Previous issuesNovember 2015
Light at the end of the tunnel?
Our early observations on the finalisation of the OECD BEPS Project and what it means for Singapore
The Organisation for Economic Co-operation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) Project came to a close on 5 October 2015, where the OECD released their final recommendations. A number of these recommendations have significant implications on Singapore’s open economy – in particular those relating to Singapore’s tax incentive regime and our regional hub position. In this newsletter, we consider how some of these recommended changes to fundamental key principles around tax treaty access, transfer pricing and transparency impact Singapore.
Draft amendments to the Income Tax Act
On 26 June 2015, the Ministry of Finance (MOF) issued the draft Income Tax (Amendment) Bill 2015 (the draft Bill) for public consultation.
The draft Bill mainly contains tax changes proposed at the 2015 Budget. In addition, a number of non-Budget changes to existing tax policies and administration have been proposed. These arose from the on-going review of Singapore’s income tax system.
The consultation exercise ended on 24 July 2015, and as always, PwC has provided our feedback to the MOF, some aspects of which we share in this newsletter.
Country by country reporting – What does this mean for you?
On 8 June 2015, the Organisation for Economic Co-operation and Development (OECD) released the Country-by-Country Reporting (CbCR) implementation package as part of Action item 13 of the Base Erosion & Profit Shifting (BEPS) initiative. The CbCR workstream, a key pillar underpinning the BEPS initiative, will complement the OECD’s efforts to stamp out BEPS activities by enhancing tax transparency through the sharing of key tax information of Multinational Corporation (MNC) groups.
In broad terms, the purpose of CbCR is for MNC groups to disclose key aspects of their global tax profile to revenue authorities for risk identification purposes. This article discusses the implications of CbCR from a Singapore perspective
PwC internal survey shows countries' different approaches to BEPS
An informal Base Erosion and Profit Shifting (BEPS) survey was conducted internally among a number of our PwC firms.The survey has sounded a note of caution and uncertainty about how things will be implemented. We also found some concern about unilateral action, with countries not waiting for a consensus approach. Many businesses want to wait and see what happens, but some are starting to realise things are changing and are beginning to deal with this in a number of areas, particularly in relation to:
In BFC v Comptroller of Income Tax  SGCA 39, the Court of Appeal held that discounts and redemption premiums in relation to two bond issues were not deductible on the grounds that they were capital in nature. The characterisation of the borrowing costs followed the underlying purpose for which the bonds were issued. In this case, the bonds were meant to raise funds to be employed as capital and hence the related borrowing costs were of a capital nature.
On 1 September 2014, the Inland Revenue Authority of Singapore ("IRAS") released and invited comments by 24 September 2014 on its proposed update to Section 4 of the existing Singapore Transfer Pricing Guidelines relating to the transfer pricing documentation, which was first published in 2006.
While the stated objective of the proposed update is to provide a more comprehensive guidance on transfer pricing documentation, the breadth of the changes proposed suggests a more fundamental shift and the tightening of the transfer pricing documentation requirements in Singapore. It may also be seen as Singapore's response to the rapidly changing and increasingly challenging transfer pricing environment.
The release of the proposed updated guidelines ahead of the much anticipated announcements by the Organisation for Economic Co-operation and Development ("OECD") on transfer pricing related issues, including the Country-by-Country-Reporting initiative, also suggests that Singapore considers it appropriate and timely to signal its strong endorsement of the OECD's approach of aligning profits to the place where substance resides and economic value is created. Having robust contemporaneous transfer pricing documents and greater transparency of related party information will help establish whether this is the case or not.
On 4 July 2014, the Ministry of Finance (MOF) issued the draft Income Tax (Amendment) Bill 2014 (the draft Bill) for public consultation.
The draft Bill mainly contains tax changes proposed at the 2014 Budget. In addition, a number of non-Budget changes to existing tax policies and administration have been proposed. These arose from the on-going review of Singapore’s income tax system.
The consultation exercise ended on 24 July 2014, and as always, PwC has provided our feedback to the MOF. In this newsletter, we share our thoughts on some of these proposed changes.
Since the Organisation for Economic Cooperation and Development (OECD) launched the hefty Base Erosion and Profit Shifting (BEPS) project in February 2013, the individual action plans have moved swiftly ahead. In 2014 alone, the OECD has issued four Discussion Drafts targeting (i) Transparency and Exchange of Information; (ii) Tax arbitrage and hybrid mismatches; (iii) Treaty shopping; and (iv) Imbalance of residence – source taxing rights. Whilst the OECD moves ahead with its review, many countries are contemplating how to interpret and implement these rules. Amidst all this uncertainty, consideration needs to be given on how some of these action points may affect corporations in Singapore so groups may take anticipatory actions to mitigate any tax risks as the BEPS initiatives move ahead.
On 19 May 2014 the Inland Revenue Authority of Singapore (IRAS) issued the circular “Income Tax Treatment of Hybrid Instruments.” The main purpose of this circular is to provide guidance for taxpayers in the classification of instruments that they may hold, as well as those that they may issue.
While seeking to distinguish between debt and equity is a deceptively simple objective; it is notoriously difficult at the margins given the variability of features and circumstances that may be relevant in assessing the nature of an instrument as either debt or equity. With the introduction of this circular, Singapore joins the small number of countries where an attempt to either codify or clarify this distinction has been made.
In Comptroller of Income Tax v AQQ and another appeal  SGCA 15, the Court of Appeal was required to rule on whether a financing arrangement fell foul of Singapore’s statutory general anti-avoidance rules, and in a cross appeal, whether the Comptroller of Income Tax (the Comptroller) had acted reasonably and fairly in exercising his powers under those provisions to counteract the tax advantage that had been obtained.
In a decision handed down on 26 February 2014, the Court of Appeal agreed with the High Court that the arrangement in question constituted tax avoidance, and only partially allowed the Comptroller's appeal for one of the four years in dispute. This is a landmark case as it is the first to deal with Singapore's statutory general anti-avoidance rules. It also clarifies the scope of the Comptroller's powers and the principles that should be applied to determine whether an arrangement constitutes tax avoidance.
There has been strong endorsement by the G20 of the OECD's actions on BEPS. In the context of that strong political momentum behind this OECD project, our latest tax bulletin reviews the specific points of the OECD's recently released Action Plan and sets out some considerations on the issues raised.
Fiscal pressures in many of the world’s economies have focused their governments’ attention on revenue raising. Despite a lack of clear evidence, there is a growing perception that governments are losing substantial revenue to tax planning aimed at shifting profits in ways that erode the taxable base to locations where they are subject to a more favourable tax treatment. This perception has been intensified with the growing attention from media and non-governmental organisations highlighting perceived tax avoidance.
To deal with this growing perception, the OECD published a report entitled Addressing Base Erosion and Profit Shifting in February 2013. The report analyses what they see as the key causes of BEPS and identifies six key pressure areas:
An Action Plan has today been published by the Organisation for Economic Cooperation and Development (OECD) with a view to addressing the perceived flaws in the international tax rules that were discussed in the OECD's February 2013 Base Erosion and Profit Shifting (BEPS) report. Today's 40 page Action Plan contains 15 separate action points or work streams, some of which are further split into specific actions or outputs.
This bulletin covers the tax and transparency agenda following the G8 summit hosted by the UK Presidency at Lough Erne in Northern Ireland on 17 and 18 June 2013. Providing a forum for the governments of the UK, Canada, France, Germany, Italy, Japan, Russia and the US, with the European Union also represented, the G8 is a very influential group in tax matters as well as other issues. The G8 agreed a number of specific tax commitments around tax and transparency in its Lough Erne Declaration and the Leaders’ Communiqué. Read more in our latest Tax Policy Bulletin.
OECD: Revised Proposals on Article 5 (Permanent Establishment) of the OECD Model Tax Convention
The Inland Revenue Authority of Singapore (IRAS) has recently provided guidance on the tax treatment of items bundled with purchase or lease of PIC automation equipment and the taxation of employer provided insurance. In this bulletin, we provide a summary of these changes and how they may impact taxpayers.
March 2013 - Tax Policy Bulletin
OECD paper on aggressive tax planning based on after-tax hedging
The Organisation for Economic Co-operation and Development (OECD) has just released a paper entitled “Aggressive Tax Planning based on After-Tax Hedging”. The purpose of the OECD paper is to describe the features of what it describes as aggressive tax planning schemes based on after-tax hedging as well as the strategies used by countries to detect and respond to these schemes. The OECD paper also highlights a number of challenges from a compliance and policy perspective.
AQQ v Comptroller of Income Tax
The High Court handed down its decision in AQQ v Comptroller of Income Tax SGHC 249 on 18 December 2012, the first case on Singapore’s statutory general anti-avoidance rule. The court held that the financing arrangement in question did fall foul of the general anti-avoidance section though the appeal was allowed on the grounds that the Comptroller did not exercise his administrative powers fairly and reasonably in challenging the arrangement. Read more about the background and PwC's observations about the case in the latest Tax Bulletin.
OECD: Revised Proposals on Article 5 (Permanent Establishment) of the OECD Model Tax Convention
The OECD has recently published its revised proposals on Permanent Establishments in a paper entitled “OECD Model Tax Convention: Revised Proposals concerning the Interpretation and Application of Article 5 (Permanent Establishment)”. The document proposes a number of changes affecting the application of the treaty rules which deal with the circumstances in which a taxable presence or “permanent establishment” may be created. This bulletin provides background on the proposals and an analysis of the proposed changes.
Update on OECD tax projects
Welcome to our most recent bulletin which provides an update on some of the key tax projects currently being undertaken by the Organisation for Economic Cooperation and Development (OECD). The bulletin provides an update on the various strands of the OECD’s tax work as well as commentary on the potential impact of these new developments on the business community.
OECD releases revised discussion draft on beneficial ownership
On 19 October the OECD released its revised proposals on the topic of beneficial ownership. This contains some modifications from its earlier Discussion Draft (released in April 2011) which proposed various changes to the Commentary to the OECD Model Tax Treaty in order to clarify the beneficial owner test.
June 2012 - Recent Singapore Income Tax Cases
In the past few months, there have been a number of tax decisions handed down by the Income Tax Board of Review and the High Court. In this bulletin, we look at the issues and decisions made in four income tax cases as follows:
Safe harbour hits town
Singapore has long been regarded as one of the more conducive locations to set up an investment holding or headquarters company. One oft-cited reason is that Singapore does not tax capital gains. While that is certainly true, it may take some time before an agreement is reached between the Singapore tax authorities and the divesting company as to the nature of the gain (or loss) derived, and whether it is in fact income. Industries and tax practitioners have been lobbying the government to adopt some sort of "participation exemption" scheme to provide more certainty to investors. This wish was finally granted in Budget 2012. On 30 May 2012, the tax authorities published a circular entitled "Income Tax: Certainty of Non-taxation of Companies' Gains on Disposal of Equity Investments". This bulletin looks at some of the salient features of this safe-harbour rule as stated in the circular.
March 2012 - OECD Report on Hybrid Mismatch Arrangements
This Newsalert aims to draw your attention to the first Swiss administrative court decision related to the definition of beneficial ownership from a Swiss withholding tax perspective in case of derivative transactions.
A Danish bank entered into various total return swap transactions with counterparties in the EU and the US relating to Swiss equities. The minimum duration of the total return swaps was of three months with an average duration of six months. In order to hedge the exposure from the total return swaps entered into the Danish bank bought the necessary Swiss equities from different third parties. Upon maturity of the total return swaps the shares were sold to parties who were different from the parties from whom the Danish bank had previously acquired the shares. All transactions were made off-exchange via international brokers. Dividends received during the maturity of the trade were subject to 35% Swiss withholding tax for which a full refund was claimed under the former Swiss-Danish double tax treaty (the current amended treaty only provides for a partial refund of 20%).
The Federal Tax Authority (FTA) declined the refund citing tax avoidance and a lack of beneficial ownership. The Danish bank filed an appeal against this decision and has now obtained a favourable decision from the Swiss administrative court stating that the beneficial ownership on the dividend was not transferred to the counterparties of the total return swaps, but retained by the Danish bank.
March 2012 - OECD Report on Hybrid Mismatch Arrangements
On 5 March 2012, the Organisation for Economic Co-operation and Development (OECD) released a report entitled Hybrid Mismatch Arrangements: Tax Policy and Compliance Issues. This report builds on prior OECD and Forum Tax Administration Reports. The attached bulletin summarises the findings of the report and looks at the wider impact of the OECD's recommendations to address cross-border arbitrage.
February 2012 - Canadian Tax Update
On February 24, 2012, the Tax Court of Canada (TCC) released its decision in Velcro Canada Inc. v. The Queen. Velcro Canada is only the second Canadian case to consider the meaning of “beneficial owner” in the context of the interest, dividend and royalty provisions of Canada’s tax treaties. The first was Prévost Car Inc. v. The Queen, which dealt with whether the recipient of a dividend paid by a Canadian company was the beneficial owner of the dividend. In Velcro Canada, the payment at issue was a royalty.
The principles established in Velcro Canada (along with Prévost) are important for taxpayers paying interest, dividends or royalties to a resident of a treaty country, in determining whether the recipient is the “beneficial owner” of the payment, although they should be aware that these cases have only persuasive force and are not binding on the Singapore courts
February 2012 - Response to the OECD's discussion draft on Article 5 (Permanent Establishment) the OECD Model Tax Convention
On 12 October 2011, the OECD released a public Discussion Draft entitled "Interpretation and Application of Article 5 (Permanent Establishment) of the OECD Model Tax Convention". The Discussion Draft proposed a number of changes affecting the application of the treaty rules which deal with the circumstances in which a taxable presence or "permanent establishment" may be created.
PwC's response to the discussion draft is set out in this bulletin.
December 2011 - AQP v Comptroller of Income Tax
Commercial crimes make frequent headlines these days and reports of the misuse of company funds are not uncommon. The key tax issue is whether the losses suffered by the company are deductible. AQP v Comptroller of Income Tax, a recent High Court decision, examines this area of the law.
October 2011 - ATG v Comptroller of Income Tax
In ATG v Comptroller of Income Tax, the taxpayer successfully argued at the Board of Review that it is entitled to claim capital allowances on plant and machinery placed by it with sub-contractors inside and outside Singapore for the manufacturing of its products. In this bulletin, we look at the arguments presented as well as the basis for the decision.
October 2011 - Tax Policy Bulletin
On 30 August 2011, the Organisation for Economic Co-operation and Development (OECD) published a report entitled Corporate Loss Utilisation through Aggressive Tax Planning. This report was prepared jointly by two groups under the OECD umbrella – the Forum on Tax Administration and the Aggressive Tax Planning Steering Group of Working Party 10 on Exchange of Information and Tax Compliance of the Committee on Fiscal Affairs. In this bulletin, we summarise the contents of the report and consider what the impact could be on corporate taxpayers around the world.
October 2011 - Tax Policy Bulletin
The OECD recently published a public discussion draft dealing with the Article 5 threshold permanent establishment issue. This bulletin comments on some of the more important issues raised by the OECD and sets out our views on these developments.
October 2011 - Dispute Resolution for Corporate Taxpayers: IRAS Consultation Paper
On 24 August 2011, the Inland Revenue Authority of Singapore issued a consultation paper on dispute resolution for corporate taxpayers. How does it affect you? In this bulletin, we summarise the proposed initiatives and share our thoughts on some of the key measures.
September 2011 - Sourcing of Trading Income: Diverging Trends
A recent Hong Kong case reaffirmed an earlier Hong Kong Court of Final Appeal's decision regarding where business income is sourced. How does this compare with Singapore's approach? In this bulletin, we summarise the Hong Kong decisions and consider their nuances in Singapore's context.
September 2011 - Tax Policy Bulletin
Our latest bulletin provides an update on the key tax projects currently being undertaken by the Organisation for Economic Cooperation and Development (OECD). You'll find details on the progress of this work as well as commentary on the potential
impact of these new developments on the business community.
August 2011 - Draft Income Tax (Amendment) Bill 2011
The Ministry of Finance released the draft Income Tax (Amendment) Bill 2011 on 8 July for public feedback. This bulletin looks at some of the changes proposed in the draft Bill.
August 2011 - Tax policy Bulletin
The Organisation for Economic Co-operation and Development (OECD) released a discussion draft on the meaning of "beneficial owner" in the OECD Model Tax Convention on 29 April 2011. Interested parties were asked to send their comments to the OECD by 15 July. In this bulletin, we share with you PwC's response to the discussion draft.
June 2011 - AQQ v Comptroller of Income Tax
Since the introduction of the current general anti-avoidance section in 1988, there has yet to be any reported case on the section. AQQ v Comptroller of Income Tax is a first and in this bulletin, we provide a summary of the case. It is understood that the taxpayer has filed an appeal and it is hoped that the courts will take this opportunity to set down clearer guidance on what is a rather vague area in Singapore's tax law.
May 2011 - Tax Policy Bulletin
The Organisation for Economic Co-operation and Development (OECD) released a discussion draft on the meaning of "beneficial owner" in the OECD Model Tax Convention on 29 April 2011. In this bulletin, we look at the proposed changes as well as share our thoughts on how further clarity can be provided in the draft text.
April 2011 - A CAP-full of GST risks
The Singapore tax authority (IRAS) announced a new GST compliance initiative known as Assisted Compliance Assurance Program or ACAP on 5 April 2011.
The ACAP is a self review package that sets out the IRAS's expectations of good GST governance and risk management and how the business can engage a CPA firm with accredited GST specialists to develop a holistic framework for GST risk processes and controls. The outcome of an ACAP review will determine the frequency of GST audits (exemption for 3 to 5 years), automatic renewal of GST schemes, and a faster turnaround of refunds and resolution of issues.
To encourage companies volunteer for the ACAP initiative, the IRAS has offered a co-funding of 50% (capped at S$50,000) of the professional fees to undertake the ACAP review plus a one-time waiver of penalties for non-fraud errors that arise from, and voluntarily disclosed in the ACAP report to be submitted to the IRAS.
This bulletin provides an overview of the ACAP initiative.
January 2011 - Tax Policy Bulletin
This bulletin summarises the Organisation of Economic Co-operation and Development's (OECD) work in the area of tax havens and offshore financial centres. It sets out the current status and the future steps that are going to be addressed. We also consider possible future developments relating to this agenda.
January 2011 - ZF v Comptroller of Income Tax
In ZF v Comptroller of Income Tax , the Court of Appeal decided that portable pre-fabricated dormitories constitute plant within the meaning of Section 19 and 19A of the Income Tax Act. In this bulletin, we look at the principles laid down by the courts in deciding whether an asset is plant. We also look at the questions raised by the case, and the impact it has on businesses.
November 2010 - Singapore case on interest rate swaps
The case of ACC v Comptroller of Income Tax  SGHC 316 has helped alleviate some uncertainty around the Singapore withholding tax treatment of interest rate swaps and other financial derivatives. In this bulletin, we analyse the arguments put forth by the taxpayer and the Comptroller and how the judge considered them before arriving at his verdict. We also look at the guidance provided by the case, and the question it has left unanswered.
May 2010 - Import Goods and Services Tax Deferment Scheme
In the Singapore Budget 2010, the Minister for Finance introduced a new Import Goods and Services Tax (GST) Deferment Scheme (IGDS) to ease the GST cash flow costs for GST registered businesses that arise from the time lapse between the payment and input tax claim of the GST paid on goods imported into Singapore. This Bulletin provides an overview of the scheme.
February 2010 - Singapore tax authorities has issued a circular providing guidelines on the new tax framework for corporate amalgamations
The Inland Revenue Authority of Singapore (IRAS) recently issued a circular on the tax framework for corporate amalgamations. Broadly, the new tax framework aligns the tax treatment of qualifying amalgamations with the treatment under the Companies Act, where the surviving company (i.e. the amalgamated company) is treated as having "stepped into the shoes" of the amalgamating companies and continues with their businesses as if there had been no cessation of business.
This Bulletin summarises the tax treatment and administrative requirements in the new framework. To find out more about the new rules and how this is relevant to you, please download the Tax Bulletin.
December 2009 - Australian Tax Office proposes anti-avoidance provisions for investment structures claiming treaty relief
The Australian Tax Office (ATO) recently issued two draft tax determinations following its actions in relation to the TPG Myer account. The draft rulings highlights the importance of the capital versus revenue distinction and how Australian investments/exits are structured and executed, and the corresponding tax implications. In one of the draft, the ATO’s view of whether the anti-avoidance provisions will apply to investment structures relying on a double tax agreement was explained. They have indicated that the absence of any significant commercial activity in a treaty country by a company resident in that jurisdiction would strengthen the argument that the cross-border transaction is tax driven. While in the other draft tries to deal with the question of “Can a private equity entity make an income gain from the disposal of the target assets it has acquired?".
At this stage, the determinations are draft and due for public comment by 29 January 2010. Meanwhile, if you are interested to know more about the proposed rulings and how this may be relevant to you, please download the Tax Bulletin.
October 2009 - Withholding tax update
The Income Tax (Amendment) Bill 2009 proposes a welcome change to the withholding tax rules for management service fees. In the wake of this and other recent changes to both the scope and administration of withholding tax, this Bulletin attempts a round-up of where we are in this complex area. It also provides a summary of common payments to non-residents which are subject to withholding tax and the relevant filing procedures.
To find out more about the changes and how they are relevant to you, please download the October edition of Tax Bulletin.
In the recent case of ACC v CIT  SGHC 211, a Singapore-incorporated company applied for leave to quash the decision of the IRAS that withholding tax is applicable on interest rate swap payments made to its non-resident subsidiaries. Although the preliminary analysis of the scope of section 12(6) of the Income Tax Act is not definitive, as it is subject to the full hearing of the application for a quashing order, it is interesting to note that the judge was of the view that the interest rate swap payments may fall outside the scope of the section.
To find out more about the court decision and how this is relevant to you, please download the October edition of Tax Bulletin.
Recently, the Wellington High Court case of BNZ Investments Limited & Ors v. The Commissioner of Inland Revenue addressed the issue of tax avoidance schemes.To find out more about the court decision and how this is relevant to Singapore, please download the September edition of Tax Bulletin.
Developments on the Singapore tax code for information exchange and measures for gains on property transactions
This edition of Tax Bulletin covers the proposed changes to tax treatment for property transactions and the tax code for the exchange of information.