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Business News/ Companies / News/  India taxation issues on global radar, says Iyer Practice Advisers’ Shanker Iyer
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India taxation issues on global radar, says Iyer Practice Advisers’ Shanker Iyer

Chartered accountant says governments are studying court rulings in India to look at foreign investments in their countries

Shanker Iyer says he cautions clients against using Singapore blindly and advises them to have proper substance, business and focus not just on India from their Singapore office, but also on other countries.Premium
Shanker Iyer says he cautions clients against using Singapore blindly and advises them to have proper substance, business and focus not just on India from their Singapore office, but also on other countries.

Singapore: Chartered accountant Shanker Iyer moved to Singapore from the UK in 1993 and founded Iyer Practice Advisers, building it over two decades into an entity offering top-end accounting advisory, corporate tax, business consulting and family office services.

An earlier stint in the city-state with accounting practice Moores Rowland helped Iyer establish the firm, which expanded last year to Hong Kong.

In addition to knowing the market and the connections he had established during his prior stint, it helped that Singapore was among the few countries that allowed “foreign qualified professionals to come and practice without any conditions", Iyer, 62, said.

Iyer traces his ancestry to Burma, now known as Myanmar. In the 1960s, when the government of that country expelled foreigners, his grandfather relocated to the UK. After completing their schooling in Sherwood College in Nainital, now in Uttarakhand in northern India, Iyer and his brother moved to the UK for higher education, and went on to become chartered accountants.

He then joined Moores Rowland, worked his way up to become a partner, and was deputed to Singapore when it decided to open an office in Asia. In 1992, after eight years, Iyer returned to the UK for their children’s education.

“The UK economy was in recession then. One year later, we put our son in boarding school and came back to Singapore and started Iyer Practice," he said.

Iyer comes from a family of chartered accountants.

“My grandfather was a chartered accountant in Burma—we are now fourth-generation chartered accountants; my uncles and my brother and my two sons are also chartered accountants," he said.

With his sons returning from London to join the firm, Iyer said he now has the “bandwidth" to fulfil his long-cherished ambition of expanding out of Singapore. The first step was to set up operations in Hong Kong.

“In our field, in international tax, Hong Kong has signed interesting international tax treaties with other countries—they have about 30 treaties and very good ones, too. So we had a window of opportunity to get in there," he said.

His son, Sanjay Iyer, 29, is overseeing the Hong Kong practice.

His elder son, Sunil Iyer, 34, is focusing more on regulatory and consulting services, wealth management and trusts in which Singapore offered better opportunities in this space.

Iyer’s first and natural choice for expansion had been India, but he said the negatives in its tax systems forced him to opt for Hong Kong instead.

“We felt that being Indians ourselves we could connect easily to the market there—when you work with clients from India, if you have an office there, you have to withhold 20% tax on your fees. There are ways to work around it, but we did not want to take a chance and we did not like that idea," he said.

For Iyer, all the action in international taxation is still happening in India, which has had run-ins with several international companies including Vodafone Group Plc and Royal Dutch Shell Plc on tax issues.

“They (India) are leading this region in taxation issues. India has been very aggressive—many of the judgements being given out by its courts are being studied by governments around the world, who are also using the same to look at foreign investments in their own countries. It is certainly painful for investors who are impacted, but in terms of the way the law is being developed and the understanding of it, there is a lot going on in India," he said. Iyer is part of several trade and industry bodies and was awarded an Order of the British Empire (OBE) for turning around the British Chambers of Commerce in Singapore, which, Iyer said, had been in a very bad financial health.

Edited excerpts from an interview:

You now advise clients in both Singapore and Hong Kong. When it comes to the friendliest place to do business, Hong Kong is rated No.1, while Singapore is rated as the best globally when it comes to starting a business. What has Hong Kong done better to top the economic freedom index? What makes Singapore an attractive destination to start businesses? How long do you see Singapore’s advantage lasting?

Economic freedom does not mean it is better, but that in Hong Kong, it is left more to the market forces. In Singapore, the government tends to be involved a lot more with the way things are done. I go to Hong Kong so often and they actually envy Singapore and the way the government does things here. In the ’90s, both Singapore and Hong Kong were competitors, but now I see them as complementary, both in terms of activities and jurisdiction.

Hong Kong is very much about Northeast Asia and China. In the banking world, Singapore has captured the private banking and private wealth space and Hong Kong is still strong on the institutional side and investment banking. But if you want to go after the ASEAN (Association of Southeast Asian Nations) market, you would rather be in Singapore, and if you want to target China, then Hong Kong is the place to be.

India and Singapore have a double taxation avoidance agreement (DTAA) in place. How many of your clients come to you for help with routing their investments into India through Singapore?

They are just beginning to come now. We, actually as a firm, specialize in inbound investments into Singapore and Hong Kong rather than outbound, because we see a lot of Indian companies coming out and setting up operations here. Even Indian family businesses are sending one of their children here. But in the last one year, we see that more and more people are trying to do transactions and investments into India from Singapore and certainly we are more involved here. This will continue to grow.

It is not a simple thing—the India-Singapore treaty is attractive, but it has not been tested in the courts yet, and so we don’t yet know how the courts in India will interpret it. The Mauritius treaty, for all its criticism, has been tested in courts and proven, and we know how the Indian courts look at it... There are some subjective elements in the India-Singapore treaty—you can spend money here and have an office and so on—but there is a clause of intent, where the tax official in India can say that the set-up in Singapore is only to avoid taxes. We, therefore, always have that doubt as to how the courts will interpret this and we caution clients against using Singapore blindly and tell them that they need to have proper substance, proper business and focus not just on India from their Singapore office, but focus on other countries, too.

Our concern as a firm is what we call primary purpose—if the primary purpose is to take advantage of the tax treaty, then they (India) may not allow it. So if you have one investment from here to India, and just have one or two staff here, it is very easy for the authorities in India to argue that the primary purpose of this investment is to take advantage of this treaty.

Technology has disrupted every profession, but why is auditing and consulting relatively immune? Today your clients can use technology such as auditing software and do a lot of what you offer them. In this context, do your roles change going forward to providing guidance beyond what clients can do on their own?

Everyone uses technology a lot... But there is one thing technology cannot do and that is judgment—this is something we have to use a lot in our profession. Clients still want to see someone—when you go to a hospital, you want to see a doctor and not a robot, and we are financial doctors. But at the same time, firms that use technology will succeed more. We did re-brand our business recently—we are now advisors and are no longer accountants, and we see the low-end stuff being done by clients themselves and by other service providers. You can say clients can do it themselves—yes, they can, but they won’t as they want to focus on their business. They have no manpower, no interest or the time to do it. Yes, we took the position as advisors because using technology if you can access clients’ data all the time, then you can advise them continuously—that is the future. All this is happening in the higher end of the market now.

What do you think are the biggest challenges to the profession?

For smaller firms, the biggest issue is succession planning and this is a big concern around the world. I am lucky that we have children close to the family, but if not for that, it would be very tough because the next generation is not interested in putting in long hours for many, many years to get there. Mergers are an issue because one plus one does not always make three. In a place like Singapore, in the next two-three years, the company law will come in, and it will abolish auditing for companies below S$10 million and that will wipe out 70% of the business, and firms will have to suddenly plan on what else to do to survive. This is one of the reasons we exited auditing.

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Published: 23 Jan 2014, 11:24 PM IST
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