Summary of Responses - Public Consultation on Draft Income Tax (Amendment) Bill 2008

SUMMARY OF RESPONSES – PUBLIC CONSULTATION ON DRAFT INCOME TAX (AMENDMENT) BILL 2008

A public consultation exercise on the draft Income Tax (Amendment) Bill 2008 was held from June-July 2008 to obtain feedback on the draft Bill.

2. The draft Income Tax (Amendment) Bill 2008 put up for consultation related to the following:

a. Budget 2008 tax changes. These are tax changes announced by Minister for Finance Tharman Shanmugaratnam in his Budget 2008 Statement.

b. Other tax changes. These are refinements to existing tax policies and administration resulting from on-going reviews of the income tax system.

3. The summary table lists all the tax changes and explains the amendments to the Income Tax Act.

PARTICIPATION IN THE PUBLIC CONSULTATION EXERCISE

4. A total of 97 comments on the scope of tax changes within the draft Income Tax (Amendment) Bill were received from the public. The responses were helpful for improving the income tax legislation.

SUMMARY OF PUBLIC COMMENTS

5. The tax changes that received most of the public feedback are as follows:

a. Tax incentives to encourage companies especially SMEs to do more R&D in Singapore;

b. Incentive to grant tax deduction for expenditure on fixtures & fitting incurred by businesses, especially SMEs in the service sector, on upgrading their business premises;

c. Extension of unilateral tax credit to all foreign sourced income; and

d. Tax exemption for family-owned investment holding companies

6. MOF has considered all the comments carefully. Of the 97 comments on the draft Bill, 50 comments are accepted for implementation and have been incorporated accordingly in the revised Income Tax (Amendment) Bill. It was not possible to incorporate the remaining 47 responses. These included 31 comments on drafting aspects of the legislation which were not consistent with other parts of the Income Tax Act, and 16 which were not consistent with the intended objectives of the tax policy changes.

7. The major public feedback received and MOF’s responses are summarised below:

Tax Changes to Promote R&D in Singapore

A respondent suggested that the taxpayers should be allowed the choice of either claiming unilateral tax credit or double taxation relief (DTR) under Avoidance of Double Taxation Agreements (DTAs) for income sourced in DTA partners, whichever is more beneficial. The justification given is that the UTC regime has the advantage of not being tied to the Permanent Establishment (PE) concept for taxing business profits, whilst DTR is only given to taxpayers whose activities constitute a PE in the source state.

MOF’s response: Not accepted for implementation. We would like to clarify that UTC is not more favourable than DTR just because it is not tied to the concept of a PE.

UTC is extended to activities not amounting to a PE in the foreign country, because in the absence of a treaty, there is uncertainty over the scope and degree of source taxation levied on activities carried out in the non-DTA country. As a mitigating measure, our government is prepared to grant unilateral tax credit relief for foreign tax suffered in the non-DTA country.

In contrast, for activities carried out in a DTA country, the DTA between Singapore and the DTA country will provide certainty to our taxpayers on what constitues a PE in the source state. Accordingly, the tax authority of the DTA partner can only tax our resident if the resident has a PE (based on the PE definition in the DTA) in the DTA country. If the activities of our resident in the DTA country do not amount to a PE as defined under the treaty, the tax authority cannot levy tax at source on our resident's income. It is then moot for the Singapore government to grant tax credits for income that has not suffered tax in the DTA country partner. In addition to enjoying certainty of when source taxation by DTA partner applies under DTAs, DTAs can allow our tax residents to enjoy lower rates of source taxation for certain specified incomes. This is a benefit that is not available for incomes earned in non-DTA countries.

LIBERALIZATION OF TAX DEDUCTION FOR EXPENDITURE INCURRED FOR r&d

Respondents suggested that the language construction for the definition of “consumable stores” is restrictive.

MOF’s response: Accepted with modification. The definition of consumable stores has been reviewed for better clarity and will include materials used in the R&D activity.

New Tax Incentive for Family-Owned Investment Holding Companies

Unilateral Tax Credit

A respondent suggested that the taxpayers should be allowed the choice of either claiming unilateral tax credit or double taxation relief (DTR) under Avoidance of Double Taxation Agreements (DTAs) for income sourced in DTA partners, whichever is more beneficial. The justification given is that the UTC regime has the advantage of not being tied to the Permanent Establishment (PE) concept for taxing business profits, whilst DTR is only given to taxpayers whose activities constitute a PE in the source state.

MOF’s response: Not accepted for implementation. We would like to clarify that UTC is not more favourable than DTR just because it is not tied to the concept of a PE.

UTC is extended to activities not amounting to a PE in the foreign country, because in the absence of a treaty, there is uncertainty over the scope and degree of source taxation levied on activities carried out in the non-DTA country. As a mitigating measure, our government is prepared to grant unilateral tax credit relief for foreign tax suffered in the non-DTA country.

In contrast, for activities carried out in a DTA country, the DTA between Singapore and the DTA country will provide certainty to our taxpayers on what constitues a PE in the source state. Accordingly, the tax authority of the DTA partner can only tax our resident if the resident has a PE (based on the PE definition in the DTA) in the DTA country. If the activities of our resident in the DTA country do not amount to a PE as defined under the treaty, the tax authority cannot levy tax at source on our resident's income. It is then moot for the Singapore government to grant tax credits for income that has not suffered tax in the DTA country partner. In addition to enjoying certainty of when source taxation by DTA partner applies under DTAs, DTAs can allow our tax residents to enjoy lower rates of source taxation for certain specified incomes. This is a benefit that is not available for incomes earned in non-DTA countries.

Policy-related Comments

Tax Deduction on Fixtures and Fittings

INCENTIVE TO GRANT TAX DEDUCTION FOR EXPENDITURE ON FIXTURES & FITTING TO PROVIDE RELIEF FOR BUSINESSES ON THE COSTS THEY INCUR ON UPGRADING OF BUSINESS PREMISES;

With the proposed amendment, LIFO method is allowed to determine the cost of treasury shares to a holding company incorporated outside Singapore subject to conditions. Amongst these conditions are:

the basis is in accordance with the accounting policy of the group of companies of which the holding company is a member; and

the basis is in accordance with the generally accepted accounting principles of the country in which the holding company is incorporated.

The determination of the cost of treasury shares to a foreign holding company is purely for Singapore tax deduction purposes. The accounting policy of a group of companies may not specify a method to be used for such purpose. Similarly, the generally accepted accounting principles may not do so. There was thus a feedback that these conditions may be difficult to meet.

MOF’s response: Accepted with clarification. We recognize that the accounting standards in the country where the holding company is incorporated may not explicitly specify the methods (including FIFO) that companies can use to determine the cost of treasury shares. In the absence of specific accounting standards for determining the cost of treasury shares, we will allow companies to use methods consistent with accounting principles which are generally accepted in the country in which the holding company is incorporated.

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Last Updated on February 13, 2017
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