Controlling shareholders VS tax residency
1. Changes in Singapore rules
Singapore has, as has many other jurisdictions, recently introduced rules that will ease the identification of beneficial ownership, ultimate ownership interest etc.
Singapore use the term "registrable controller" and require that companies keep records of same.
In addition it is a requirement that companies keep records over nominee directors.
The purpose of the rules is apparently to create greater transparency for both tax, money laundering and other purposes. It reflects a development seen in both tax haven jurisdictions and the EU and is clearly promoted both by the OECD and other international organisations.
2. Changes in Norwegian tax rules
Norway is currently in the process of introducing new legislation concerning the concept of tax residency for legal entities.
Firstly, the proposal is that companies incorporated in Norway will (as a starting point) be considered tax resident in Norway.
Secondly, and more importantly, the proposal is that companies incorporated outside Norway may be considered tax resident in Norway not only based on where the Board of Directors (BoD) is exercising control of the company (as is the case today), but based on a broader evaluation of several factors where a key factor is where daily management is exercised.
3. How do these changes interact?
Our understanding is that the changes in Singapore simply introduce a new definition of what you could call "qualified ownership-interest/stakeholder or interested party", defined by Singapore as "registrable controllers", and place obligations on Singapore companies to keep records of same.
However, this obligation to keep records is set out in company law with subsidiary legislation and does not in itself seem to (or seems at least not intended to) trigger other obligations and/or legal effects, for example with respect to the question of tax liability under Singapore tax rules and tax treaties.
We understand the rules and legislation simply introduce a requirement to report a set of facts – not to introduce new Singapore tax consequences of these facts. Thus, to the extent the facts registered do result in new tax consequences, this would be a result of the facts being better understood rather than a result of the rules themselves and the actual registration.
The proposed changes in the Norwegian tax rules have potentially more far-reaching consequences than the Singapore changes. They are expected to result in more companies incorporated outside Norway becoming tax resident in Norway.
Historically Norway has based the classification of tax residency for companies incorporated outside Norway (almost entirely) on where the Board of Directors is exercising its authority. The daily management decisions have not been decisive.
Under the proposed changes to the Norwegian tax rules, the location where daily management functions are exercised is expected to be an important factor. In addition, other factors will be relevant, including where the shareholders meetings are held, where the company's offices are located and where the business activities of the company are carried out. In short the evaluation is based on a broader set of factors compared to what has been the case until now.
The question is how the Singaporean and Norwegian changes interact – basically whether there is an increased risk of Singapore entities becoming tax resident in Norway.
In our view it is unlikely that the changes in the Singapore rules will have any material effect on the question of whether a Singapore entity is tax resident in Norway. I.e. the classification in Singapore has no direct legal implication on Norway.
However, the information registered could bring to light a set of facts that result in a Singapore company having to be classified as tax resident in Norway. This should only be the case if "Norwegian registrable controllers" are identified based on other factors than the pure direct or indirect ownership interest in a Singapore entity.
This could typically be the case if the reason for the registration somehow were that the Singapore entity is managed and controlled from Norway at Board of Director and daily management level. If this is the case the paragraph 7.9 of the Guidance to the amendments issue by ACRA shows that this would require registration in Singapore even without ownership interest. The rules require the registration as "controllers" those who have the "Right to exercise or actually exercises significant influence or control over the company". This could be the fact if daily management being carried out in Norway and would require both the registration in Singapore and would raise the question of tax residency in Norway.
The changes in the Singapore company law rules pertaining to "registrable controllers" should as far as we understand it not in itself result in tax effects nether in Norway nor Singapore. But it may indicate or establish a set of facts that may form the basis for possible tax liability /tax residency in Norway, ref below.
The proposed changes in the Norwegian tax rules pertaining to tax residency may result in companies incorporated in Singapore being deemed tax resident in Norway to a greater extent than what has been the case until today. This may typically be the result if daily management of the Singapore entity is carried out from Norway. Under the proposal, because Singapore is a tax treaty country with a tie-breaker provision, a company should not be considered tax resident both in Norway and Singapore but only in the state in which its place of effective management is located. (But a Singapore company may of course have a permanent establishment in Norway due to the activities here).
Are Zachariassen, firstname.lastname@example.org, +4722837672
This document is general in its nature and is for informational purposes only, and does not constitute any legal or other advice. Although the author believes that the information contained in this document is accurate, each reader must exercise professional judgement, or involve a professional to provide such judgment, when using the information and assumes the responsibility and risk of use. It is recommended that specific legal advise is obtained.