Looking back round-up of 2012

Transcription

1 Striking the right balance PwC Budget Seminar 1 March 2013 Looking back round-up of 2012

2 Agenda Productivity and innovation credit Taxation of divestment gains Withholding tax Tax compliance Stamp duty Singapore tax case on anti-avoidance PwC 5

3 2012 in retrospect Shantini Ramachandra PwC 6

4 Poll question In your view, which was the most interesting tax development over the past year? 1. Enhancements to the PIC scheme 2. Safe-harbour rule for divestment gains 3. AQQ case 4. Additional buyer s stamp duty (ABSD) 5. All of the above 6. None of the above PwC 7

5 Productivity and Innovation Credit Research & development R&D cost-sharing agreements R&D expenses qualify for PIC benefits Prior approval no longer required PIC given for 60% of shared costs (similar to outsourced R&D) Need to submit detailed project plans for all R&D projects covered under a cost-sharing agreement Software R&D Multiple sales requirement removed to encourage R&D in software development not intended for sale Threshold of novelty and technical risk must be met The IRAS has published list of exclusions (not been legislated) PwC 8

6 Productivity and Innovation Credit Other changes Cash pay-out Increased from $30,000 to $60,000 for up to $100,000 of qualifying expenditure Training PIC extended to expenditure on training of agents and in-house training (not certified, up to a cap of $10,000) PwC 9

7 Taxation of divestment gains Gains on disposal of equity investments Safe-harbour rule Gain from the disposal of ordinary shares on or after 1 June 2012 will not be taxed if: - minimum shareholding of 20%; and - minimum continuous holding period of 24 months If conditions are not met, taxability of gains will be determined based on badges of trade. Five-year sunset clause 31 May 2017 PwC 10

8 Taxation of divestment gains Gains on disposal of equity investments Safe-harbour rule Not applicable to: shares disposed of by insurance companies taxed under section 26 of the Income Tax Act disposal of shares in unlisted companies holding or trading in Singapore immovable property (excluding property developers) shares disposed of by partnerships where one or more partners is a company PwC 11

9 Withholding tax Payments for software and digitised goods Adoption of rights-based approach April 2012: The IRAS issued a consultation paper on proposal to adopt rights-based approach to characterising software payments and payments for digitised goods 8 February 2013: Circular issued New approach took effect on 28 February 2013 New approach draws a distinction between transfer of a copyright and transfer of a copyrighted article PwC 12

10 Withholding tax Payments for software and digitised goods Software payments to non-residents alienation of copyright in software without no withholding tax Software transfer of no withholding payment copyright tax (transfer of copyrighted article) for the use of software with partial transfer of copyright withholding tax applies PwC 13

11 Withholding tax Payments for software and digitised goods Payments for digitised goods to non-residents alienation of copyright in information & digitised goods without no withholding tax Payment transfer of no withholding for the use of information & digitised goods copyright (transfer of copyrighted article) with partial transfer of copyright tax withholding tax applies PwC 14

12 Tax compliance Voluntary disclosure programme Updated circular issued on 1 January 2013 Applies to income tax, withholding tax, goods and services tax and stamp duty Reduced penalties accorded to all voluntary disclosures that meet qualifying conditions regardless of frequency of disclosures previously voluntary disclosure programme relief was available only once to taxpayers Reduced penalty accorded to qualifying voluntary disclosures of wilful intent to evade tax (e.g. by compounding offence) - Previously, voluntary disclosure only taken as a mitigating factor - Does not apply to wilful intent to evade stamp duty Introduction of template for programme application PwC 15

13 Stamp duty Additional buyer s stamp duty on residential properties ABSD rates before 12 January 2013 ABSD rates from 12 January 2013 Singapore Citizens: (i) 1 st property (ii) 2 nd property (iii) 3 rd & subsequent property nil nil 3% nil 7% 10% Singapore Permanent Residents: (i) 1 st property nil 5% (ii) 2 nd and subsequent property 3% 10% Foreigners and entities 10% 15% PwC 16

14 Stamp duty Seller s stamp duty on industrial properties Date of purchase or date of change of zoning/use On or after 12 January 2013 Holding period Up to 1 year More than 1 year and up to 2 years More than 2 years and up to 3 years More than 3 years Seller s stamp duty payable 15% of consideration or market value, whichever is higher 10% of consideration or market value, whichever is higher 5% of consideration or market value, whichever is higher Not applicable PwC 17

15 Singapore tax case on anti-avoidance AQQ v Comptroller of Income Tax [2012] SGHC 249 Facts Group corporate restructuring with external financing taken Complicated fund flows involving external bank, N Bank Interest deduction claimed against franked dividends resulted in tax repayable of $13.6m for AQQ Issue Did the financing arrangement constitute a tax avoidance scheme within the meaning of section 33 of the Income Tax Act? Board of Review Concluded arrangement was a tax avoidance scheme within section 33 PwC 18

16 Singapore tax case on anti-avoidance AQQ v Comptroller of Income Tax Group structure B (M) B (M) C (M) D AQQ C (M) 50% F 50% D F G J 50% G 50% 50% 50% J PwC 19 Before reorganisation 100% owned unless otherwise indicated. M = Malaysian company After reorganisation

17 Singapore tax case on anti-avoidance AQQ v Comptroller of Income Tax Fund flows 2. AQQ buys shares in D, F, G and J for $225m. AQQ $75m $75m 1. N Singapore subscribes for $225m of the Notes 10-year 8.85% per annum. D B (M) $75m $150m C (M) $75m $75m 3. D and B each extend a $75m interest-free loan to C. C has $225m. N Singapore 6. $20m deposit is placed with N Singapore. The same is then withdrawn after 2 months. 5. Sale and purchase of $205m of the Principal Notes (and $20m of the Principal Notes under a forward agreement). N Mauritius 4. Sale and purchase of $205m of the Principal Notes (and $20m of the Principal Notes under a forward agreement). 7. C acquires the remaining $20m of the Principal Notes. PwC 20

18 Singapore tax case on anti-avoidance AQQ v Comptroller of Income Tax Section 33 (1) Where the Comptroller is satisfied that the purpose or effect of any arrangement is directly or indirectly (a) to alter the incidence of any tax which is payable by or which would otherwise have been payable by any person; (b) to relieve any person from any liability to pay tax or to make a return under this Act; or (c) to reduce or avoid any liability imposed or which would otherwise have been imposed on any person by this Act, PwC the Comptroller may, without prejudice to such validity as it may have in any other respect or for any other purpose, disregard or vary the arrangement and make such adjustments as he considers appropriate, including the computation or recomputation of gains or profits, or the imposition of liability to tax, so as to counteract any tax advantage obtained or obtainable by that person from or under that arrangement. (3) This section shall not apply to (a) any arrangement made or entered into before 29 th January 1988; or (b) any arrangement carried out for bona fide commercial reasons and had not as one of its main purposes the avoidance or reduction of tax. 21

19 Singapore tax case on anti-avoidance AQQ v Comptroller of Income Tax High Court Transactions split into two parts: - Group restructuring for group relief accepted as genuine - Financing arrangement was a tax avoidance scheme But Comptroller counteracted the tax advantage obtained by AQQ incorrectly Notices of additional assessment ought to be discharged they were ultra vires and void Appeal by AQQ was allowed The IRAS is understood to have appealed; AQQ has cross-appealed PwC 22

20 Poll question How would you describe the impact of the AQQ case? 1. Exciting development in the tax space 2. No significant impact 3. Don t know didn t read beyond the first page of the judgment 4. What is AQQ? PwC 23

21 Break-out session: Tax cases Singapore tax cases AVD v Comptroller of Income Tax AYH v Comptroller of Income Tax AYN Corporation v Comptroller of Income Tax Comptroller of Income Tax v AZP U Limited v Comptroller of Income Tax FEOL v Comptroller of Income Tax AQQ v Comptroller of Income Tax STM Pte Ltd v Comptroller of Income Tax AQP v Comptroller of Income Tax PwC 24

22 Thank you Shantini Ramachandra, Director, International Tax PwC 25