On 18 July, Singapore published adjustments to its OECD CRS FAQs (available here), featuring modification of the guidance on settlor reserved investment power (SRIP) trusts. In the prior version of the FAQ (as analysed in my blog of 25 April), the Inland Revenue Authority of Singapore (IRAS) stated in FAQ B.5 that a SRIP trust would not qualify as an FI because the manager of the assets held by the trust (i.e., the settlor) would not itself be an FI. The revised version is no longer so certain.
The updated version holds that such SRIP trusts may still qualify as professionally-managed investment entity (PMIE) type FIs insofar as the trustee is an FI and conducts “any of the activities or operations described in subparagraph (A)(6)(a) on behalf of the trust.” The revision is essentially a punt, granting fiduciaries of SRIP trusts leeway to deploy their own interpretation of the “managed by” standard in application to the administrative activities of the trustee that are unconnected to the trust’s investment decisions (e.g., the discretionary authority to order a distribution of trust assets). Arguments cut both ways on that point.
This FAQ restores the status quo and puts Singaporean SRIP trusts in the same position as those in most other jurisdictions: The CRS status of a SRIP trust depends on the interpretation of the rules by the trustee. Nonetheless, this FAQ did not appear from nowhere. I wonder whether Singapore has made a merely cosmetic change for the sake of placating the OECD and other watchdogs? I have to believe (pure speculation of course) that that OECD got to Singapore and made them reverse the previous FAQ. Is this a sign that the OECD’s CRS Disclosure Facility is working? Or perhaps that the OECD staff who follow this blog (hi!) have been paying close attention? Whatever the reason, Singapore has blinked. That said, by making such a tepid reversal of the prior FAQ position, has Singapore in effect dog whistled to the local industry that it will not zealously police the CRS classification of SRIP trusts? Has Singapore perhaps winked rather than blinked, then?
Whatever motivations underlie this change, however, one thing is clear: Even after this change, the prior argument regarding SRIP trusts remains plausible (though by no means a slam dunk). That argument is that a SRIP trust, even one with a commercial trust company as trustee, is an NFE, not an FI, where investment powers are not subsequently delegated to an FI, e.g., are retained by the settlor or delegated to another individual or non-FI. As pointed out in my 25 April blog, that argument is based on the following sentence in the CRS Commentary:
- However, an Entity does not manage another Entity if it does not have discretionary authority to manage the Entity’s assets (in whole or part).
The only way to effectively foreclose that argument is for the OECD to amend this sentence of the Commentary. But even if the OECD does that, that change doesn’t have the effect of law—the OCED is not a legislature. No, the change would have to be incorporated into local law for it to have any binding effect. And the process has to be undertaken country by country by amending legislation or regulations. The only exception is those countries (and there are some) that have unwisely (perhaps unconstitutionally?) incorporated into local law CRS and the Commentaries as amended from time to time by the OECD.
Bottom line: Despite Singapore’s reversal, the argument remains viable that certain SRIP trusts with commercial trust companies as trustees nonetheless fail the “managed by” test. The OECD has no-one to blame but itself (and creative advisors).