudication application and an Adjudication Determination was subsequently made in the claimants favour for S$125,450.40.

The respondent challenged the Adjudication Determination. The issues before the Court were two-fold, namely, whether Payment Claim No. 6 was a valid payment claim under the SOPA and whether Payment Claim No. 6 was served out of time. Before proceeding to consider these two issues, the Court dealt with the preliminary question of whether the Court ought to even review the adjudicators decision on these two issues. Tay Yong Kwang J, after carrying out an exhaustive review of the earlier cases on this issue, agreed with the statements made by Lee Seiu Kin J in Sungdo, that in principle, the Court may review an adjudicators decision on whether a document properly constitutes a payment claim under the SOPA and that such a review should only be made on the basis of Wednesbury unreasonableness.

Commentary

The introduction of the principle of Wednesbury unreasonableness in applications to challenge an Adjudication Determination under the SOPA is a result of the continuing conflict between two very important principles bearing upon the Courts intervention in Adjudication Determinations. In Chua Say Eng, Tay Yong Kwang J succinctly described the conflict as follows:

To what extent should the court interfere with an adjudicators determinations? A liberal approach would invite more setting aside applications and undermine the statutory purpose of creating a speedy and low cost adjudication process while turning away from putting right erroneous adjudication determinations could create the impression that the court countenances injustice.

In this sense, the principle of Wednesbury unreasonableness is viewed as a compromise between the need to ensure that the statutory objective behind adjudication is not undermined


Feature

Invitationfor Contribution of Articles

The Singapore Law Gazette (SLG), an official publication of the Law Society, aims to be an educational resource for both practising lawyers and in-house counsel, a forum for debate, and a useful reference of high quality commissioned articles covering all legal specialties.

Members of the Law Society, non-practising legal professionals and professionals in related fields are welcome to submit well-researched manuscripts that are of educational merit and likely to be of interest to a wide-ranging legal audience.

Submissions are welcome throughout the year. All submissions should be unpublished works between 1,500 to 2,500 words and are subject to the Law Societys review.

The SLG is the premier legal journal for all lawyers and other related professionals practising in Singapore. Our articles are read by 5,000 readers including practitioners, the judiciary, the legal service, the academia, libraries, overseas bar associations and a significant number of in-house counsel in Singapore.

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on the one hand and the Courts role in preventing injustice in appropriate cases is preserved, on the other. The new approach appears to be that, in general, an adjudicators decision on the validity of a payment claim under the SOPA will not be reviewed by the Courts unless it can be shown, to the Courts satisfaction, that the adjudicators decision was so unreasonable that no reasonable adjudicator (based on the same facts and applying the same legal principles) would have arrived at such a decision. Provided such unreasonableness can be established, the Court may be willing to intervene and set aside the Adjudication Determination.

The scope and extent of applying concepts and principles that are peculiar to the realm of public and administrative law in applications to challenge an Adjudication Determination under s 21 of the SOPA is a question that requires further judicial guidance. Nevertheless, the rationale for the approach is to be clearly appreciated that is, to ensure that the overall objective of a speedy and low cost adjudication process is maintained with the preservation of

the Courts right to intervene, in appropriate cases, where justice so requires. Having said that, it is also imperative to ensure, going forward, that the principle of Wednesbury unreasonableness is limited to issues governing the adjudicators jurisdiction and not extended (as would be the case in judicial review applications against the decisions of public authorities) to the substantive merits of an Adjudication Determination. Such a development would have the unwelcome effect of militating against the statutory objectives of the adjudication process.

Notes

1 Chow Kok Foong, Security of Payments and Construction Adjudication (LexisNexis, 2005) p 240.

Subramanian Pillai Colin Ng & Partners LLP E-mail: [email protected]

Feature


This article gives an overview of Mauritius and Singappore as jusrisdictions that are competing to emerge as a preferred gateway for international investment into India.

Entering the Tigers Den: Foreign Investment in India Through Mauritius or SingaporeIntroduction

In the modern era of international tax practice, choice of tax treaties are often perceived as having been reduced to a commoditised service to international investors by international tax practitioners. The well advised transnational investor probably has access to tax planning software or simple tabulations that help identify the treaty offering the most beneficial avenue for investment into the investee country. Entities are readily established in countries completely alien to the investor or the target country purely because they present a tax efficient channel through which the investment can be made.1 The approach of the Indian tax department, particularly in the recent past, clearly suggests that the choice is not quite so simple when it comes to investing in India.

For an international investor looking to invest in India, data on Foreign Direct Investment (FDI) indicates that Mauritius is a clear favourite with 41 per cent of FDI in India being channelled through Mauritius. At second place is Singapore with 10 per cent of the FDI pie having overtaken the USA in 2008-2009, which now holds third place with 7 per cent of the FDI inflow. A closer look at the statistics shows an increase in FDI from Singapore from 2009-2010 and a decrease of FDI from Mauritius.2

In tandem with emerging trends relating to FDI and other forms of foreign investment into India, this article seeks to provide an overview of Mauritius and Singapore as jurisdictions that are competing to emerge as a preferred gateway for international investment into India.

The Mauritius Route: Increasing Challenges

India and Mauritius entered into a double taxation avoidance agreement (Mauritius Treaty) in April 1, 1983 with the objective of avoidance of double taxation and the prevention of fiscal evasion. The most important provision by far being that the capital gains earned by a Mauritius resident on disposal of shares of an Indian company is tax exempt in India (exempt from tax of up to 42 per cent) and being chargeable to effectively no tax in Mauritius (due to deemed tax credits). As a consequence, Mauritius enjoys

a prominent place in tax treaty planning of private equity players, MNCs and global fund houses investing into India. The Mauritius route has faced many challenges since the Mauritius Treaty was entered into in 1983.

The allegations by Indian authorities against the Mauritius Treaty have historically been, and continue to be, primarily on two counts: (i) offshore investors setting up conduits in Mauritius solely to avail of Mauritius Treaty benefits without having any actual commercial purpose for setting up such entities; and (ii) politically more sensitive Indian residents using Mauritius for "round tripping" funds back into India, tax avoidance and money laundering. Amidst these allegations, the following are key developments over the past two decades in relation to the Mauritius Treaty:1. The Central Board for Direct Taxes (CBDT) issued

Circular 682 (March 30, 1994) clarifying that capital gains derived by residents of Mauritius by alienating shares of Indian companies shall be taxable only in Mauritius according to Mauritius tax law.

2. In 1994, the Indian Income Tax Department (Tax Department) challenged this circular pursuant to a ruling of the Authority of Advance Rulings (AAR).3 This ruling was, however, overturned in another AAR ruling where commercial justification was used as a differentiating factor.4

3. In 2000, the Tax Department denied Mauritius Treaty benefits on the ground that the sole reason for investing in India through Mauritius was tax avoidance. CBDT issued Circular 789 (April 13, 2000) stating that the Tax Residency Certificate (TRC) issued by the Mauritius Revenue Authorities was sufficient proof of residency of a Mauritius company to avail of Mauritius Treaty benefits.

4. Public Interest Litigations were filed in the Delhi High Court challenging the constitutional validity of the circulars, alleging that treaty shopping was being undertaken using shell companies in Mauritius. The Delhi High Court upheld the circulars as illegal. On an appeal to the Supreme Court of India, the Delhi High Court order was quashed.

Feature


The aforesaid Supreme Court ruling in Union of India v Azadi Bachao Andolan and Anr.5 (Azadi) paved the way for Mauritius being reaffirmed as the go-to jurisdiction with most entities established in Mauritius seeking to avail of Mauritius Treaty benefits solely on the basis of a TRC. However, recent cases and rulings indicate that the Tax Department is applying a number of criteria (beyond just a

TRC) when determining whether a foreign entity is eligible to the benefit of the provisions of a tax treaty, amongst which are the place of management of the foreign resident company and the level of substance in the jurisdiction in which it is incorporated. A snap shot of recent cases in this behalf is presented in the table below:

Date Case Position

July 9, 2009 Saraswati Holdings (Delhi, ITAT)

The Income Tax Appellate Tribunal (ITAT) has granted Mauritius Treaty benefits to Saraswati Holding Corporation Inc on the grounds that it was: (i) a Mauritius incorporated company having TRC; and (ii) not effectively managed from India as its directors and shareholders were not based in India. On this basis it was held to be not liable for any tax on capital gains earned on its investment in shares in Indian companies.

March 22, 2010 E*Trade (AAR)

AAR ruled that the Mauritius Treaty benefits will be granted on the capital gains tax that arose as a result of the transfer of shares of an Indian company from one Mauritius resident company to another if the Mauritius entities have a valid TRC (relying on the Azadi case). The Tax Department has challenged the decision in the Supreme Court (on grounds of lack of substance in Mauritius).

September 8, 2010

Vodafone International Holdings B.V. (Supreme Court)(herein referred to as Vodafone case)

Supreme Court has held that no capital gains tax (of approximately USD 2.5 billion) was leviable on Vodafone from a sale of shares of a Cyprus company (which in turn held a controlling interest in an Indian telecom operating company indirectly to entities in Mauritius and India) on the grounds that there was a transfer of capital assets situated in India. The desicion of the Supreme Court is discussed below.

March 26, 2010SMR Investments Limited (Delhi, ITAT)

The Delhi ITAT denied Mauritius Treaty benefits with regard to capital gains tax that arose as a result of the sale shares of an Indian company by a Mauritius resident company on the grounds that the effective management of the Mauritius company (despite having a TRC) was out of India. The fact that the Mauritius company shareholder (holding 99 per cent shares) was an Indian resident at the time of the transaction was a decisive factor in denying Mauritius Treaty benefits.

March 28, 2011 D.B. Zwirn Mauritius Trading (AAR)

AAR ruled that the gains arising out of alienation of shares of an Indian company to a company who is a resident of Mauritius is liable to tax only in Mauritius in terms of art 13(4) of the Mauritius Treaty. The Azadi case was discussed in detail and Mauritius Treaty benefits were granted.

July 19, 2011

Aditya Birla Nuvo (Bombay High Court)

The Bombay High Court, whilst denying the Mauritius Treaty benefits, has undertaken a detailed review of documents that were placed on record and ruled that the Mauritius company was not the legal/beneficial owner of the shares of the Indian company but was a mere nominee holder. The parent company (which was a US company) was the actual beneficiary of the sale of shares of the Indian company and hence Mauritius Treaty benefits were denied. An intervention application was filed in the Vodafone case.

November 14, 2011

Ardex Investments Mauritius Limited (AAR)

The AAR ruled that the Mauritius company (which was a wholly owned subsidiary of a UK company) was not established purely to obtain Mauritius Treaty benefits arising on the sale of the shares held by it in an Indian company to another non-resident. Pre-existence of the Mauritius company was decisive in allowing treaty benefits. It was clarified that even if the proposed sale in effect is an effort to take advantage of a treaty, that by itself cannot be viewed or characterised as objectionable treaty-shopping.

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The earlier interim ruling by the Indian Courts in the Vodafone case seems to have led to a more aggressive approach by the Tax Department in denying treaty benefits under the Mauritius Treaty. The uncertainty created by the same has been conclusively ended by the landmark decision by the Supreme Court in the Vodafone case on January 20, 2012. On the facts of the case, the Supreme Court held that Indian tax authorities have no jurisdiction over the transaction which was an outright sale between two non-residents of capital assets outside India. On Azadi, which was effectively reviewed despite not being an issue in the case, the Supreme Court observed that tax planning is not illegal or illegitimate or impermissible and effectively upheld the use of holding structures in Mauritius (or other jurisdictions) to invest into India. The Supreme Court held that FDI in India must be seen in a holistic manner keeping in mind various factors like the duration of time for which the holding structures exists, the period of business operations in India, the generation of taxable revenues in India, the timing of exit, continuity of business upon exit and most importantly, the corporate business purpose of the holding structure. The onus of proof to establish that the structure is a colourable or artificial device is squarely on the Tax Department and such structures can only be ignored if devoid of any commercial substance or if used for abuse or fraudulent purposes such as round tripping, tax fraud or other illegal activities.

With a view to address round tripping concerns, India and Mauritius signed a Memorandum of Understanding in 2002 in order to improve the exchange of information between the Mauritius Financial Services Commission (FSC) and the Securities and Exchange Board of India. The Mauritius Government also took steps to tighten norms for issuance of TRCs by enacting more stringent KYC regulations and anti money laundering laws. The Reserve Bank of India (RBI) prohibited Indian nationals from remitting money to Mauritius (amongst other jurisdictions) under the Liberalised Remittance Scheme route.6 Most recently, the Mauritius route was questioned in the 2G spectrum allocation scam where an extensive probe was carried out by the Central Bureau of Investigation together with Mauritius Authorities to obtain all information (shareholding pattern, bank statements etc) of companies that acted as a front for routing money into India in the 2G scam.

India is not the only country with concerns in relation to Mauritius. In 2005, Indonesia terminated its tax treaty with Mauritius on the basis that its government treasury was under assault from round tripping of Indonesian black money. Even China has implemented measures to shield itself from round tripping of FDI from Mauritius when it signed a Protocol with Mauritius which amended the Capital Gains and Exchange of Information Articles of their bi-lateral tax treaty, making it harder for Mauritius based companies

investing in China to get a capital-gains tax exemption.7 In December 2009, Chinas State Administration of Taxation (SAT) issued Circular 698 which requires the seller in an indirect transfer of equity interest of a Chinese resident entity to report the transfer to the SAT if the effective tax rate to the seller of a company in the offshore holding jurisdiction is less than 12.5 per cent or offshore income is tax-exempt in that jurisdiction. If the SAT finds the structure lacks business substance or commercial purpose, the seller may then be deemed to have a Chinese-sourced capital gain taxable at 10 per cent, and withholding tax will apply.

Whilst the Supreme Court decision in the Vodafone case ends uncertainty in relation to availability of Mauritius Treaty benefits for past and existing cases, provisions in the proposed Direct Taxes Code (DTC) will enable the taxation in India of transactions like the one in the Vodafone case and also through general anti-avoidance rules (GAAR), enable the Tax Department to look beyond the TRC for substance in the treaty jurisdiction. The decision itself clarifies that it relates to current law and that it will change with the enactment of the DTC.

Going the Singapore Way

The double taxation avoidance agreement between India and Singapore was signed in 1994 (Singapore Treaty). Thereafter in 2005, a Protocol was signed between the two nations with a view to establish Singapore as a hub for foreign investment in India. Pursuant to the Protocol, the Singapore Treaty provides the same capital gains exemption (for gains arising from the sale of shares of an Indian company by a Singaporean resident as contained in the Mauritius Treaty, but with a limitation of benefits clause requiring annual expenditure over S$200,000 (in each of the two years preceding the year in which the gains are realised) to not be classified as a shell/conduit company and avail of Singapore Treaty benefits. Further, the Protocol provides that investors from Singapore will lose the capital gains exemption under the Singapore Treaty if the Mauritius Treaty is amended to take away the corresponding exemption. Very recently, there has been an amendment to the Singapore Treaty to permit effective exchange of information in line with the OECD Model Article on Exchange of Information with both countries recognising that exchange of information without regard to domestic law interest requirement and bank secrecy will go a long way in tackling international tax avoidance and evasion.

Whilst the Indian government has done its part to promote Singapore, Singapore has also made changes to its domestic laws to cater to Indias growing appetite for investment. Singapore, in its budget of 2009, introduced the new Enhanced-Tier Fund Management Incentive Scheme (E-TFMI). A fund incorporated and resident in

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Singapore is exempt from tax for the entire life in respect of specified income where the funds are managed by a specified investment manager in Singapore in respect of Designated Investments.8 To avail the exemptions, the fund ought to fulfil certain prescribed conditions and apply to the Monetary Authority of Singapore (MAS) before March 31, 2014.9 A fund management company may apply to the MAS for the Financial Sector Incentive Fund Management Award (FSI-FM). Under the award the fee income derived from the services provided to the fund approved under the E-TFMI scheme would be subject to concessionary tax rate of 10 per cent if management/advisory services were

being provided to an Enhanced Tier Fund that qualifies for exemption under the E-TFMI scheme.

Importantly, the aforesaid tax exemption is only available for funds set up in Singapore and not to special purpose vehicles or subsidiaries set up in Singapore for making investments in India, whose income from the same may be subject to tax in Singapore (unlike in Mauritius).

Singapore and Mauritius: A Comparative

Some key pros and cons in relation to each jurisdiction are set out in the table below:

Singapore Mauritius

Taxability of income streams in India

Capital gains exempt from tax in India subject to expenditure requirement in Singapore

Interest taxable up to 15 per cent in India

Capital gains exempt from tax in India

Interest taxable up to 42 per cent, depending on currency denomination

Taxability of income streams in Singapore/Mauritius

Entire income exempt if Singapore entity obtains registration under the E-TFMI scheme (meeting specified criteria) with MAS. Otherwise: (i) dividends income exempt subject to conditions; (ii) interest taxable at 2 per cent (after Indian tax credit); and (iii) possibility of gains being considered as revenue and taxed at 17 per cent (on net income basis)

No tax on capital gains

Dividends taxed at an effective rate of 3 per cent (possibly nil taxation with credit for Dividend Distribution Tax (DDT) and underlying tax credit). No additional tax on interest after credit for Indian taxes

Taxation of the Asset Management Company (AMC)

Management fee (and possibly carried interest) taxable in Singapore at 10 per cent (under the FSI-FM incentive)

Management fee taxable at an effective rate of 3 per cent.

Regulatory registrations/approvals

Approval from MAS required for the Singapore entity and the AMC to claim tax exemption/incentive in Singapore

Timeline: eight-10 weeks

Mauritius entity to be registered with the FSC (for TRC)

Relatively simple process

Timeline: three-four weeks

Professional FundManagers to beemployed

AMC required to employ three professional fund managers in Singapore drawing minimum salary of SGD 3,500 per month

No specified requirements

Substance criteria(for availing treaty benefits)

Annual expenditure of SGD 200,000 (in a period of 24 months preceding the date of sale of shares)

No specified substance tests in Mauritius Treaty only requirement is TRC (per the Azadi case) and effective management outside India (per Circular 1 of 2003)10

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A Bi-polar Contest

The choice of jurisdiction for routing investment into India is increasingly a two-way choice between Mauritius and Singapore. Other jurisdictions are not quite as attractive for a variety of reasons, some of which are: (i) Cyprus, which also has the same capital gains exemption as Mauritius and Singapore and more favourable taxation of interest income (only 10 per cent tax in India), does not have a deeming provision (unlike Mauritius and Singapore) to establish residence in Cyprus, and is, the

singapore law gazette (february 2012)

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