Singapore GST – Clarification on “Directly in Connection With” and “Directly Benefit”


IRAS has recently updated its e-Tax Guide on “Clarification on “Directly in Connection With” and “Directly Benefit”.   We highlight the major amendment to this  e-Tax Guide below:

  1.   An example was added to illustrate what constitutes a supply of service that is directly in connection with goods or land:
  • Fire insurance for a building. In the event of a fire, the policyholder is compensated for the damages to the building caused by the fire. The service provided by the insurance company protects the value of the building.
  • Interior design services for a specific property.

2.   The provision of a mortgage loan is considered a supply that is directly in connection with the land when the loan is provided specifically to enable the purchaser to own the property.

3.    Services supplied are regarded as directly in connection with goods or land only if:

(a) the goods or land exist at the time the services are performed. For example, the granting of a right to a patent (which is a supply of service) cannot be regarded as supplied directly in connection with goods manufactured using the patent as the goods do not yet exist when the patent is granted; and

(b)  the services relate to identifiable goods or land. Goods are identifiable by model, type or serial number whereas land is identifiable by address or legal description. Hence, if the services relate to goods or land in general, the services will not be regarded as directly in connection with any goods or land.

4.   Where a transaction comprises multiple supplies of services, each supply should be examined on its own to determine whether the supply of services is considered directly in connection with goods or lands.  If it is a single supply of services consisting of a number of service elements, the entire supply would be directly in connection with goods or land if the dominant service element is regarded as directly in connection with goods or land.

5.   A local beneficiary who wishes to avail himself of the administrative concession that allows him to claim the GST charged by the local supplier to the overseas customer as its input tax claim is required to self-assess and ensure the prescribed conditions are satisfied and it’s been clarified that the claim should be made within 5 years from the end of the prescribed accounting period in which the payment of the tax was made or the date when the invoice was issued, whichever is the later.

Contact support@whm-consulting.com if you have any questions regarding the above.

 

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Singapore GST – Businessman Guilty of GST Fraud, Sentenced to 24 Weeks’ Imprisonment


It was reported in the IRAS’  website on 20 October 2017 that
Foo Tee Suan (“Foo”), who was the sole-proprietor of FTH Enterprise (“FTH”), partner of F&T Top System Enterprise (“F&T”) and Hwa Rong Import & Export (“HRIE”) and director of Hwa Rong Enterprise Pte Ltd (“HREPL”), has been convicted of making false entries in the GST returns of the four business entities which resulted in GST refunds totalling $458,019.69.

One of Foo’s business entities, F&T, was audited by IRAS during one of its regular audits of GST-registered businesses. During the course of the audit, IRAS’ auditors discovered that Foo had made false entries in the GST returns of F&T. The audit further discovered that Foo had also made false entries in the GST returns of three other business entities that he was involved in.

Foo’s scheme to commit GST tax fraud first began with a suggestion from Eric Chia Puay Yeoh (“Chia”), who was convicted in July 2014 of masterminding a complex GST scam using multiple shell entities. Chia suggested to Foo to voluntarily register his export business, FTH Enterprise (FTH), for GST so that FTH could claim fictitious GST refunds. Thereafter, Foo set up three other entities that were all shell companies without any business transactions.

Foo, with willful intent to evade tax, signed blank GST return forms for the four business entities and provided Chia with his SingPass in order for Chia to e-file the GST return forms for the four business entities. To illegally obtain GST refunds, Chia declared fictitious figures in the GST returns and fraudulently claimed a total of $457,749.59 in GST refunds. Foo benefitted from the fictitious GST refunds that Chia obtained and used some of the GST refund monies for his own personal expenses.

Foo faced a total of 54 GST charges of wilful intent to evade tax by making false entries in the GST returns of the four business entities. He pleaded guilty to 18 out of the 54 GST evasion charges, involving a total GST amount of $172,314.90 undercharged, with the other 36 remaining GST evasion charges being taken into consideration for the purposes of sentencing. The Court sentenced Foo to 24 weeks’ imprisonment and ordered him to pay a penalty of $516,944.70, three times the amount of tax undercharged.

What does this mean to you?

GST-registered businesses are allowed to offset the GST they pay for their purchases (input tax) against the GST they collect from sales (output tax). They pay the net difference to IRAS. Those that incur more GST on purchases than they collect from their sales can claim the difference from IRAS in the form of GST refunds.

It is a serious offense to claim GST input tax on fictitious purchases or understate output tax on sales. Offenders face a penalty of three times the amount of tax undercharged, a fine not exceeding $10,000, and/or imprisonment of up to seven years.

If you have any questions, please contact support@whm-consulting.com

 

Proposed Tax Changes announced by Mrs Carrie Lam, Chief Executive of HK SAR on 11 Oct 2017


Hong Kong Chief Executive, Mrs Carrie Lam, delivered her maiden Policy Address a while ago and the following tax changes have been proposed:

– To provide tax relief to the SMEs, the profits tax rate for the first HK$2M of profits to be lowered to 8.25% and thereafter the profits exceeding that amount would continue to be subject to HK Profits Tax at 16.5%. Only one enterprise nominated by each business group will be eligible for the lower tax rate.

– To encourage R&D investment by enterprises, a 300% tax deduction for the first HK$2M eligible R&D expenditure is proposed, with the remainder at 200%

– Increase the total number of comprehensive avoidance of double taxation agreements to be signed with other tax jurisdictions to 50 in the next few years.

Singapore GST – Research Fellow Convicted of GST Tourist Refund Fraud


It was reported in IRAS’ website on 9 October 2017 that a research fellow, Bai Jiaming was convicted of the following GST offenses:

  • Engaging the help of a tourist to claim a GST refund of $1,543.93 for a $23,600 Tiffany & Co. diamond ring (the “ring”) purchased by him; and
  • Obtaining a Prada bag (the “handbag”) and the ring from the tourist after a GST refund of $1,791.87 had been claimed on the two items.

Investigations revealed that Bai colluded with his colleague, Zhang Baicheng and his colleague’s father, Zhang Yaoqun (“co-accused persons”) to carry out the GST refund fraud. Bai, the purchaser of the ring did not qualify for a GST refund under the Electronic Tourist Refund Scheme (“eTRS”) as he was not a tourist and was in fact, working in Singapore.  At Zhang Baicheng’s suggestion, Bai procured Zhang Yaoqun to obtain approval for a GST refund even though Zhang Yaoqun was not entitled to the said GST refund as he was not the purchaser of the ring.

On 11 Mar 2017, Bai, with a one-way air ticket to Jakarta bought on the previous day,  went with Zhang Baicheng and Zhang Yaoqun to the Singapore Changi International Airport. Zhang Baicheng and Zhang Yaoqun had return air tickets for Bangkok. All three checked in at their respective ticket counters and entered the transit area. Thereafter, Zhang Yaoqun made the GST refund claim for the handbag and the ring at the transit area in Changi International Airport, Terminal 3. Zhang Yaoqun had the said handbag and ring in his possession at the time that the GST refund was approved.

After obtaining approval for a GST refund, Zhang Yaoqun gave the handbag and ring to Zhang Baicheng who in turn gave them to Bai. Bai knew that Zhang Yaoqun had obtained approval for a GST refund of $1,791.87 under the eTRS in respect of both the handbag and ring. Bai then attempted to leave the transit area with the handbag and ring and was stopped by an ICA officer for suspected misuse of a boarding pass.

Both Zhang Baicheng and Zhang Yaoqun were charged on 28 Jul 2017 for their offenses and their cases are still pending before the court.

The court sentenced Bai to a total fine of $7,000. If he defaults on payment of the fine, he will have to serve four weeks’ imprisonment.

What does this mean to you?

IRAS takes a serious view of anyone who makes false declarations to seek GST refunds under the tourist refund scheme and abuses the scheme.    Under the GST Regulation, a person commits an offense for receiving goods from a tourist, directly or indirectly, knowing that the tourist has obtained approval for the refund. The person also commits an offense for engaging another person to seek or obtain an approval for a refund under the tourist refund scheme. Offenders shall be liable on conviction to a fine not exceeding $5,000 and in default of payment to an imprisonment for a term not exceeding 6 months.

If you have any questions regarding the above, contact support@whm-consulting.com

Income Tax – Former Director of Engineering Company Sentenced to Jail and a Penalty for Assisting in Income Tax Evasion


It was reported in IRAS’ website on 8 September 2017 that Kuah Pong Guan (“Kuah”), a former director of Wesco Engineering Pte Ltd (“WEPL”), a company involved in fabrication of metal works, has been convicted of assisting WEPL to evade tax by not reporting a total of 81 cash sales made to its customers in WEPL’s income tax returns for Years of Assessment (“YAs“) 2009 and 2010.

Investigations revealed that for these two YAs, Kuah sold metal parts to customers on a cash basis without issuing any invoices, and did not report the earnings from such sales in WEPL’s income tax returns.  Kuah did so to pocket these earnings for gambling and to pay off his own creditors.  By doing so, Kuah had also assisted WEPL to evade income tax by under-declaring WEPL’s income earned.

For YA 2009, Kuah declared WEPL’s sales income to be $62,253, understating actual income by $730,697, which resulted in income tax being undercharged by $114,109.02. For YA2010, he declared a loss of $205,475 for WEPL’s sales income, when it had, in fact, earned a profit of $77,246. This resulted in income tax being undercharged by $3,906.09.

Kuah was charged and convicted for assisting WEPL to evade income tax by providing false information in WEPL’s income tax returns for YAs 2009 and 2010. The Court ordered Kuah to pay a penalty of $354,045.33, three times the amount of tax undercharged for both YAs, and sentenced him to two weeks imprisonment.

What does this mean to you?

IRAS takes a serious view of non-compliance and tax evasion. There will be severe penalties for those who wilfully evade tax. Taxpayers are ultimately responsible for the information declared in their income tax returns. The authority will not hesitate to bring offenders to court. Penalties for tax evasion can be up to four times the amount of tax evaded. In certain situations, jail terms may also be imposed.

If you have any questions, contact support@whm-consulting.com.

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