New Protocols between Singapore and Qatar and between Singapore and Mexico


Dear Valued Clients and Readers

On 2 December 2011, the Inland Revenue Authority of Singapore reported that the protocols to the standing agreements for the avoidance of double taxation (DTAs) between Singapore and Qatar, as well as Singapore and Mexico, will enter into force on 1 January 2012.  These protocols incorporate the internationally agreed Standard for the exchange of information for tax purposes upon request into the standing DTAs.

The full text of the protocol between Singapore and Qatar is availble here. The full text of the protocol between Singapore and Mexico is availble here.

As always, we are pleased to assist you or your company in resolving any potential tax issues.  Please contact us at jack.wong@whm-consulting.com if you would like to discuss any of your/ your company’s concern on tax issues.

Best regards
Jack HM Wong
Founder and Lead Business & Tax Advisor
WHM Consulting Pte Ltd
E-mail: jack.wong@whm-consulting.com

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Supreme Court Note: AQP v Comptroller of Income Tax [2011] SGHC 229


Dear Valued Clients and Readers

In the case AQP v. Comptroller of Income Tax, the Singapore High Court held that defalcation losses incurred by an employee exercising overriding power or control in the taxpayer firm were not deductible under s 14(1) of the Income Tax Act. The High Court also clarified that a genuine mistake of law could fall within the meaning of the phrase “error or mistake” under s 93A(1).

The following is the Supreme Court Note to assist readers to understand the Court’s judgment. It is not intended to be a substitute for the reasons of the Court.

In this case, the managing director (“the Ex-MD”) of the appellant taxpayer had defalcated the appellant’s funds and caused the appellant to incur a loss of $12,272,917. The Ex-MD had made out false purchase orders to the appellant’s suppliers, and falsely claimed to have made loans to the appellant’s customers, before drawing from the appellant’s funds under the pretext of reimbursement. The appellant omitted to include a deduction for the loss incurred and only lodged a claim for relief under s 93A(1) five years later. The Comptroller of Income Tax and the Income Tax Board of Review rejected the appellant’s claim for relief.

In the judgment, the High Court recognised that the crux of the dispute with regard to the tax-deductibility of defalcation losses centred around the correct understanding of the seminal English case of Curtis (HM Inspector of Taxes) v J & G Oldfield, Limited (1925) 9 TC 319 (“the Curtis test”). Having surveyed the relevant cases of various Commonwealth jurisdictions, the High Court came to the conclusion that the correct understanding of the Curtis test was as follows: Did the defalcator possess an overriding power or control in the taxpayer firm (i.e. in a position to do exactly what he liked), and was the defalcation committed in the exercise of such power or control? If so, the losses which resulted from such defalcations were not deductible for income tax purposes.

Having formulated the test, the High Court defended its viability on the policy ground of deterring firms from not providing adequate checks on employees who had possessed overriding power or control (i.e. directors). The fact that the appellant’s business was successful when the Ex-MD had overriding power or control was held to be irrelevant. The High Court also clarified that what mattered was whether the taxpayer factually did give the defalcator unjustified overriding power or control.

In the present case, the Ex-MD was held to have possessed an overriding power or control in the appellant as there was total trust reposed in him and he did not have to tell anyone about his usage of the appellant’s funds. His defalcations were also committed in the exercise of such overriding power or control, as evident in the blatant way in which he had siphoned funds from the appellant without restraint. The loss incurred by the appellant from the Ex-MD’s defalcation therefore did not qualify for deduction under s 14(1).

Having dismissed the appellant’s appeal on the point of deductibility, the High Court then proceeded to hold in obiter that the phrase “error or mistake” under s 93A(1) was wide enough to cover a genuine mistake of law (i.e. a mistake as to what was thought to be established law) made by the taxpayer whilst computing its taxable income. However, the High Court also observed that s 93A(3) appears to have the effect of qualifying the granting of relief to a taxpayer who was operating under a mistake of law, assuming that the Comptroller had also been mistaken as to “the basis on which the liability of the [taxpayer] ought to have been computed” at the material time.

As always, we are pleased to assist you or your company in resolving any potential tax issues.  Please contact us at jack.wong@whm-consulting.com if you would like to discuss any of your/ your company’s concern on tax issues.

Best regards
Jack HM Wong
Founder and Lead Business & Tax Advisor
WHM Consulting Pte Ltd
E-mail: jack.wong@whm-consulting.com

Sole Proprietor was sentenced to jail for committing GST fraud


Dear Valued Clients and Readers

It was reported in IRAS’ website (see GST Fraud) that a sole proprietor was sentenced to jail and fined for S$413k for committing GST fraud.

The facts provided by IRAS were as follows:

1.    The taxpayer was a sole-proprietor of his business in 1996 whose principal activities are wholesale of parts and accessories for vehicles.  The business was registered for GST in 1998 and the taxpayer was responsible for the GST compliance for his business.

2.    IRAS’ investigation revealed that the taxpayer had declared fictitious input tax claims in the relevant GST returns from September 2000 to September 2007 by adding transhipments goods of the business into the relevant GST returns under the value of taxable purposes although the fact was that no GST was incurred by the business.  IRAS also found out that the taxpayer had burnt the physical copies of the records in order to impede IRAS’ investigations when he realized that IRAS requested records to assess the amount of tax undercharged.

3.   Taxpayer finally admitted that he obtained fraudulent refunds from the Comptroller of GST due to greed.  He pleaded guilty to 11 charges of creating false entries in the relevant GST returns to evade tax, and 3 charges for destruction of supporting documents.  18 charges of creating false entries were taken into consideration for sentencing.  He faced a penalty of S$413K which is 3 times the amount of tax undercharged.

This case provided us with three important reminders for the purpose of GST compliance:

  • There is no time limit for IRAS to initiate any recovery action for tax undercharged if fraud is committed on the part of the taxpayer.
  • Input tax can only be claimed by businesses if they have incurred GST on purchases against their taxable supplies (including domestic sales and export sales) provided that the essential conditions for making claims can be satisfied.
As always, we are pleased to assist you or your company in resolving any potential tax issues.  Please contact us at jack.wong@whm-consulting.com if you would like to discuss any of your/ your company’s concern on tax issues.

Best regards
Jack HM Wong
Founder and Lead Business & Tax Advisor
WHM Consulting Pte Ltd
E-mail: jack.wong@whm-consulting.com

New e-Tax Guides Published by IRAS on 6 September 2011


Dear Valued Clients and Readers

You may wish to note that the Inland Revenue Authority of Singapore had issued new e-Tax Guides on the following subject matters on 6 September 2011:

a) Foreign-Sourced Income Exemption Rule

b) Ascertainment of Income From Business of Making Investment – Section 10E

c) Group Loss Relief System

The above are in line with IRAS’ effort in educating taxpayers and increasing their understanding of the tax law so as to comply in full with their income tax reporting obligation.

As stated in IRAS’ website, IRAS adopts a risk-based approach of identifying compliance risk and prioritising and tailoring specific compliance programmes with a view to

1.  Identifying taxpayers who have made mistakes in their tax returns;

2.  Creating an audit presence in the community to deter non-compliance by other taxpayers;

3.  Educating taxpayers on their tax obligations and how to comply; and

4.  Identifying tax laws, policies and processes where the tax system can be simplified.

The above means that IRAS is expecting an even higher level of compliance with the tax obligations by taxpayers and less tolerance level in the event that taxpayers file incorrect tax returns or are negligent in dealing with their tax affairs.  Accordingly, taxpayers should be proactive in seeking advice from tax advisors if the inability to take such action could result in potential penalty to be imposed by IRAS.

As always, we are pleased to assist you or your company in resolving any potential tax issues.  Please contact us at jack.wong@whm-consulting.com if you would like to discuss any of your/ your company’s concern on tax issues.

Best regards
Jack HM Wong
Founder and Lead Business & Tax Advisor
WHM Consulting Pte Ltd
E-mail: jack.wong@whm-consulting.com

Update on Recent Changes to Singapore Goods & Services Tax


Dear Valued Clients and Readers

We are pleased to advise our clients of the latest Singapore tax alert prepared on an update some recent changes to the Singapore Goods & Services Tax.

Recent Changes to GST

If you have any questions or comments on this alert, please contact us at jack.wong@whm-consulting.com.

Best regards
Jack HM Wong
Founder and Lead Business & Tax Advisor
WHM Consulting Pte Ltd
E-mail: jack.wong@whm-consulting.com

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