Income Tax – Revised Transfer Pricing Guidelines (5th Edition)


The Inland Revenue Authority of Singapore (“IRAS“)  has issued the fifth edition of the Transfer Pricing Guidelines on 23 February 2018 and we summarise below the major amendment to the e-Tax Guide as follows:

  1.  Additional guidance on related parties for the Singapore Permanent Establishment (“PE”)

The IRAS has clarified that for the purpose of attributing profits to the Singapore PE, the Singapore PE and other PEs outside Singapore of the non-resident person would be considered realted parties and therefore, the arm’s length principle applies to them when attributing profits to the SIngpaore PE.   The profits to be attributable to the Singapore PE will be based on the profits that PE would have derived if it were to be a separate and independent enterprise engaged in the same or similar activities under the same or similar conditions.

2.  Arm’s length adjustment by IRAS – Section 34D(1A) of the ITA

Paragraphs 5.117 to 5.124 have been inserted in which to explain how IRAS were to be effected the transfer pricing adjustment pursuant to Section 34D(1A) of the ITA.   Take note:

  • Once a TP adjustment is made, the amount of income increased is treated as accruing in or derived from Singapore or received in Singapore from outside Singapore.  If such an adjustment involves reducing a loss, the amount of loss reduced is treated as not having been incurred.
  • Where a taxpayer engages in a transaction with its related party that independent parties would not undertake, IRAS would not disregard the transaction merely because the transaction may not be seen between independent parties without considering if the transaction has characteristics of an arm’s length arrangement.
  • IRAS would disregard an actual related party transaction or replace it with an alternative transaction only in exceptional circumstances where: (a) the arrangements made in relation to the transaction lack the commercial rationality that would be agreed between independent parties under comparable circumstances; and (b) the arrangements prevent determination of a price that would be acceptable to both of the parties taking into account their respective perspectives and the options realistically available to them at the time of entering into the transaction.

3.  TP Documentation Requirement has been rewritten

Paragraph 6 of the Guidelines has been rewritten due to the insertion of the new provision under Section 34F of the ITA.

4.  Application of arm’s length principles for re-financing

For TP purposes, the IRAS considers a new loan from a related party will be obtained with the refinancing or extension of the tenture of the existing loan.  In such a case, the taxpayer is required to establish the arm’s length terms and interest rate for the new loan following the guidance nd prepare TP documentation accordingly.

5.   TP Surcharge and Penalty

The IRAS has provided explanations and examples of how the TP surcharge and penalty are imposed pursuant to Section 34E of the ITA.

 

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Singapore GST – Revised Method To Determine the Registration Threshold


The Inland Revenue Authority of Singapore announced on 14 February 2018 the revised method to determine the GST registration threshold for the purpose of compulsory GST registration.

Under the existing rule, a person must register GST under the retrospective basis if his taxable turnover at the end the calendar quarter (i.e. 3 months ending Mar, Jun, Sep or Dec) and the past three quarters is more than $1 million.

For periods on or after 1 Jan 2019, taxable turnover will be computed on a calendar year basis for the purpose of determining registration liability.  The person will have to monitor at the end of every calendar year (i.e. 31 Dec) and register for GST if his annual taxable turnover exceeds $1 million.

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Singapore GST – Electronic Application for GST Registration From 1 Oct 2018 onwards


The Inland Revenue Authority of Singapore announced on 14 February 2018 that GST registration will have to be made electronically at myTaxPortal with effect from 1 October 2018.  Paper applications will only be accepted for exceptional cases e.g. businesses not granted access to myTaxPortal.

The benefit of submitting the application for GST registration is the shortened processing time

  • 2 working days for compulsory GST registration
  • 10 working days for voluntary GST registration upon receipt of your completed GIRO form*.

Where it is inevitable that paper application for GST registration is to be submitted, the processing time will be as follows:

  • 10 working days for compulsory GST registration
  • 1 month for voluntary GST registration upon receipt of your completed GIRO form.

* The GIRO application form submitted will be sent to the applicant’s bank for approval. The approval process may take between 2 to 4 weeks.  The IRAS will inform the applicant separately via letter if the bank rejects his application. Most banks will usually notify the applicants directly for GIRO applications accepted by them. IRAS will not send any letter for approved applications.

 

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Income Tax – Changes Announced in Budget 2018


The  Finance Minister, Mr. Heng Swee Keat announced the following important changes to the Singapore income tax  on 19 February 2018

Enhancement and Extension of the Corporate Income Tax (“CIT”) Rebate for YA 2018 and 2019

To ease business costs and support restructuring by companies, the CIT  rebate will be enhanced and extended as follows:

YA 2018 – the CIT rebate will be enhanced to 40% of the corporate tax payable subject to an enhanced cap of $15,000.

YA 2019 – the CIT rebate will be extended to YA2019, at a rate of 20% of tax payable, capped at $10,000.

Adjustment to the Partial Tax Exemption (“PTE”) Scheme from YA 2020 onwards

The tax exemption under the PTE scheme will be adjusted with effect from YA 2020 as follows in order to strengthen support for firms to build capabilities:

  • 75% exemption on the first $10,000 of normal chargeable income; and
  • 50% exemption on the next $190,000 of normal chargeable income.

This means that for the maximum amount of PTE a corporate taxpayer can qualify will be reduced to $102,500.

Adjustment to the Start-up Tax Exemption  (“SUTE”) Scheme from YA 2020 onwards

Apart from the PTE scheme, the tax exemption under the SUTE scheme will also be adjusted as follows with effect from YA 2020:

  • 75% exemption on the first $100,000 of normal chargeable income; and
  • 50% exemption on the next $100,000 of normal chargeable income.

If a qualifying company;’s first YA is 2019, the existing SUTE parameters will continue to apply.  However, the revised parameters will be applied to YA 2020 and 2021.

Selected “PIC” Tax Measures to Support Businesses (YA 2019 to 2025)

Notwithstanding the expiry of the Productivity and Innovation Credit (“PIC”) Scheme effective from YA 2019, the Budget provides the businesses with the “extension” of three of the qualifying activities under the PIC scheme and this takes effect from YA 2019 to 2025

  • A 250% deduction for staff costs and consumable incurred on qualifying R&D projects performed in Singapore.
  • A 200% deduction for the first $100,000 of the qualifying IP registration costs incurred for each YAA 200% deduction for the first $100,000 of qualifying IP in-licensing costs incurred for each YA.  For this purpose, qualifying IP in-licensing costs include payments made by a qualifying person to publicly funded research performers or other businesses, but exclude related party licensing payments or payments for IP where any allowance was previously made to that person.

Enhanced Double Tax Deduction for Internationalisation Scheme from YA 2019 onwards

The $100,000 expenditure cap for claims without prior approval from iESingapore and STB will be raised to $150,000 per YA.  Businesses can continue to apply to IE Singapore or STB on qualifying expenses exceeding $150,000, or on expenses incurred on other qualifying activities.

IE and STB will release further details of the change by April 2018.

Extension of the Business and IPC Partnership Scheme (“BIPS”) until 31 December 2021

To continue supporting employee volunteerism through businesses, BIPS will be extended till 31 December 2021.  In addition, MOF and IRAS will review the administrative processes for BIPS based on feedback that has been received. Details of any change will be announced in the second half of 2018.

Extension of  the Investment Allowance (“IA”) scheme to include qualifying investment in submarine cable systems landing in Singapore

To strengthen Singapore’s position as a leading digital connectivity hub, the IA will be extended in respect of productive equipment to capital expenditure incurred between 20 February 2018 and 31 December 2023 on newly-constructed strategic submarine cable systems landing in Singapore, subject to qualifying conditions.

All other conditions of the IA scheme apply, except for the following which will be permitted:

  • The submarine cable systems can be used outside Singapore; an
  • The submarine cable systems, on which IA has been granted, can be leased out under the indefeasible rights of use arrangements.

MAS will announce further details at a later date.

Introduction of a review date for the Withholding Tax (“WHT”) exemption on container lease payments made to non-resident lessors

A review date of 31 December 2022 will be introduced to ensure that the relevance of the scheme is periodically reviewed. This means that unless the scheme is extended, such payments accruing to a non-resident lessor under any lease or agreement entered into on or after 1 January 2023 in respect of the use of a qualifying container for the carriage of goods by sea will be subject to WHT.

MAS will announce further details at a later date.

 

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Singapore GST – Changes Announced in Budget 2018


The  Finance Minister, Mr. Heng Swee Keat announced two important changes to the Singapore Goods & Services Tax (“GST”) on 19 February 2018.

Proposed change in GST rate from 7% to 9%

As widely speculated by the industry key players and the tax practitioners, the Government plans to raise GST from 7% to 9% sometimes in the period from 2021 to 2025.  However, the Minister said that the exact timing of this GST rate hike will depend on (i) the state of the economy; (ii) how much the Government expenditure grows; and (iii) how much buoyant the existing Singapore taxes are.

The Minister did expect that this change should occur earlier rather than later in the above period, citing the reason that even after exploring various options to manage the Government expenditure through prudent spending, saving and borrowing for infrastructure, there is still a gap.  Moreover, raising GST by 2% will provide the Government with a revenue that is equivalent to almost 0.7% of GDP per year.

Similar to the last rate hike announced in Budget 2007, the Government will implement the GST increase in a progressive manner such as

  • continue to absorb GST on publicly-subsidized education and healthcare
  • enhance the permanent GST Voucher (GSTV) scheme when the GST is increased, so as to provide more help to lower-income households and seniors.
  • implement an offset package for a period to help Singaporeans adjust to the GST increase. Lower- and middle-income households will receive more support.

Comments from WHM Consulting Pte Ltd: we anticipate the proposed GST hike in 2013 as it is a matter of time for the Government to do so because it is one of the easiest and most efficient ways to increase the Government’s tax revenue collection.  It would suggest that as a GST-registered business, you are under a heavier obligation to ensure the proper compliance with the GST provision as the quantum of any penalty imposed for failure of complying with the GST provisions will be increasing. 

Introduction to the reverse charge provision from 1 Jan 2020

Singapore has made the decision to suspend the reverse charge provision as stipulated under Section 14 of the GST Act since 1 April 1994.  What this means is that GST is currently not applicable on imported services provided by an overseas supplier that does not have an establishment in Singapore.

To ensure that the Singapore tax system remains fair and resilient in a digital economy, the Government has embarked on the feasibility study of activating the reverse charge provision 2 years ago and finally in this Budget, it is announced that the reverse charge provision will be effective from 1 January 2020.

For B2B transactions, only businesses that (i) make exempt supplies, or (ii) do not make any taxable supplies need to apply reverse charge. The majority of businesses make taxable supplies and thus would not be affected by this reverse charge mechanism.

The reverse charge mechanism requires the local business customer to account for GST to IRAS on the services it imports. The local business customer can, in turn, claim the GST accounted for as its input tax, subject to the GST input tax recovery rules.

The taxation of B2C imported services will take effect through an Overseas Vendor Registration (OVR) mode. This requires overseas suppliers and electronic marketplace operators which make significant supplies of digital services to local consumers to register with IRAS for GST.

IRAS will release further details by the end of February 2018.

Comments from WHM Consulting Pte Ltd: we were not surprised with the introduction of the reverse charge mechanism as we understand that the Government has embarked on the feasibility study a few years back.  Even Malaysia has introduced reverse charge mechanism in its GST provision when it was first launched in 2014.  GST-registered businesses should get proper education to understand how the reverse charge provisions work and make sure that they have systems in place to keep track of such B2B transactions.

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