1. A public consultation exercise on the draft Income Tax (Amendment) Bill 2009 was held from 22 June 2009 to 14 July 2009 to obtain feedback on the draft Bill.
2. The draft Income Tax (Amendment) Bill 2009 put up for consultation related to the following:
- Budget 2009 tax changes. These are tax changes announced by Minister for Finance Tharman Shanmugaratnam in his Budget 2009 Statement.
- 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 113 suggestions on the draft Income Tax (Amendment) Bill 2009 were received from the public, out of which 64 suggestions related to the proposed legislative amendments to provide certainty of non-taxation of income from disposal of property derived by individuals who sell their properties infrequently. The remaining 49 suggestions relate mostly to the following:
Budget 2009 income tax changes:
- Tax framework for facilitating corporate amalgamation;
- Enhancement of tax incentives to promote fund management in Singapore;
- Temporary liberalisation of tax exemption for foreign-sourced income;
Other income tax changes:
- Review of tax treatment of certain management fees;
- Application of arm’s length principle; and
- Tax Framework for Public Private Partnerships
5. For the 64 suggestions that relate to the proposed legislative amendments to provide certainty of non-taxation of income from disposal of property derived by individuals, Government has decided not to proceed with these amendments. Details of Government’s response are addressed in another press statement (“No change to Income Tax treatment for individuals who sell their properties”) released on 21 August 2009.
6. For the 49 suggestions that concerned other income tax changes, 25 suggestions have been accepted for implementation, and have been incorporated accordingly in the Income Tax (Amendment) Bill 2009. The remaining suggestions have not been accepted for implementation as they are inconsistent with drafting convention for legislation or policy objectives of the tax changes.
7. MOF’s responses to the salient feedback raised in the 49 suggestions relating to other income tax changes are summarized as follows:
|Tax framework for facilitating corporate amalgamations
|(a) Deduction of Interest Expense
Suggestion: An amalgamated company should be allowed a tax deduction for interest and related borrowing costs if the borrowings are taken by one amalgamating company to acquire shares in the other, and the companies concerned are subsequently amalgamated. If the companies amalgamate, it is akin to one company acquiring the entire business undertaking of the other, and the character of the interest and the related borrowing costs incurred by the acquiring company in acquiring shares in the acquired company should be treated as akin to interest and related borrowing costs incurred to finance the acquisition of the entire business undertaking. These interest and related borrowing costs should qualify for tax deduction. The respondents requested that MOF consider the economic substances of the transactions rather than only consider the legal form of the transactions.
MOF’s response: Not accepted for implementation. Interest and the related borrowing costs relating to loans taken by a Singapore company to acquire shares in another Singapore company do not have deduction value against the one-tier exempt dividend derived for the acquiring company. For consistency, the same treatment should also apply in the case of amalgamation of companies. Otherwise it could result in tax erosion and inadvertently open up room for abuse where companies amalgamate in order to obtain a tax deduction on their interest expenses which would otherwise not be deductible prior to the amalgamation.
(b) 30-day time limit
Suggestion: Making the amalgamated company elect for tax treatment under the corporate amalgamation framework within 30 days after the date of amalgamation would be an administrative hassle. As the amalgamated company is not required to obtain the Comptroller’s approval, it would be more convenient to allow the amalgamated company to file its election together with its first tax return.
MOF’s response: Accepted for implementation with modification. The 30-day time limit is to help expedite the finalization of the outstanding tax assessments of the amalgamating companies which have ceased to exist on the date of amalgamation.
However, we recognize that companies may have difficulties in meeting the 30-day time limit. Hence we will extend the time limit from 30 days to 90 days.
|Enhancement of fund management incentives
Eligibility for different tiers of fund management tax incentives
Suggestion: Allow funds under the enhanced tier of the fund management tax incentives (“enhanced tier funds”) that fail to meet the conditions under the enhanced tier for any basis period to automatically qualify for tax exemptions under the standard tier of the fund management tax incentives for the same basis period, provided the conditions under the standard tier are satisfied.
MOF’s response: Not accepted for implementation. The enhanced tier and the standard tier fund management incentives are separate schemes that target funds with different groups of investors. The enhanced tier, which does not impose any residency conditions, is introduced to encourage any qualifying investor, including resident non-individuals, to manage their monies from Singapore, while the standard tier aims to attract foreign investors to have their monies managed by fund managers from Singapore. The two incentives have different sets of administrative conditions and qualifying criteria.
In general, for sound and accountable tax incentive administration, we do not allow entities that fail to qualify under their incentive awards for a given year to qualify for another, albeit less generous, tax incentive for the same activity in the year of breach. Entities choose which incentive schemes they wish to apply for, and if awarded, will be governed by the terms and conditions of the award for its tenure.
|Temporary liberalisation of tax exemption for foreign-sourced income
Authority to collect information
Suggestion: Section 13(8D) is unnecessary as the existing provisions of the Income Tax Act already give the Comptroller authority to require taxpayers to furnish additional information. The exemption should be unconditional. The provisions should be introduced via an administrative statement instead of a legislation if the enhancements are only temporary.
MOF’s response: Accepted for implementation with modification. The provision is required to allow IRAS to collect statistics on the effectiveness of the temporary liberalization. The legislation will be amended accordingly to reflect the policy intent.
|Review of tax treatment of management fees
New scenarios to be covered under section 12(6) and S12(7) of Income Tax Act
Suggestion: A third scenario should be included under section 12(6) and S12(7) to cover a non-resident person who carries on a business in Singapore (by himself or in association with others) but does not perform the arrangement, management or service or perform the management or assistance, as the case may be, through that business in Singapore. Similarly, the Section 12(6A)(b) should include a third scenario to cover a situation where the guarantor is a non-resident person who carries on a business in Singapore (by himself or in association with others) but the income from such guarantee is not effectively connected with that business in Singapore.
MOF’s response: Accepted for implementation with modification. Sections 12(6A) and (7A) will be amended to extend to a case where the non-resident is not incorporated, formed or registered in Singapore and-
- carries on a business in Singapore;
- has no permanent establishment in Singapore; and
- the specified services outside Singapore are not performed through that business.
Arm’s Length Principle
Corresponding unilateral adjustments and transfer pricing adjustment
(a) Corresponding unilateral adjustments
Suggestion: Section 34D should provide for corresponding adjustments to be made if the person has been the subject of a transfer pricing adjustment in Singapore or elsewhere. The equivalent of Article 9(2) of the Organisation for Economic Co-operation and Development (OECD) 2008 Model Tax Convention on Income and on Capital should be included.
MOF’s response: Not accepted for implementation. As Singapore has Avoidance of Double Taxation Agreements (DTAs) with most of our major trading partners, taxpayers can seek alleviation of double taxation resulting from corresponding transfer pricing adjustments through the Mutual Agreement Procedure provisions. Corresponding adjustments will be made after agreement by both competent authorities. However, where adjustments are made by a jurisdiction with which Singapore does not have a DTA, Singapore will not make corresponding adjustments. There is no reason in principle for Singapore to give up taxes rightfully levied under its legislation without treaty arrangements with the foreign jurisdictions to yield mutual benefits.
(b) Transfer pricing adjustment
Suggestion: The provisions pertaining to Transfer Pricing should be more detailed. The current provisions are generally drafted. Clarifications are sought as to how the transfer pricing provisions will be enforced and what methods will be adopted by the Comptroller of Income Tax (CIT) to determine the arm’s length nature of the price. Further in cases where the transactions are between related Singapore companies and one of the companies is subject to a transfer pricing adjustment, there should be clarity whether CIT will allow corresponding tax adjustments to be made for the other Singapore company involved in the adjustment.
MOF’s response: Accepted with clarification and for periodic review of our transfer pricing guidelines. This provision relating to the Arm’s Length Principle is for the avoidance of doubt that the CIT may make adjustments if in his opinion, a transaction between related parties has been made on terms which differ from those which would be made between unrelated parties. Currently, guidelines on Transfer Pricing are made available to taxpayers on the IRAS website. MOF and IRAS will continue to review if more details need to be included in the legislation or IRAS circulars.
On whether corresponding adjustments should be allowed to a Singapore company if a transfer pricing adjustment has been made by CIT on its related Singapore company in respect of a related party transaction between these companies, this will depend on whether an outgoing or expense has been incurred by the first-mentioned company, and whether a valid objection in accordance with the provisions of the Income Tax Act has been lodged by this company with the CIT.
Tax Framework for Public Private Partnerships (PPP)
(a) Suggestion: As the intent is to cover only certain types of PPP, respondents suggested defining the term "PPP" for avoidance of doubts.
MOF’s response: Accepted for implementation with modification. The PPP circular to be issued by IRAS will provide descriptions of some typical PPP arrangements in Singapore and the tax framework for PPP arrangements.
(b) Suggestion: The Bill should state clearly that the determination of finance lease will be from the lessor’s perspective.
MOF’s response: Accepted for implementation. The Bill will be amended to reflect the intent.