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With almost 25 years of tax advisory experience, Teo specialises in fund formation and has structured numerous funds that invest in a diverse range of asset classes, such as hedge, real estate, infrastructure, private equity, venture capital, private debt/credit and digital assets. Besides structuring third-party funds, he is also involved in advising ultra-high net worth (UHNW) individuals in setting up their investment vehicles and management offices in Singapore. Tapping on his expertise in mergers and acquisitions, as well as international tax, Teo has also advised multiple clients in acquiring their investments across the Asia Pacific, Europe and US.

In the last 25 years of your career, what would you say are the key tax considerations relating to fund formation? Any differences depending on the asset classes?

As it is widely believed that a fund is a mere pooling vehicle, any tax should therefore only be levied at the investors’ and at the investments’ level.  As a result, in the past, the main tax consideration has always been focused on ensuring that the fund achieves tax neutrality, a concept that is used to describe the non-imposition of taxes on income and gains and withholding taxes on profit repatriation and return of capital. This objective is quite simply achieved through setting up the fund in a jurisdiction with a favourable tax regime or through a tax transparent structure.

However, the key considerations relating to fund formation have evolved tremendously over time. Increasingly, we see added complexities arising from ensuring that the fund structure considers tax implications at the investment level. For instance, if you are setting up an open-ended Pan-Asian real estate fund, the structure must allow the fund to leverage on both treaty benefits and tax-advantaged domestic structures in the target location.  These objectives must be balanced with the fund’s marketability, which is also important in determining the fund’s legal form and location.

The level of complexity varies across asset classes. Hedge funds possess relatively flat structures and are generally the least complex while setting up a fund that invests in hard assets such as real estate and infrastructure (including renewables) involves greater rigour. This complexity arises from multiple tax considerations on various levels, as such funds tend to have many layers of structures. Funds focusing on private equity, venture capital and debt possess moderate complexity. Lastly, complications in funds focusing on digital assets largely result from the fact that tax treatment of such assets are relatively untested, and many tax incentive schemes globally typically include only conventional capital market products but not digital assets.

Traditionally, funds are set up in tax-neutral locations such as the Cayman Islands but the fund management functions are often located in a different country such as the US, Singapore, Hong Kong, UK, etc. Are you seeing the onshoring of funds in Singapore and Hong Kong as an increasing trend and if yes, what are the possible reasons?

Such a trend has been observed in recent years and can be attributed particularly to changing policies, perceived risks and innovation in fund structures.

Setting up and maintaining funds in traditional tax haven countries such as Cayman Islands have become significantly costlier due to increased regulations. On the contrary, it is becoming more cost-competitive to set up funds in countries such as Singapore, especially because of government-issued grants to enhance attractiveness.

Furthermore, many institutional investors such as sovereign wealth funds and pension funds are moving away from such a structure because of the potential reputational risks. Certain family offices and UHNW investors are also moving away from such structures, fearing that association with such structures would result in them being targets of tax audits.

From a tax perspective, particularly for the purposes of accessing treaty benefits, if the fund and the holding company are set up in the same country, this could arguably reduce the risks of being accused of treaty shopping. For instance, many Asian-focused funds are set up as Singapore limited partnerships (LP) with wholly-owned subsidiaries in Singapore.

Another contributor is arguably the development of new fund structures offering fund managers and investors more flexibility than before and catering to the various needs of each segment. For example, Singapore fund managers may set up their fund vehicle in the form of a Variable Capital Company (VCC), LP or unit trust.

Could you briefly discuss the key benefits of domiciling funds in Singapore?

Singapore is a leading financial services hub and is regarded as being transparent, stable and a gateway to the Asia-Pacific region. It is renowned for having an open and well-regulated economy that is well-served by a vibrant ecosystem of service providers such as banks, tax and legal advisers.

Singapore is a leading financial services hub and is regarded as being transparent, stable and a gateway to the Asia-Pacific region. It is renowned for having an open and well-regulated economy that is well-served by a vibrant ecosystem of service providers such as banks, tax and legal advisers.

Using Singapore entities within a fund structure is ideal for several reasons. Singapore has a wide network of over 90 double taxation agreements and a flat corporate income tax rate of 17%. It has a measured approach to regulation with agencies such as the Monetary Authority of Singapore (MAS) and the Economic Development Board adopting pro-business policies.

Singapore is also a common law jurisdiction and offers a variety of legal entities and arrangements, such as companies (private limited and VCC), trusts or partnerships. To offer a conducive operating environment to the asset management industry, tax incentive schemes are also available for qualifying funds and asset managers.

What about those who want to set up a fund management company in Singapore? What do they need to consider?

First, the fund manager should consider whether the fund management company (FMC) is required to obtain a licence from the MAS to conduct regulated fund management activities in Singapore. There are two self-invoking licence exemptions whereby the FMC either manages a fund that invests solely in immovable assets, such as real estate and infrastructure funds; or provides fund management services to related corporations, such as members of the same group of companies. The second exemption is typically utilised by single-family offices (SFOs). If the requirements for exemption are not met, the FMC would have to apply for a licence with the MAS. They may apply for a Capital Market Services licence, where one key feature is the unlimited assets under management (AUM) (typically for mutual fund/hedge fund managers) or register with the MAS as a Registered Fund Management Company (typically for those who manage smaller funds).

Next, Singapore offers tax incentives such as the Section 13U (Enhanced-Tier Fund Tax Incentive Scheme) and Section 13O (Singapore Resident Fund Scheme) schemes, which provide for tax exemptions on certain income or gains derived by the funds. One key condition of note is that the fund must be managed by a licensed (or exempted) fund manager in Singapore.

Furthermore, FMCs may be eligible for a concessionary tax rate of 10% under the Financial Sector Incentive–Fund Management (FSI-FM) scheme. This is for fund management companies which manage only incentivised funds and commit to, amongst other things, growing their businesses (such as through AUM or headcount) in Singapore over a specified period.

Are there any specific rules governing the taxation of carried interest in Singapore?

No. In the absence of any deeming provisions in Singapore, the tax treatment of carried interest would prima facie follow its legal form. For funds managed in Singapore, it is common for carried interest to be structured as investment returns and paid out as dividends or partnership distributions if the carried interest recipients have invested a meaningful amount of capital to show alignment of interest with investors. Whilst less common, carried interest is sometimes structured as a performance fee payable to the FMC.

In what way is Singapore a favourable location for setting up a family office and what are the types of structures available?

Apart from the key benefits mentioned above, Singapore operates in a time zone which allows for greater convenience and ease of communication when servicing clients in Asia. The multi-racial make-up also brings multilingual capabilities. Singapore has a good reputation and infrastructure with an unbiased, fair court and legal system, a strong regulatory framework and a stable political environment.

The structures typically used by Singapore SFOs include private limited companies, VCCs and/or trusts. These allow flexibility and enable effortless assimilation into various categories of wealth planning structures.

What about someone who desires to set up a multi-family office (MFO) in Singapore? How is it different from setting up an SFO in Singapore?

One key difference lies in the licensing requirements. MFOs require an MAS licence to conduct fund management activities, while SFOs typically qualify for licensing exemption. A huge limiting factor for time-sensitive investments by MFOs lies with the approval process of the licence, which may take up to 9 months.

Furthermore, FMCs may qualify for the FSI-FM scheme, subject to conditions met. The intention of this is to incentivise fund managers to grow their AUM/fund management activities in Singapore. This scheme is more targeted towards MFOs since SFOs’ main objective is generally to grow and preserve family wealth. However, the MAS is prepared to approve FSI-FM applications made by SFOs on a case-by-case basis and if conditions are met.

The initiative, developed by British insurance company Prudential, is being driven by the Asian Development Bank (ADB) which is aiming to have the plan ready for the COP26 climate conference in November this year. The initiative will also involve major banks Citi and HSBC

Amid the rising pressures of the climate crisis, the plan aims to tackle the largest man-made source of carbon emissions with public-private partnerships buying coal-fired plants to close them down far sooner than they otherwise would be. ADB’s Vice President for East Asia, Southeast Asia and the Pacific said that 35 years of carbon emissions could be saved through the plan. The ADB aims to prepare for November’s COP26 event by launching a pilot programme in a developing Southeast Asian nation, such as Vietnam, the Philippines, or Indonesia. 

The initiative will also aim to raise the funds for the purchases of the coal-fired power plants at significantly below the normal cost by offering lower than usual returns to investors. However, some aspects of the initiative still need to be finalised, including how the group can convince the owners to sell their power plants, what will be done with the power plants once they have been closed down, and what role carbon credits could potentially play in the plan. 

The initiative comes as major investors and commercial and development banks have come to favour green energy over fossil fuels amid efforts to meet climate targets.  A fifth of the world’s greenhouse gas emissions come from coal-fired electricity generation. The International Energy Agency has predicted that global demand for coal will grow by 4.5%, with 80% of that increase stemming from countries in Asia. 

A vibrant payment landscape in Southeast Asia has led consumers to increasingly adopt alternative payment methods (APMs) for online payments and reduce their dependence on cash or major international credit card brands. APMs are also known as local payment methods as they are generally created according to the demands of their local consumers.

The Southeast Asian payment market is flooded with a number of APMs, enabling customers in the region to make virtual payments using a method most convenient for them. Some of the popular APMs in the region are as enumerated below:

Bank transfers: With funds transferred directly from their bank accounts, consumers can shop for products and services online.

e-wallets: Customers can load their digital wallets with funds from their bank accounts or credit cards and use them to make contactless payments.

Mobile payment apps: To make payments using mobile payment apps, consumers are required to download these apps on their mobile devices.

QR codes: QR (quick response) codes are barcodes that need to be scanned using a mobile device to facilitate electronic payments.

Buy now pay later: Buy now pay later (BNPL) enables consumers to shop for products and make the payments in installments at zero interest.

Direct carrier billing: Also known as telecom billing, carrier billing, or simply DCB, this alternative payment method enables customers to purchase digital services and pay for in-app upgrades using their mobile devices such as smartphones, tablets, smart TVs, or payment-enabled smart wearables.

In an effort to reduce dependency on cash and move towards a digital economy, many governments in the region have initiated special programmes such as Buy Malaysian Products and ePenjana in Malaysia, Smart Nation and Digital Resilience Bonus in Singapore, and the National e-Payment Master Plan in Thailand, among others. With a number of digital payment methods crafted especially for local needs, the adoption of APMs is high in these nations.

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APMs have now become mainstream

In some of the markets in the SEA region, alternative payment methods have become mainstream and consumers use them more than credit cards to make virtual payments. With smartphone usage rising exponentially in the region, both web- and mobile-based commerce have grown significantly as it enables customers to shop on-the-go using their mobile devices. When customers find a payment method they are accustomed to using, they are more likely to complete the purchase.

Merchants can use APMs to increase revenues

With the adoption of APMs in the SEA region increasing, merchants can use them to tap into a large section of consumers by offering APMs as a payment option and increase their revenues.

For instance, DCB not only enables customers to make payments using an internet-connected device but also allows them to have the payment added on to their postpaid billing cycle or deducted from their prepaid SIM load. As a result, even the unbanked and underbanked population can benefit from the convenience of enjoying digital services such as video and music streaming without necessarily needing traditional banking facilities or services.

US investment banks are set to delist Hong Kong-listed structured products linked to companies sanctioned under a recent executive order from President Donald Trump.

Goldman Sachs, Morgan Stanley and JPMorgan will delist a total of 500 Hong Kong-listed structured products, according to filings from the Hong Kong stock exchange on Sunday. These structured products are linked to telecom companies China Mobile, China Telecom and China Unicorn.

The executive order that prompted the delisting bans US citizens from investing in firms that the government has deemed to be linked with the Chinese military. 35 firms were targeted in the order as enabling “the development and modernisation” of China’s armed force and which “directly threaten” US security.

From 11 January at 09:30 EST, US investors will be prohibited from owning or trading securities in the banned companies. This extends to pension funds and share ownership.

Transactions made for the purpose of divesting ownership in the firms will be permitted until 11 November.

Bourse operator Hong Kong Exchanges and Clearing released a statement saying it was “working closely with the relevant issuers to ensure orderly delisting, and facilitate buyback arrangements being arranged by the issuers.”

The operator added: “We do not believe this will have a material adverse impact on Hong Kong’s structured products market, the largest in the world with over 12,000 listed products.”

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In a separate statement, US custodian bank State Street confirmed that an ETF it manages which tracks the Hang Seng Index would no longer make investments in sanctioned stocks, though it would maintain its existing shareholdings.

The statement also noted that, according to information published by the US Office of Foreign Assets Control last week, the fund was no longer appropriate for US firms or individuals to invest in.

European stock markets opened higher on Tuesday, building upon the unusually strong gains seen on Monday in spite of the reported contraction in the German economy.

Most major markets were up by 1% at the opening bell before fading later in the day. By mid-afternoon the DAX had risen by 0.6%, the CAC 40 by 1% and the IBEX 35 by 1.1%.

The FTSE 100 was a notable exception to the rule, having slipped 0.2% -- likely influenced by UBS having downgraded its forecast for UK GDP in 2020 earlier in the day. The FTSE MIB, however, gained 0.8%.

It is likely that investor sentiment was boosted by the outcome of a phone call between US Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He, in which steps were taken towards a Phase 1 trade deal.

“Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement,” the US Trade Representative’s office said in a statement on the call.

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News of the call had a definite impact on Asian currencies and global stocks, as IKON Commodities’ director of advisory services Ole House remarked that the positive US-China talks were “bullish for most commodities”.

The day’s stock market gains came in spite of new data released in Germany confirming that its economy contracted by 9.7% in Q2 which, while steep, largely beat analysts’ expectations. Dutch bank ING hailed the release as evidence that Germany was past the peak of the COVID-19 pandemic, calling the data a “final glance in the rearview mirror”.

Takeda Pharmaceutical Company, Japan’s largest pharmaceuticals firm, announced on Monday that it would sell its Japan-side consumer healthcare business to US private equity company Blackstone Group Limited.

Takeda has been selling its over-the-counter assets in several nations in a bid to refocus its business towards the development of new drugs and reducing the debt it acquired from its $59 billion purchase of Shire Plc in 2019.

During an online briefing, Takeda chief executive Christophe Weber said that the company had decided to sell its Japanese consumer business unit due to the difficulty of continuing to invest in OTC businesses while keeping this new focus.

“My responsibility is to make sure that we don’t destroy value (for OTC businesses) but create value, and to create value we need to grow businesses and it’s not good to keep business and not invest sufficiently into that,” the CEO said.

Takeda stated that the proceeds from the sale of Takeda Consumer Healthcare Company would add 108 billion yen to its net profit, and that it expected the transaction to close by 31 March.

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Blackstone outbid competition from Japanese pharmaceutical group Taisho and other private equity companies to acquire TCHC. In a statement, the company said that the purchase would be its second acquisition in Japan after acquiring Ayumi Pharmaceutical Corp in a $1 billion deal in March 2019.

This new purchase will give Blackstone control over TCHC’s Alinamin line of energy drinks and vitamin supplements, and its Benza Block cold medicine.

This reputation has been particularly prevalent since July 1997, when the region gained independence as a sovereignty and set about establishing itself as a low-tax haven with a raft of lucrative free trade agreements.

In the modern age, however, what is it that makes Hong Kong such an attractive proposition for international investors, and what role does the digital sector play in this?

Accessing a Free Market Economy

The most apt description of Hong Kong was provided by the economist Milton Friedman, who opined that the region was the world’s greatest experiment in laissez-faire capitalism. There can be little doubt that Hong Kong represents the quintessential free market economy, and one that’s built on the principle of lowering trade barriers and minimising corporation tax (this is currently fixed at 16.5% and will not change until 2022 at the earliest).

This is one of the main reasons for the popularity of Hong Kong amongst overseas business owners, who’ll have the opportunity to minimise their operating costs and boost their bottom line profit accordingly.

The low rate of corporation tax is also appealing to forex trading firms, which already benefit from the fact that most brokers don’t charge a levy on currency trading. Not only this, but Hong Kong is now ranked as the fourth-largest financial centre in the world with a 7.6% share of the global forex market, while the region is also home to the second-largest exchange in Asia (behind Singapore). Hong Kong is also renowned for having the fifth-largest stock exchange and largest initial public offering market in the world, and this highlights the appetite for domestic and international investment in an open and prosperous economy.

The low rate of corporation tax is also appealing to forex trading firms, which already benefit from the fact that most brokers don’t charge a levy on currency trading.

The nature of Hong Kong’s economy also contributes to an incredibly influential and cash-rich consumer base, which ensures that firms are able to optimise turnover on an annual basis.

In US dollar terms, one in seven Hong Kong households exist in the millionaire category, and while real estate represents 70% of these assets, there’s clearly an opportunity for international businesses to thrive and target affluent consumer demographics.

How is the Digital Sector Faring in Hong Kong? 

Despite the issues that the region has faced in terms of social unrest and angst, it continues to record average annual GDP growth of around 5% in real terms. One of the key factors here is also the rise of digital and web-based businesses, with Hong Kong’s relaxed commercial climate ideal for low-overhead and tech startups who wish to target a vast and diverse marketplace.

The open nature of Hong Kong’s economy also means that it’s easier than ever for companies to invest in advanced technologies and computational infrastructure, creating a competitive and potential lucrative landscape where profit margins are often higher than in developed economies.

Make no mistake; there’s a clear alignment between the values of Hong Kong’s economy and the ambitions of domestic and overseas SMEs, and this continues to build the digital landscape and lead into a far broader economy-wide transformation. Of course, we’ve already touched on the viability of launching a digital forex trading business in Hong Kong, and this is indicative of an economy that’s perfectly suited to online companies and tech-led startups.

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In terms of the best practice, the way in which you open a business in Hong Kong (digital or otherwise) will depend on the sector that you operate in. For example, firms looking to operate in the competitive forex space will need to identify a key differentiator, while also relying on key knowledge and datasets from the Asian marketplace.

The same principle of standing out from the crowd also applies when launching a business in the digital space, with marketing and the ability to target key demographics in Hong Kong also crucial to new ventures.

The COVID-19 virus is a global pandemic. With countries worldwide reporting cases, it is no wonder that it has greatly affected economies on a huge scale and reach. With more and more people confined in their homes, investors are now scrambling to come up with contingency plans to make sure their assets remain safe from it all. Of all the industries, the real estate sector seems to be the most affected. Hotels, restaurants, and retail stores are now empty.

Effect on Commercial Real Estate

In Asia, particularly in the hardest-hit areas, retailers are closing up shop. Retailers are being forced to send their workers home and stop operations. Restaurants, in the absence of customers, are left with no choice but to offer door-to-door deliveries or close as well. With travel bans in place, the usual busy areas of tourist spots are now deserted. With no sales, companies are forced to hold their wages and figure out how they will cover their monthly rent payments.

Rent Relief

Many businesses are now asking their real estate brokers like the Jeff Tabor group to negotiate rent relief and other forms of support to keep their businesses afloat. In Singapore, their restaurant association already requested shopping mall landlords to cut rents by at least 50% for the next three months. Some retailers have already granted relief measures including marketing assistance programs, flexible rental payments, and a rental rebate.

Effect on Residential Real Estate

Many think that the impact of the coronavirus should not extend to residential real estate. However, the effects are now felt within the residential sector as a number of home buyers are skeptical over fears of uncertainty - which is an expected outcome whenever something unusual happens in the markets. Fears about the virus caused the stock market to drop by over 1,000 points.

Real estate agents, however, believe that this is a good time to list their properties on the market. Uncertainty can sometimes equate to opportunity. Those who already have existing mortgages can negotiate to get the best deals possible. Based on the data provided by Black Knight, as many as 11 million homeowners can move to save more money through refinancing.

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Preparing for the Worst

Some of the malls in Singapore are slowly opening up shops despite the few numbers of buyers trickling in. Many believe that they have better chances of recouping what they have lost by continuing to operate. Nevertheless, they are still wary and are constantly finding ways just to break even and still provide goods and services. Restaurants are now offering food deliveries to doctors and nurses. Some of them are opening only when healthcare workers need to go out, take a break, and eat out. Right now, it is a give-and-take scenario.

The Bottom Line

Uncertainties can happen in the market. As we are experiencing, one crucial factor can affect the economy on a grand scale. In this case, the coronavirus or the COVID-19. With no known cure yet, real estate investors, home buyers and sellers have nothing to do but wait and see what comes of the virus and the real estate industry. For now, people should expect the worst and pray that their assets don’t turn into liabilities. COVID-19 could very well be the next Great Recession that we should brace for.

Triangle model

 Governments around the globe are undergoing a form of digital transformation, mandating real-time tax enforcement and new forms of digital reporting as they look to capture billions in lost tax revenue. Advances in technology mean they are able to insert themselves into every one of a business’s transactions and change taxation requirements whenever the opportunity arises to claw back some extra revenue. Probably the best-known example of this, the use of electronic invoicing with real-time administration controls, has been mandatory in Latin America for almost two decades now.

The most tightly-controlled regimes in the region, such as Brazil’s tax authorities, operate in a “triangle model”. Here, the transaction data and corresponding invoices must first be sent by the supplier to the country’s tax administrators for approval. Only once it’s been approved can an invoice be sent from the supplier to the purchaser without intervention from the administration. Finally, the transaction must often be validated between the purchaser and the tax authorities.

In certain parts of Asia, though, these controls may not be seen as tight enough. There is a move in some countries on the continent to play a bigger role in the exchange of data between suppliers and buyers.

 The European model – continuous reporting

 Many countries in the European Union are inspired by the Latin American approach but express this not by imposing electronic invoicing, but by making traditional VAT returns, reporting and auditing concepts more granular and more frequent. This approach is controversial, for several reasons.

To start with, reporting and auditing of indirect tax are activities that EU Member States can freely decide on without much mingling from Brussels. This is leading to a multiplicity of continuous and other technology-based enhanced VAT reporting schemes that contradict the very spirit of the EU internal market.

Secondly, most companies deal with VAT returns and similar periodic reports using manual approaches and often relying on local subsidiaries to deal with local idiosyncrasies and the submission to authorities. Gradually making these processes faster, and requiring the inclusion of actual transaction data rather than aggregate amounts creates confusion as to when these current VAT compliance processes need to be replaced by automated processes.

Some Asian tax administrations are going all the way by seeking to control or even own the entire technological stack for the transference of transactional data.

 Continuous transaction controls go East: including supply chains?

 Some Asian tax administrations are going all the way by seeking to control or even own the entire technological stack for the transference of transactional data. The entire communication flow - including the approval process - is run through a government network, thereby ensuing some of the highest levels of control on invoices and tax ever seen.

Take India, by way of illustration. The Indian Government established a committee to examine the viability of e-invoicing as a way of reducing tax evasion under its Goods and Services Tax (GST) programme. This committee has proposed to set up an extensive real-time control system which uniquely identifies suppliers’ invoices and, in many cases, transmits registered invoices to buyers.

The aim of this initiative is certainly laudable; it was designed to provide greater transparency into the country’s taxation system, helping to close its tax gap, reduce fraud and promote automation in both the private and public sectors. Such a stringent process could have an impact on global supply chains, however. India is a global manufacturing powerhouse. Should any corporation with a footprint in the country fail to understand the new process, it could not just result in non-compliance and associated financial sanctions, it could impact just-in-time delivery of critical components for the assembly or distribution of finished goods to businesses and consumers worldwide.

Given the wider implications of such tight controls, a lighter touch may, therefore, be more effective. Recent initiatives in Singapore also correspond to the trend for Asian authorities to pay more attention to the exchange of business data between suppliers and buyers but suggest a lighter-touch approach.

Recent initiatives in Singapore also correspond to the trend for Asian authorities to pay more attention to the exchange of business data between suppliers and buyers but suggest a lighter-touch approach.

Interoperable systems

In May 2018, Singapore’s Government announced the introduction of a nationwide e-invoicing framework largely based on a system that was originally designed to make public procurement more effective and equitable in Europe. The primary function of this framework is to raise productivity and efficiency within Singapore’s business ecosystem, but there are clear indications that certified transaction management cloud vendors acting as ‘access points’ on this network may also be required to perform transaction reporting to the Singaporean authorities for tax control purposes.

Companies can send and receive e-invoices based on the Pan-European Public Procurement Online (PEPPOL) standard, a set of technical specifications that can be implemented to enable interoperability among disparate public procurement and private sector e-invoicing systems. Doing so means that not only is Singapore able to adopt e-invoicing on a large scale, but its companies are able to carry out relatively friction-free international transactions with businesses from other countries that use the PEPPOL standards.

Latin America, the European Union, and now Asia. Each of these regions has embraced the advantages technology can offer when it comes to generating additional tax revenue, and closing existing gaps in their respective systems. The concept of real-time or near-real-time harvesting of live transaction data is central to most of these ‘continuous transaction control’ systems; however regional differences are emerging that take into account not just lessons learned from early adopter countries, but also cultural and economic differences.

While there are clear tax and economic benefits for governments to leverage modern technology to grab transactions between suppliers and their customers as they happen rather than requiring complex reporting and auditing after the fact, the business challenges of diversity within regions with similar philosophies (for example, the major differences among e-invoicing approaches in Latin America) are increasingly compounded by more structural differences among regions. Perhaps only time and experience will tell if their new state-driven model will be a success, or whether a compromise is required after all.

For an update on tax in India, Finance Monthly speaks with Shipra Walia, Managing Partner & Lead Consultant at W S & Co. – a Chartered Accountancy firm, rendering comprehensive professional services. Based in Noida, Uttar Pradesh, the company offers statutory audits, GST audit and compliances, tax consultancy (direct & indirect including international and domestic law), valuation, advisory on issues covered under Double Taxation Avoidance Agreements, expat taxation, audit, management consultancy, accounting services, secretarial services, representations before various authorities including Set Com and DRP etc.

How is the corporate tax system structured in India?

India has a dual taxation structure. One is direct tax paid by the taxpayer directly to the government like stamp duty, income tax, etc. and the other one is the indirect tax that reaches to the government through supply chain which is GST/VAT/Excise Duty/Customs duty. While a resident is taxed on their worldwide income, a non-resident is taxed only on income that is received in India, or that arises or is deemed to accrue in India.

How complex is the tax system in India? Are tax disputes commonplace and how are disputes resolved?

Every tax system has some inherent complexities as per the economy of the country. However, the equivalent measures are also there to curb or meet any tax litigations. Further, there are various laws which help with resolving litigations or reaching an agreement at an acceptable level for both parties. Similar, provisions exist for solving conflicts in cross-border transactions. For example, the Double Taxation Avoidance Agreements between India and foreign companies provide for MAP i.e. Mutual Agreement Procedure.

As per the amended provisions, any company whose location and effective management is in India will be treated as an Indian company and will be subject to all domestic laws

Have there been any amendments to India’s tax legislation since we last spoke in 2017?

Recently, India has included the concept of Place of Effective Management (POEM) in our tax legislation. Previously, if the control and management of a company was not located wholly in India, this was considered as a foreign company.

As per the amended provisions, any company whose location and effective management is in India will be treated as an Indian company and will be subject to all domestic laws. The rules also clarify the computation of active and passive business activity, the adherence to global group policies on accounting, HR, IT, supply chain. Additionally, routine banking operations shall not lead to POEM in India and strategic and policy decisions should be relevant in determining POEM, as opposed to routine operational decisions for oversight of day-to-day business operations.

Similarly, a new Goods and Service Tax (GST) was implemented in India in July 2017. GST’s mission is to exclude the multiple individuals and authorities involved in the process and is seen as one of the most influential transformations in the field of tax.

What tax considerations must be taken into account for foreign businesses who wish to expand their business operations in India?

India is a prominent upcoming market. With the government’s focus on “Made in India”, there are various tax benefits available in the country - either based on the product or the activity of the specific business. Under the changes, the initiatives are also driven towards improving exports with various countries.

With the government’s focus on “Made in India”, there are various tax benefits available in the country.

Tax benefits for angel investors, flexible valuation norms, no tax on remittance of profits by a branch of a non-resident company to its Head Office, no dividend distribution tax on Limited Liability Partnerships are amongst the few inbuilt attractions for expanding your business operations in India.

What tax incentives are in place for investors operating in India?

Tax incentives provided in the Indian tax structure can be broadly classified into location-based incentive, industry-specific incentives and activity based incentives. There are various SEZs set up for special benefits to 100% export-oriented units, as well as special international financial services centres (IFSC) which also serve as a catalyst for foreign investors that handle cross-border financial products and services.

 

Contact details:  

Website: www.wsco.in

Email: shipra@wsco.in

Tel: 9811738764

 

According to Bloomberg's Billionaires Index, in 2018, Jeff Bezos, Founder and CEO of Amazon, took up the throne as richest man alive, having crossed the $150 billion mark and replacing Bill Gates, Co-Founder or Microsoft, who held the position for several years, and whose all-time high net worth was valued at just above $100 billion in 1999.

However, throughout history, there have been richer men. Yet sadly, no richer women. Taking into account inflation and the value of wealth held, Jeff Bezos actually sits much further down in the richest people ever list, with the likes of Genghis Khan and John D. Rockefeller taking precedence.

But who is truly the richest person that ever lived?

At an estimated value of $400 billion, Mansa Musa I of Mali is the richest person who ever lived. Born in 1280, Mansa Musa was ruler of the Malian empire, and acquired the most part of his wealth from the production and trade of salt and gold; more than half of the world’s supply at the time in fact.

You’ve likely never heard of this ruler, unless of course you live in a country that was heavily influenced by his rule, which would be several African countries with Muslim heritage. Still today there are mosques standing that were built on the back of Musa’s immense wealth.

Dying in 1337, Musa left his huge amount of money to his heirs, who not only squandered the best part, but failed to protect the family worth just two generations down the line, when the empire was overturned in civil war and conquered by invading foreign nations. Musa was the tenth Mansa of the Malian empire and ruled over the better part of what was previously the Ghana empire, today known as Mauritania and Mali.

His titles, surprisingly unrelated to his stacks of cash, include among others: "Emir of Melle," "Lord of the Mines of Wangara," and "Conqueror of Ghanata." According to David C. Conrad's "Empires of Medieval West Africa: Ghana, Mali, and Songhay," during his rule, Musa conquered 24 cities and their surrounding districts, amassing wealth left, right and centre. On top of this, he was the world’s biggest gold producer and distributor, as gold was a highly sought commodity at the time, and an important indication of status and affluence.

TED Ed reports that in order to fulfill one of the five pillars of Islam, Mansa Musa made a 4,000 mile pilgrimage to Mecca, and spent silly amounts of cash in doing so, as of course a Mansa as such had to travel in both style and luxury. TED Ed writer Jessica Smith says: "Not one to travel on a budget, he brought a caravan stretching as far as the eye could see.” The 60,000 strong caravan was rumoured to have included 1,000 helpers, 100 gold-packed camels, endless musicians the Mansa enjoyed, and 500 or more slaves with golden staffs.

Alongside his heritage Musa’s assets are estimated to be worth an inconceivable amount, and although historians and economists have rounded said value to around $400 billion, according to Time magazine: "There's really no way to put an accurate number on his wealth." In fact, some believe that Mansa Musa’s incredible fortune may have been slightly exaggerated by his contemporaries, and that the Rothschild Family, the most successful banking family in history, may be in fact the front runner for the richest person/persons who ever lived.

"There's really no way to put an accurate number on his wealth."

- Time Magazine

Nonetheless, this legendary ruler stands among the richest of the rich, and while today’s generations may have forgotten him, time remembers him through the many monuments, mosques and madrasas that he had built and still stand in Gao and Timbuktu, but more notably, the Sankoré University, which today is a fully staffed university with over 25,000 students and one of the largest libraries in the world at roughly 1,000,000 historical manuscripts.

Bill Gates and Jeff Bezos are names we hear daily nowadays, and names we most associate with real billionaires, but these guys aren’t much in comparison to Mansa Musa, the richest person who ever lived.

Sources:

http://time.com/money/3977798/the-10-richest-people-of-all-time-2/

https://en.wikipedia.org/wiki/List_of_wealthiest_historical_figures

https://www.celebritynetworth.com/articles/entertainment-articles/25-richest-people-lived-inflation-adjusted/

https://worldpolicy.org/2012/04/10/lessons-from-timbuktu-what-malis-manuscripts-teach-about-peace/

https://ed.ted.com/lessons/mansa-musa-one-of-the-wealthiest-people-who-ever-lived-jessica-smith#watch

https://www.amazon.com/dp/B00BT68Q2I/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1&tag=bisafetynet2-20

https://www.bloomberg.com/billionaires/

There have been a number of high profile stock market crashes over the years often resulting in huge losses for both individual investors and businesses.  Although there is no specific number that determines when a stock market crashes, a crash occurs when there is a significant decline in the share prices.  Usually it becomes a crash when one of the major stock market indexes loses over 10% of its value.  Most of the major stock market crashes are preceded by a long bull market and they often result in panic-selling by investors attempted to liquidate their stocks to avoid further losses.

The stock market fluctuates daily, but on some occasions the crashes can be seismic and cause long lasting effects. Here we take a look at 10 of the biggest stock market crashes in history.

1. The 1673 Tulip Craze

In 1593 tulips were first brought to The Netherlands from Turkey and quickly became widely sought after. After some time, tulips contracted a non-fatal tulip-specific mosaic virus, known as the ‘Tulip breaking virus’, which started giving the petals multicolour effects of flame-like streaks. The colour patterns came in a wide variety, which made the already popular flower even more exotic and unique. Tulips, which were already selling at a premium, grew more and more in popularity and attracted more and more bulb buyers. Prices, especially for bulbs with the virus, rose steadily and soon Dutch people began trading their land, life savings and any other assets they could liquidate to get their hands on more tulip bulbs. The craze got to a stage where the originally overpriced tulips saw a 20 fold increase in value in one month.

The 1673 Tulip Mania is now known as the first recorded economic bubble. And as it goes in many speculative bubbles, some people decided to sell and crystallise their profits which resulted in a domino effect of lower and lower prices. Everyone was trying to sell their bulbs, but no one was interested in buying them anymore. The prices were progressively plummeting and everyone was selling despite the losses. The Dutch Government tried to step in and offered to honour contracts at 10% of the face value, which only resulted in the market diving even lower. No one emerged undamaged from the crash and even the people who got out early were impacted by the depression that followed the Tulip Craze.

Tulip Mania; Image credits: Krause & Johansen

 

2. The South Sea Bubble 1711

Another speculation-fuelled fever occurred in Europe a few decades after the Tulip Mania – this time in the British Empire. The bubble centred around the fortunes of the South Sea Company, whose purpose was to supply 4,800 slaves per year for 30 years to the Spanish plantations in Central and Southern America. Britain had secured the rights to provide Spanish America with slaves at the Treaty of Utrecht in 1713 and the South Sea Company paid the British Government £9,500,000 for the contract, assuming that it could open the door to trading with South America and that the profits from slave trading would be huge.

This was met with excitement from investors and resulted in an impressive boom in South Sea stock – the company’s shares rose from 128 1/2 in January 1720 to over 1,000 in August. However, by September the market had crumbled and by December shares were down to 124. And the reason behind the bubble burst? Speculators paid inflated prices for the stock, which eventually led to South Sea’s dramatic collapse. The economy was damaged and a large number of investors were completely ruined, but a complete crash was avoided due to the British Empire’s prominent economic position and the government’s successful attempts to stabilise the financial industry.

Commentary on the financial disaster of the "South Sea Bubble"

 

3. The Stock Exchange Crash of 1873

The Vienna Stock Exchange Crash of May 1873, triggered by uncontrolled speculation, caused a massive fall in the value of shares and panic selling.

The National Bank was not able to step in and provide support because it didn’t have enough reserves available. The crash put an end to economic growth in the Monarchy, affected the wealth of bankers and some members of the imperial court and confidants of the Emperor, as well as the imperial family itself. It also led to a drop in the number of the Vienna World Exhibition visitors – a large world exposition that was held between May and October 1873 in the Austria-Hungarian capital.

Later on, the crash gradually affected the whole of Europe.

Black Friday on 9th May 1873 at the Vienna Stock Exchange

 

4. The Wall Street Crash of 1929

On 29th October 1929, now known as Black Tuesday, share prices on the New York Stock Exchange collapsed - an event that was not the sole cause of the Great Depression in the 1930s, but something that definitely contributed to it, accelerating the global economic collapse that followed after the historic day.

During the 1920s, The US stock market saw rapid expansion, which reached its peak in August 1929 after a lot of speculation. By that time, production had declined and unemployment had risen, which had left stocks in great excess of their real value. On top of this, wages were low, agriculture was struggling and there was proliferation of debt, as well as an excess of large bank loans that couldn’t be liquidated.

In September and early October, stock prices began to slowly drop. On 21st October panic selling began and culminated on 24th, 28th and the fatal 29th October, when stock prices fully collapsed and a record of 16,410,030 shares were traded on NYSE in one day. Financial giants such as William C. Durant and members of the Rockefeller family attempted to stabilise the market by buying large quantities of stocks to demonstrate their confidence in the market, but this didn’t stop the rapid decrease in prices. Because the stock tickers couldn’t handle the mammoth volume of trading, they didn’t stop running until about 7:45 pm. During the day, the market had lost $14 billion. The crash remains to this day the biggest and most significant crash in financial market history, signalling the start of the 12-year Great Depression that affected the Western world.

 17th July 2014 Washington DC, USA - A detail from one of the statue groups at the Franklin Delano Roosevelt Memorial that portrays the depth of the Great Depression

 

5. Black Monday 1987

On 19th October 1987, stock markets around the world suffered one of their worst days in history, known today as Black Monday. Following a long-running rally, the crash began in Asia, intensified in London and culminated with the Dow Jones Industrial Average down a 22.6% for the day – the worst day in the Dow’ history, in percentage terms. Black Monday is remembered as the first crash of the modern financial system because it was exacerbated by new-fangled computerised trading.

The theories behind the reasons for the crash vary from a slowdown in the US economy, a drop in oil prices and escalating tensions between the US and Iran.

By the end of the month, stock markets had dropped in Hong Kong (45.5%), Australia (41.8%), Spain (31%), the United Kingdom (26.45%), the United States (22.68%) and Canada (22.5%). Unlike the 1929 market crash however, Black Monday didn’t result in an economic recession.

Following a long-running rally, the crash began in Asia, intensified in London and culminated with the Dow Jones Industrial Average down a 22.6% for the day – the worst day in the Dow’ history, in percentage terms.

 

6. The 1998 Asian Crash

The Asian crisis of 1998 hit a number of emerging economies in Asia, but also countries such as Russia and Brazil, having an overall impact on the global economy. The Asian crisis began in Thailand in 1997 when foreign investors lost confidence and were concerned that the country’s debt was increasing too rapidly.

The crisis in Thailand gradually spread to other countries in Asia, with Indonesia, South Korea, Hong Kong, Laos, Malaysia and the Philippines being affected the most. The loss of confidence affected those countries’ currencies – in the first six months, the Indonesian rupiah’s value was down by 80%, the Thai baht – by over 50%, the South Korean won – by nearly 50% and the Malaysian ringgit – by 45%. In the 12 months of the crisis, the economies that were most affected saw a drop in capital inflows of more than $100 billion.

 

7. The Dotcom Bubble Burst

In the second half of the 1990s, the commercialisation of the Internet excited and inspired many business ideas and hopes for the future of online commerce. More and more internet-based companies (‘dotcoms’) were launched and investors assumed that every company that operates online is going to one day become very profitable. Which unfortunately wasn’t the case – even businesses that were successful were extremely overvalued. As long as a company had the ‘.com’ suffix after its name, venture capitalists would recklessly invest in it, fully failing to consider traditional fundamentals. The bubble that formed was fuelled by overconfidence in the market, speculation, cheap money and easy capital.

On 10th March 2000, the NASDAQ index peaked at 5,048.62. Despite the market’s peak however, a few big high-tech companies, such as Dell and Cisco, placed huge sell orders on their stocks, which triggered panic selling among investors. The stock market lost 10% of its value, investment capital began to melt away, and many dotcom companies went out of business in the next few weeks. Within a few months, even internet companies that had reached market capitalisation in the hundreds of millions of dollars became worthless. By 2002, the Dotcom crash cost investors a whopping $5 trillion.

As long as a company had the ‘.com’ suffix after its name, venture capitalists would recklessly invest in it, fully failing to consider traditional fundamentals.

8. The 2008 Financial Crisis

This market crash needs no introduction - we all must remember how ten years ago Wall Street banks’ high-risk trading practices nearly resulted in a collapse of the US economy. Considered to be the worst economic disaster since the Great Depression, the 2008 global financial crisis was fed by deregulation in the financial industry which allowed banks to engage in hedge fund trading with derivatives. To support the profitable sale of these derivatives, banks then demanded more mortgages and created interest-only loans that subprime borrowers were able to afford. As the interest rates on these new mortgages reset, the Federal Reserve upped the fed funds rates. Supply outplaced demand and housing prices began to decrease, which made things difficult for homeowners who couldn’t meet their mortgage loan obligations, but also couldn’t sell their house. The derivatives plummeted in value and banks stopped lending to each other.

Lehman Brothers filed for bankruptcy on 15th September 2008. Merrill Lynch, AIG, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo Real Estate, and Alliance & Leicester which were all expected to follow however were saved by bailouts paid by national governments. Despite this, stock markets across the globe were falling.

And we all remember what followed… The bursting of the US housing bubble and Lehman Brothers’ collapse nearly crushed the world’s financial system and resulted in a damaged house market, business failures and a wounded global economy.

Don’t miss our articles on the impact of the Lehman Brothers’ collapse:

https://www.finance-monthly.com/2018/09/lehman-brothers-lessons-have-we-learned-anything/

https://www.finance-monthly.com/2018/10/lehmans-lingering-legacy-why-financial-services-ma-has-not-recovered-from-the-crisis/

9. The Flash Crash 2010

On 6th May 2010, the US stock market underwent a crash that lasted approximately 36 minutes, but managed to wipe billions of dollars off the share prices of big US companies. The decrease occurred at a speed never seen before, but ended up having a very minimal impact on the American economy.

With the opening of the market on 6th May 2010, there were general market concerns related to the Greek debt crisis and the UK general election. This led to the beginning of the flash crash at 2:30pm - Dow Jones had declined by more than 300 points, while the S&P 500 and NASDAQ composite were affected too. In the next five minutes, Dow Jones had dropped a further 600 points, reaching a loss of nearly 1000 points for the day. By 3:07pm things were looking better and the market had regained much of the decrease and only closed at 3% lower than it opened. The potential reasons behind the crash vary from ‘fat-fingered’ trading (a keyboard error in technical trading) to an illegal cyberattack. However, a joint report by the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) stated that the extreme price movement could have been caused by the combination of prevailing market conditions and the large automated sell order.

As some securities lost 99% of their value in a few minutes, this was one of the most impressive stock market crashes in modern history.

10. 2015–16 Chinese Market Crash

After a few years of being viewed in an increasingly favourable light, China’s Stock Market burst on 12th June 2015 and fell again on 27th July and 24th August 2015. Despite the Chinese Government attempt to stabilise the market, additional drops occurred on 4th and 7th January and 14th June 2016. Chaotic panic selling in July 2015 wiped more than $3 trillion off the value of mainland shares in just three weeks, as fear of complete market seizure and systemic financial risks grew across the country.

Surprise devaluation of the Chinese yuan on 11th August and a weakening outlook for Chinese growth are believed to have been the causes for the crash that also put pressure on other emerging economies.

 

Sources:

https://www.investopedia.com/features/crashes/crashes2.asp

https://www.britannica.com/event/South-Sea-Bubble

http://www.habsburger.net/en/chapter/crisis-highest-circles-economic-boom-and-stock-exchange-crash

https://www.citeco.fr/10000-years-history-economics/industrial-revolutions/crash-of-the-vienna-stock-exchange-in-austria

https://www.history.com/topics/great-depression/1929-stock-market-crash

https://www.thirteen.org/wnet/newyork/

https://www.britannica.com/event/Asian-financial-crisis

https://qz.com/1106440/black-monday-1987-the-stock-market-crash-that-was-so-bad-hospital-admissions-spiked/

https://www.investopedia.com/terms/d/dotcom-bubble.asp

https://www.thebalance.com/what-caused-2008-global-financial-crisis-3306176

https://www.thestreet.com/markets/history-of-stock-market-crashes-14702941

https://www.sec.gov/news/studies/2010/marketevents-report.pdf

https://www.economist.com/news/2015/08/24/the-causes-and-consequences-of-chinas-market-crash

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