Category Archives: Inland Revenue Authority of Singapore

Singapore To Sign The Multilateral Convention To Implement Tax Treaty Related Measures To Prevent BEPS

On 7 June 2017, Singapore has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”), with over 60 other jurisdictions.

The signing of this MLI represents Singapore’s commitment to upholding the principles behind BEPS, i.e.  profits should be attributable to the jurisdictions where the substantial economic activities giving rise to such profits are conducted.

The Finance Minister, Mr. Heng Swee Keat said

“Singapore strongly supports the principle that profits should be attributable to the jurisdiction where substantive economic activities generating the profits are based.  Signing the Multilateral Instrument allows Singapore to swiftly update its wide network of Avoidance of Double Taxation Agreements to internationally agreed standards. Singapore’s signing of the Multilateral Instrument reaffirms Singapore’s commitment and support to the BEPS Project.”

What is the impact on Singapore’s DTA network when Singapore signs the MLI?

The MLI provides flexibility for a jurisdiction to

  • determine which of its DTAs it would like to amend using the MLI; and
  • indicate which provisions in the MLI it would like to adopt and how such provisions should be adopted.

For example, if both Singapore and Jurisdiction A have signed the MLI, the bilateral DTA between Singapore and Jurisdiction A will be amended only if both Singapore and Jurisdiction A indicate that they would like to amend their bilateral DTA using the MLI.

In the MLI context, such a bilateral DTA is referred to as a “Covered Tax Agreement (CTA)”.  A provision in the DTA between Singapore and Jurisdiction A (i.e. the CTA) will be amended by an MLI provision only if both Singapore and Jurisdiction A have taken the same position regarding that provision in the MLI.

At the point of signing the MLI in June 2017, Singapore has provided a provisional list of the DTAs that it would like to amend using the MLI, as well as its provisional positions on the MLI provisions. This provisional list may be amended and will only be confirmed upon ratification of the MLI.  Singapore has included 68 of its 82 comprehensive DTAs after considering various factors, such as our DTA partners’ commitment to the BEPS Project. These DTAs will be amended by the MLI only if the respective DTA partners also sign the MLI and have included the respective DTAs under the scope of the MLI.

How did Singapore determine its positions on the MLI?

The MLI allows jurisdictions to swiftly implement the tax treaty related BEPS recommendations, which include both mandatory provisions (i.e. the minimum standards under the BEPS Project) as well as non-mandatory provisions.

Singapore will be adopting these mandatory provisions in the MLI,

(i) Article 6 (Purpose of a covered tax agreement) – To include a statement of intent in the preamble of the covered tax agreement that the DTA is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance

(ii) Article 7 (Preventing treaty abuse) – To include a general anti-abuse rule in the covered tax agreement, commonly known as the Principal Purpose Test (PPT).

(iii) Article 16 (Mutual Agreement Procedure) – To include a mechanism to allow a Singapore resident taxpayer to seek assistance from IRAS when the taxpayer encounters taxation in a DTA jurisdiction that is not in accordance with the intended application of the DTA.

Singapore will also be adopting a number of non-mandatory provisions in the MLI, which it believes will be beneficial for its taxpayers.  One such example is the adoption of the mandatory binding arbitration provision in our DTAs. This provision will provide an alternative dispute resolution mechanism if the competent authorities are unable to reach agreement or are unable to do so in a timely manner.  The mandatory binding arbitration provision will be included in our DTAs if the respective DTA partners also choose to adopt the provision.

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Singapore GST – Public Consultation on the Draft GST e-Tax Guide on Customer Accounting for Prescribed Goods

On 24 April 2017, IRAS has initiated a public consultation exercise to seek feedback from its Draft e-Tax Guide on GST-registered businesses dealing in prescribed goods on the implementation of customer accounting, so as to facilitate a smooth transition into customer accounting come 1 Jan 2018.

What is GST customer accounting?

IRAS is planning to implement GST customer accounting from 1 January 2018 to better address non-compliance relating to transactions of the prescribed goods – mobile phones, memory cards, and off-the-shelf software if the GST-exclusive value of the sale exceeds $5,000 in a single invoice.

If a GST-registered trader makes a taxable supply to a GST-registered customer, it is the GST-registered customer who will account for the output tax on the supply on behalf of the supplier.  At the same time, the GST-registered customer will be bale to claim input tax on this purchase if it is for his business use and the making of his taxable supply.


De Minimis Threshold – $5,000

The new Customer accounting requirement is applicable only if the sales of the prescribed goods to a GST-registered customer for his business use exceeds the de minimis threshold of $5,000 in GST-exclusive value..  This means that if the sales do not exceed this threshold, the new Customer accounting requirement will not apply.

The GST-registered supplier should instead standard-rate the supply, account for the GST output tax and issue a tax invoice to his customer as before.

Discounts given on your sales

If a GST-registered supplier offers an unconditional discount on the price of the prescribed goods sold to his GST-registered customer, he should use the discounted GST-exclusive sale value to determine whether his supply exceeds the de minimis threshold of $5,000.

Where there is a contingent discount or delayed reduction in price, the pre-discount GST-exclusive value of the prescribed goods shown on the tax invoice should be used to determine whether the supply exceeds the de minimis threshold of $5,000. 8.2.3 Your supply of prescribed goods to the GST-registered customer will be subject to customer accounting if the discounted sale value or the pre-discount value shown on the tax invoice exceeds $5,000.

A single purchase order with multiple deliveries

For a single purchase order with multiple deliveries, if the GST-registered supplier issues only one tax invoice for all the deliveries, he will use the total GST-exclusive value of the prescribed goods shown in the tax invoice to determine whether the supply exceeds the de minimis threshold of $5,000.

On the other hand, if his normal commercial practice is to issue one tax invoice for each delivery made, such that multiple tax invoices are issued in respect of a single large purchase order, he should determine if customer accounting applies based on the GST-exclusive value on each of the invoices.  However, if he would like to apply customer accounting to all the invoices even though some/all will not exceed $5,000 individually, he can do so provided the GST-exclusive value of the prescribed goods in the single purchase order exceeds $5,000; and both his GST-registered customer and he agree for customer accounting to apply in this manner.

Combined sales of prescribed and non-prescribed goods

When a GST-registered supplier makes a sale consisting of both prescribed and non-prescribed goods to a GST-registered customer, he needs to determine whether the total GST-exclusive sale value of all the prescribed goods sold (whether or not they are of the same type/nature) exceeds $5,000.  The sale value of non-prescribed goods should not be included in this computation.  Upon exceeding the threshold, the GST-registered supplier should apply customer accounting to the sale of the prescribed goods only and not to the non-prescribed goods.

Returned goods

If as a result of the returned goods, the GST-exclusive sale value of the prescribed goods is reduced to $5,000 or below, the GST-registered supplier should issue a credit note to cancel the original sale made under customer accounting and re-issue a tax invoice showing the revised sale value with GST charged (i.e., without applying customer accounting).  He should also collect from his customer the GST chargeable on the revised sale value.

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Income Tax – Robotic Ice-Cream Machine Dealer Convicted of False PIC Claim

It was reported in IRAS’ website on 27 April 2017 that
Robofusion Asia Pte Ltd (“Robofusion”) has been convicted of giving false information in the Productivity and Innovation Credit (“PIC“) cash payout application form.  Its director, Yong Tai Kok (“Yong“) has also been convicted of his role in assisting Robofusion in making the false PIC Claim.

IRAS’ investigation

IRAS’ Investigations revealed that Yong obtained the consent of two other people who were not employees of Robofusion, to use their names in Robofusion’s PIC cash payout application form dated 23 May 2013.  Robofusion made CPF contributions to their Central Provident Fund accounts in order to represent them as Robofusion’s local employees when in fact they were not.

Robofusion’s PIC cash payout application was for the purchase of “Robofusion Generation 4 Ice Cream Kiosk” costing $93,000 on 28 Feb 2013 and “Software License and Implementation for Cashless Payment System and Kiosk Payment Integration” costing $14,980 on 29 Apr 2013. The amount of PIC cash payout which was wrongfully obtained was $60,000.

Eventually … 

The court ordered Robofusion to pay a penalty of $60,000 for the PIC cash payout that it was not entitled to.

Yong was convicted of intentionally aiding Robofusion to, without reasonable excuse, give false information to the Comptroller of Income Tax to obtain a PIC cash payout which the company was not entitled to.  The court ordered Yong to pay a penalty of $120,000, which is twice the amount of PIC cash payout that was wrongfully claimed and a fine of $4,000.

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Income Tax – UK is the second country who has entered into a Competent Authority of Agreement with Singapore

It was announced on IRAS’ website that on 16 September 2016, IRAS and the UK Tax Authorities signed a Competent Authority Agreement (“Agreement“) on the automatic exchange of financial account information (“AEOI“) based on the Common Reporting Standard (“CRS“).


Singapore and the UK will commence AEOI under the CRS by September 2018. Under this Agreement, IRAS will automatically exchange with the UK Tax Authorities, financial account information of accounts in Singapore held by UK tax residents while the UK Tax Authorities will automatically exchange with IRAS, financial account information of accounts in the United Kingdom held by Singapore tax residents.

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Income Tax – Application of Anti-Tax Avoidance Rule

On 11 July 2016, the Singapore tax authorities have issued a e-Tax Guide titled Income Tax: The General Anti-avoidance Provision and its Application.  The purpose of this e-Tax Guide is to set out the Comptroller of Income Tax’s (“CIT’s”) approach to interpret the general anti-avoidance provision under Section 33 of the Income Tax Act (“ITA”); and provides some examples which have the purpose of effect of tax avoidance within the meaning of Section 33(1) of the ITA.

CIT’s approach to interpret Section 33 of the ITA

The CIT adopts the scheme and purpose approach for the purpose of interpreting Section 33 of the ITA.  This approach requires taxpayer to address the questions in the following manner:

  1.    Whether an arrangement prima facie falls within any of the three threshold limbs of Section 33(1) such that the taxpayer has derived a tax advantage;
  2. If the answer to Q1 is yes, whether the taxpayer may avail himself of the statutory exception under section 33(3)(b);
  3. If the answer to Q1 is no, whether the taxpayer has satisfied the court that the tax advantage obtained arose from the use of a specific provision in the Act that was within the intended scope and Parliament’s contemplation and purpose, both as a matter of legal form and economic reality within the context of the entire arrangement.

In summary, the CIT has adopted this approach based on the Court of Appeal decision in CIT v AQQ [2014] SGCA 15 (“AQQ Case“)

What happened in the AQQ case is that a Malaysian listed group incorporated AQQ to carry out a restructuring and financing arrangement in 2003.  AQQ acquired 100% shares in four Singapore companies (which have significant amount of dividend franking credits in their accounts) from related companies.  AQQ then financed the purchase of these shares via round-tripping financing arrangements through two banks located in different countries.

The Court of Appeal upheld the decisions of the Income Tax Board of Review and the High Court, and ruled that Section 33 was applicable.  The Court of Appeal held that the restructuring and financing arrangements were not commercial transactions under which any tax avoidance or reduction was merely incidental. It also ruled that one of the main purposes of the restructuring and financing arrangement was to obtain a tax benefit by creating interest deductions to reduce the tax payable on the dividend income.

4 Examples of Tax Avoidance Arrangements

A tax avoidance arrangement in general refers to an arrangement that is artificial, contrived or has little or no commercial substance and is designed to obtain a tax advantage that is not intended by Parliament. In this e-Tax Guide, the Singapore tax authorities have given 4 examples of what they consider arrangements that fall within Section 33 of the ITA.

  • Circular flow or round-tripping of funds;
  • Setting-up of more than one entity for the sole purpose of obtaining tax advantage;
  • Change in business form for the sole purpose of obtaining tax advantage; and
  • Attribution of income that is not aligned with economic reality

Notwithstanding the above, the Singapore tax authorities have stressed that Section 33 is not intended to interfere with the tax consequences of genuine commercial transactions. For example, (i) the placement of monies in a local bank or with a bank outside Singapore, (ii) the provision of housing accommodation to employees directly instead of giving a taxable housing allowance or (iii) the non remittance of foreign income, is not intended to be the subject of the CIT’s exercise of his section 33(1) powers.

CIT’s Power Under Section 33

The CA in the AQQ case confirms that Section 33(1) expressly provides CIT with wide powers, including the power to impose a liability to tax to counteract any tax advantage arising from the impugned arrangement including the following:

  • the tax liability that arises from the inclusion of an income sought to be excluded or the disallowance of a deduction sought to be made;
  • the hypothetical tax liability on the economic and commercial basis of what would likely have happened if the taxpayer had not entered into the arrangement constituting tax avoidance;
  • the tax liability if the arrangement simply had not taken place.

Taxpayers should thus pay attention and exercise caution when structuring their business transactions to ensure that they fall outside the scope of Section 33 of the ITA.  When in doubt, speak to your Accredited Tax Advisor.

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