The Corporate Tax Planning Law Review: Singapore
The Singapore government has continued to refine the Singapore taxation regime over the years, to maintain the city-state's competitive edge as a financial centre and hub for foreign investment in the face of its maturing economy, stiff competition from regional markets, and evolving international tax norms.
This chapter explores and highlights key tax considerations for corporations considering inbound investments in Singapore.1
i Entity selection and business operations
Singapore generally imposes tax on income sourced in Singapore as well as foreign-sourced income remitted into, or deemed to be remitted into, Singapore under the Income Tax Act, Chapter 134 of Singapore (ITA).
The Singapore tax regime affords flexibility to corporations to carry out tax planning depending on their commercial objectives, as opposed to adopting an overly prescriptive and onerous approach.
Income tax in Singapore is generally administered by the Inland Revenue Authority of Singapore (IRAS).
A business in Singapore can be structured in various forms, including the following commonly used vehicles:
- a company;
- a partnership;
- a limited partnership (LP);
- a limited liability partnership (LLP); and
- a variable capital company (VCC).
In determining which vehicle would be most appropriate for the specific business activities to be carried out in Singapore, one would have to consider various factors, including ring-fencing of liability, scope of business activities intended to be carried out in Singapore and ability of the vehicle to hold property in its own name.
A company has a separate legal personality from its members. Accordingly, a company is subject to tax on chargeable income under the ITA. The prevailing tax rate for income received by companies, both resident and non-resident, is 17 per cent.
A company may be eligible for the start-up exemption scheme (the SUTE scheme) or the partial tax exemption scheme (the PTE scheme). Under the SUTE scheme, with effect from the year of assessment (YA) 2020, qualifying companies will be eligible for tax exemption on 75 per cent of the first S$100,000 of chargeable income, and exemption of 50 per cent on the next S$100,000 of chargeable income. The SUTE scheme is available to all new companies for the first three YAs, except companies whose principal activity is investment holding and companies that undertake property development for sale, investment or for both investment and sale. Under the SUTE scheme, the new company must be incorporated in Singapore and tax-resident in Singapore for the particular YA. In addition, the total share capital of the new company must be beneficially held directly by 20 or fewer shareholders throughout the basis period for the relevant YA, with all shareholders being individuals or at least one shareholder being an individual holding 10 per cent or more of the issued ordinary shares in the company.
Under the PTE scheme, from YA 2020 onwards, tax exemption will be granted on 75 per cent of the first S$10,000 of chargeable income and an exemption on 50 per cent of the next S$190,000 of chargeable income.
Under both schemes, the remaining chargeable income (after the tax exemption) will be taxed at the applicable corporate tax rate.
Unlike a company, a partnership does not have a separate legal personality from its partners. A partnership is regarded as a tax-transparent entity and the partners are then taxed on their share of income in the partnership due to them for a basis period, at their applicable income tax rates. If a partner is a company, the partner will be charged tax on its share of the income from the partnership at the prevailing corporate tax rate. As mentioned above, the tax rates for companies (whether tax-resident in Singapore or not) is 17 per cent. Singapore tax-resident individuals are taxed at a progressive rate currently ranging between zero and 22 per cent, depending on the amount of income received. Non-resident individuals, subject to certain exceptions, are subject to income tax on income accrued in or derived from Singapore at the rate of 22 per cent.
While an LLP is regarded as having a separate legal personality under Section 4 of the Limited Liability Partnership Act, Chapter 163A of Singapore, it is treated as a partnership for the purpose of income tax.2 Accordingly, the partners are taxed on their respective share of the income received from the LLP and the LLP itself is not subject to tax. In addition, the total amount of a partner's share of capital allowances and trade losses arising from the LLP, which are set off against income from sources other than the LLP, cannot generally exceed such partner's contributed capital in the LLP (the Deduction Restriction).
An LP is accorded similar tax treatment as a LLP in that each partner is taxed on its share of income from the LP at the applicable tax rates as the LP is also regarded as a tax-transparent vehicle. A limited partner in an LP, like a partner in an LLP, is generally also subject to the Deduction Restriction. An LP is usually used for the purpose of establishing private funds, given that the features of such partnership (such as subscriptions and redemptions) are more aligned with the commercial objectives of private funds.
The VCC is a corporate structure introduced in 20183 to further develop Singapore as a hub for fund management and domiciliation, by providing greater operational flexibility and allowing consolidation of fund management activities.4 A VCC may be structured on a stand-alone basis or as an umbrella VCC with sub-funds. A VCC is treated as a company and a single entity for income tax purposes. VCCs that are Singapore tax residents will also be eligible to take advantage of Singapore's tax treaties. Deductions and allowances for umbrella VCCs will be applied at the sub-fund level to determine the sub-fund's chargeable or exempt income. The various tax exemption schemes for fund management in Singapore are also be extended to VCCs where the conditions for these schemes are met.
Domestic income tax
Singapore does not tax capital gains but taxes gains of an income or trading nature (i.e., revenue gains). We will elaborate on the distinction between capital and revenue gains later in this chapter.
As mentioned above, Singapore does not tax foreign-sourced income, unless such income is received (or deemed to be received in Singapore). Under the ITA,5 the following are deemed as income received in Singapore from outside Singapore:
- any amount from any income derived from outside Singapore that is remitted to, transmitted to or brought into Singapore;
- any amount from any income derived from outside Singapore that is applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Singapore; and
- any amount from any income derived from outside Singapore that is applied to purchase any movable property then brought into Singapore.
However, foreign-sourced income in the form of dividends, branch profits and service income received or deemed to be received in Singapore by a Singapore-resident company would be exempt from tax if:
- this income is subject to tax of a similar character to income tax under the law of the territory from which it is received; and
- at the time this income is received in Singapore, the highest rate of tax of a similar character to income tax levied under the law of the territory from which income is received on any gains or profits from any trade or business carried on by any company in that territory at that time is not less than 15 per cent.
In the case of dividends paid by a company resident in a territory from which the dividends are received, the 'subject to tax' condition in point (a) above is considered met where tax is paid in that territory by such company in respect of its income out of which the dividends are paid (i.e., underlying tax) or tax is paid on the dividends in that territory from which the dividends are received (including withholding tax).
In addition, as a concession, the subject to tax condition would be considered met for specified foreign income that is exempt from tax in the foreign jurisdiction from which the specified foreign income is received if the exemption is resulting from a tax incentive granted by the foreign jurisdiction for carrying out substantive business activities in that jurisdiction. Generally, substantive business activities refer to business activities that are carried out through staff with certain expertise and actual expenditure is incurred to carry out the activities.
With respect to the condition in point (b) above that the headline tax rate of the relevant foreign tax jurisdiction is at least 15 per cent, the IRAS has announced that where: (1) the specified foreign income received in Singapore is chargeable to tax under a special tax legislation of that foreign tax jurisdiction instead of its main tax legislation; (2) the special tax legislation imposes tax at a rate lower than the highest tax rate applicable to other companies in that foreign tax jurisdiction under its main tax legislation; and (3) the application of the lower rate of tax under the special tax legislation is not a tax incentive for carrying out substantive activities in that foreign tax jurisdiction; the headline tax rate for the purposes of the condition in point (b) shall be the highest tax rate stipulated in the special tax legislation, instead of the highest tax rate stipulated in the main tax legislation.
The IRAS has also announced that if the conditions for exemption of specified foreign income described above are not met, the IRAS may nevertheless consider granting an exemption on the income received by resident taxpayers on a case-by-case basis under certain specified scenarios and subject to certain conditions being met.
Singapore has also implemented various tax incentives (such as tax exemption of international shipping profits, a concessionary tax rate for finance and treasury centres, a concessionary tax rate for global trading companies and a concessionary tax rate for financial sector incentive companies), to attract foreign investment and promote certain sectors. To qualify for these incentives, substantive economic activities must generally be carried out in Singapore, including meeting certain targets and thresholds for minimum business spending requirements and minimum number of employees to be employed in Singapore.
Singapore does not have any thin capitalisation rules in place under the ITA. However, in order for interest and certain other borrowing costs to be tax-deductible, this expenditure should be incurred for the production of taxable income, and the relevant financing documents should also clearly state the purpose of the financing.6
ii Common ownership: group structures and intercompany transactions
Ultimately, the appropriate group structure depends on the commercial objective of the group as well as the nature of business activities undertaken by the group. Common transaction structures encountered in practice include locating a holding company in Singapore to hold and provide services to various subsidiaries in the Asia-Pacific region.
Ownership structure of related parties
Group relief is generally available under the ITA, such that unabsorbed capital allowances, trade losses and donations for the current year may be transferred by a Singapore-incorporated company to another Singapore-incorporated company within the same group, provided certain conditions are met, including that 75 per cent or more of the total number of issued ordinary shares in one company are beneficially held by the other company through Singapore-incorporated companies.
Under the ITA, there is no concept of controlled foreign corporations.
Domestic intercompany transactions
Intercompany transactions, whether domestic or cross-border, must adhere to the arm's-length principle – that is, transactions between related parties must be made under comparable conditions and circumstances as a transaction with an independent party would have been (the Transfer Pricing Requirement).
Under the ITA, the Comptroller of Income Tax (the Comptroller) has wide powers to adjust for tax purposes actual payments and receipts made under non-arm's length circumstances between related parties under various circumstances.7
In addition, with effect from YA 2018, taxpayers are required to report certain details of related-party transactions, where the value of such transactions in the audited accounts for the financial year exceeds S$15 million in the Form for Reporting Related Party Transactions, to be submitted with the tax return to the IRAS.8
With effect from YA 2019, taxpayers must prepare and maintain transfer pricing documentation for their related-party transactions undertaken in a basis period where gross revenue derived from their trade or business is more than S$10 million for that basis period. However, there are certain exceptions to such requirement, including where the loans owed to all related parties are less than S$15 million per financial year.9
International intercompany transactions
The same considerations for domestic related-party transactions in relation to the Transfer Pricing Requirement generally apply to cross-border related-party transactions as well. However, the IRAS is more likely to scrutinise and raise queries for cross-border related-party transactions, whereby one party is located in an offshore jurisdiction or has limited economic activities. In this regard, it would be even more critical to prepare and maintain transfer pricing documentation to substantiate that the Transfer Pricing Requirement is satisfied in these circumstances.
iii Third-party transactions
There are opportunities for tax planning in third-party transactions, depending on the commercial objectives of the relevant parties.
Sales of shares or assets for cash
Singapore does not impose tax on capital gains, but imposes tax on income. There are no specific laws or regulations that deal with the characterisation of whether a gain is income or capital in nature. Gains arising from the disposal of shares for cash may be construed to be of an income nature and, accordingly, subject to Singapore income tax, especially if they arise from activities that the IRAS regards as the carrying on of a trade or business in Singapore. Case law has generally held that the most significant factor is the taxpayer's intention upon acquisition of the asset (i.e., whether the asset was acquired for investment or trading purposes (and assuming there is no subsequent change of intention)). The test to determine if gains derived on the disposal of assets are revenue or capital in nature is also an objective one, as opposed to the stated intention of the taxpayer and is arrived at after having considered the activities of the taxpayer and all the circumstances relating to the purchase and sale of the securities in question. The local courts have also endorsed the six badges of trade (as evolved from the United Kingdom) as relevant in determining whether a transaction of purchase and sale is, or is not, to be regarded as a trading transaction. Badges of trade include the length of period of ownership, frequency of similar transactions, circumstances responsible for the disposal and the motive for acquisition.
However, the ITA provides for a safe harbour provision under Section 13Z. Gains derived by a divesting company from its disposal of ordinary shares in a target entity from 1 June 2012 to 31 December 2027 are not taxable if, immediately prior to the date of disposal, the divesting company has held at least 20 per cent of the ordinary shares in the target for a continuous period of at least 24 months. The above rule applies irrespective of whether the investee company is incorporated in Singapore or elsewhere, but does not apply to a divesting company whose gains or profits from the disposal of shares are included as part of its income as an insurer; or an unlisted investee company that is in the business of trading or holding Singapore immovable properties (other than the business of property development).
To ensure consistency in the tax treatment for property-related businesses, the above scheme will not apply to disposals of unlisted shares in an investee company that is in the business of trading, holding or developing immovable properties in Singapore or abroad. The tax treatment of these share disposals will thus be based on the facts and circumstances of each case. This change will apply to shares disposed of on or after 1 June 2022. All other conditions and exclusions of the scheme remain the same.
In addition, stamp duty relief may be available for the transfer of shares between associated permitted entities and for reconstruction or amalgamation of companies. Stamp duty is chargeable on instruments effecting a transfer of shares of a Singapore-incorporated company (or a foreign company maintaining a share register in Singapore) at 0.2 per cent of the higher of consideration or the net asset value of such shares; and on instruments with respect to transactions relating to immovable property in Singapore (including mortgages, and leases) and in particular, the following based on the higher of the purchase price or market value of the property:
- buyer's stamp duty (BSD): BSD is payable by the purchaser at approximately 3 per cent for non-residential properties, and approximately 3 per cent to 4 per cent for residential properties;
- additional buyer's stamp duty (ABSD): ABSD is payable by the purchaser for residential property, at a rate depending on the profile of the purchaser and the number of residential properties in Singapore owned by the purchaser, up to 20 per cent for foreigners and 25 per cent for entities, with an additional 5 per cent for housing developers; and
- seller's stamp duty (SSD): SSD is payable by the seller for certain disposals of residential or industrial properties within a specified holding period on a sliding scale depending on the nature of the property and when it was acquired.
Additional conveyance duties (ACD) may also be payable for the sale and acquisition of certain shares in property-holding entities (PHEs) acquired on or after 11 March 2017, if the seller or purchaser is or becomes a significant owner, after such acquisition or disposal. ACD is chargeable at 12 per cent for the disposal of shares in a PHE. For the acquisition of shares in a PHE, ACD is chargeable, for the existing BSD at 1 per cent to 4 per cent, and for ABSD at 30 per cent.
Unutilised trade losses, capital allowances and donations may be carried forward and deducted against subsequent income of a company, provided that there is no substantial change in the shareholding of the company – that is, that 50 per cent or more in shareholders and their respective shareholdings at the relevant dates have remained the same (the Substantial Shareholding Test). A sale of shares in third-party transactions may thus result in the Substantial Shareholding Test not being met. Companies may apply for a waiver of the Substantial Shareholding Test, provided that the Comptroller is satisfied that the substantial change in shareholders was not to seek any tax benefit.
For a sale of assets, a balancing charge or allowance may be applicable, if capital allowances had previously been claimed in respect of the asset, including a plant or machinery. A balancing charge is applicable where the consideration for the sale of the asset exceeds the total tax written-down value of such asset, whereas a balancing allowance may be claimed where the consideration for the sale of the asset is less than the total tax written-down value of the asset.
Tax-free or tax-deferred transactions
There are no tax-free or tax-deferred transactions available in Singapore.
Withholding tax may be applicable on certain payments to a person not tax-resident in Singapore including the following, which are deemed to be derived in Singapore:
- any interest, commission, fee or any other payment in connection with any loan or indebtedness or with any arrangement, management, guarantee, or service relating to any loan or indebtedness;
- any royalty or other payments in one lump sum or otherwise for the use of or the right to use any movable property; or
- any payment for the use of or the right to use scientific, technical, industrial or commercial knowledge or information; where such payments are borne, directly or indirectly, by a person resident in Singapore or a permanent establishment in Singapore (except in respect of any business carried on outside Singapore through a permanent establishment outside Singapore or any immovable property situated outside Singapore), or deductible against any income accruing in or derived from Singapore.
The applicable rate of withholding tax depends on the nature of the payment and whether this income is derived through a trade or business in Singapore and the recipient is tax-resident in a country that has a tax treaty with Singapore.
iv Indirect taxes
GST is a form of value added tax charged on goods and services supplied in Singapore by GST-registered persons and on the import of goods into Singapore. The current rate of GST imposed on standard-rated supplies is 7 per cent. Input GST incurred by a GST-registered person for the purpose of making GST-taxable supplies is generally recoverable from the IRAS (subject to certain exceptions) by way of a refund or credit against the output GST payable on supplies made by the GST-registered persons.
Persons in Singapore whose total value of GST-taxable supplies exceeds or is expected to exceed S$1 million over 12 months will have to register for GST purposes. However, entities may also register voluntarily to claim any input GST incurred on GST-taxable supplies made to these entities (which are used by these entities to make their own GST-taxable supplies).
GST on imported digital services
For imported services provided by a business outside Singapore to a GST-registered business in Singapore that is not entitled to claim the full amount of all input GST payable, GST is charged through a reverse charge mechanism that took effect from 1 January 2020 (i.e., the Singapore entity is to account to IRAS for GST chargeable on services it imports and is entitled to make input tax claims on such GST, provided the relevant input tax requirements have been complied with). In addition, for imported digital services between a business outside Singapore and a customer not registered for GST purposes in Singapore, foreign businesses with a global turnover exceeding S$1 million per annum and making supplies of digital services to customers in Singapore exceeding S$100,000 per annum, including local or overseas electronic marketplace operators, are required to register for GST with effect from 1 January 2020, and these services will be subject to GST through an overseas vendor registration mode.
GST on imported goods and imported non-digital services
In the Singapore Budget Statement 2021, it was announced that, with effect from 1 January 2023, GST will be extended to: (1) the import of low-value goods (i.e., above S$400 imported via air or post), which were previously not subject to GST; and (2) business-to-customer (B2C) imported non-digital services. For GST imposed on the import of goods, GST will be imposed through the current overseas vendor registration and reverse charge regimes. For B2C imported non-digital services, GST will be imposed through the overseas vendor registration. These changes, together with the imposition of GST on imported digital services, are intended to ensure a level playing field for local businesses to compete effectively. Overseas suppliers of goods and services will be subject to the same GST treatment as local suppliers, and the Singapore GST system will then remain resilient as the digital economy grows.
Change in GST rate
It was announced in 2018 that the government plans to raise the GST rate to 9 per cent at some point in the period from 2021 to 2025. In the Singapore Budget Statement 2021, it was announced that the GST increase will take place sometime during 2022–2025, subject to the economic outlook.
International developments and local responses
i OECD-G20 BEPS initiative
On 16 June 2016, the Ministry of Finance (MOF) announced that Singapore will join the inclusive framework for the global implementation of the BEPS initiative.10 Singapore supports the principle underlying the BEPS initiative, which is that profits should be taxed where the real economic activities generating the profits are performed and where value is created.
Singapore had committed to implementing the following minimum standards under the BEPS initiative:
- countering harmful tax practices: Singapore regularly evaluates its tax incentive schemes to ensure that they remain relevant and competitive;
- preventing treaty abuse: anti-treaty shopping provisions to prevent treaty abuse are contained in some of Singapore's bilateral tax treaties;
- transfer pricing documentation: country-by-country (CbC) reporting would be implemented for financial years beginning on or after 1 January 2017 to apply to multinational entities with ultimate parent entities in Singapore and group turnover of at least S$1.125 billion; and
- enhancing dispute resolution: Singapore engages with foreign tax authorities on international tax disputes through the mutual agreement procedure, set out in Singapore's bilateral tax treaties.11
Subsequently, Singapore signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) on 7 June 2017,12 and deposited the instrument of ratification for the MLI on 21 December 2018 such that the MLI will take effect in Singapore on 1 April 2019.13 Singapore has since commenced amending various avoidance of double taxation treaties (DTAs) to effect amendments made by the MLI, including DTAs with Albania, Belgium, Canada, Cyprus, Czech Republic, Denmark, Egypt, Finland, Georgia, Guernsey, India, Indonesia, Ireland, Kazakhstan, Latvia, Liechtenstein, Luxembourg, Mauritius, Netherlands, Oman, Portugal, Qatar, Russia, San Marino, Saudi Arabia, Ukraine, the United Arab Emirates and Uruguay.
Exchange of information
On 21 June 2017, Singapore signed the Multilateral Competent Authority Agreement on the exchange of Country-by-Country Reports (MCAA CbCR).14 The MCAA CbCR is a multilateral framework agreement facilitating the automatic exchange of CbC reports between signatories on a bilateral basis, provided both parties mutually agree.
Singapore has gazetted the Income Tax (International Tax Compliance Agreements) (Country-By-Country Reporting) Regulations 2018 in this regard.
A multinational enterprise with a Singapore tax resident entity as its ultimate parent entity and consolidated group revenue in the preceding financial year of at least S$1.125 billion is required to file a CbC report to the Comptroller within 12 months of the end of that financial year of the ultimate parent entity, from the financial year beginning on or after 1 January 2017.15 A CbC report includes information on the corporate group's allocation of income, taxes, employees and assets across the various jurisdictions and other financial data.
CbC reports received by the IRAS will be provided to foreign tax authorities in jurisdictions with which Singapore has formed bilateral automatic exchange of information relationships (AEOI).
Singapore had also signed the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information under the Common Reporting Standard (CRS) (MCAA CRS) on 21 June 2017.16 The MCAA CRS is a multilateral framework agreement that provides a standardised and efficient mechanism to facilitate AEOI under the CRS.17 Singapore has also since activated bilateral exchange relationships with various jurisdictions.18
Singapore has gazetted the Income Tax (International Tax Compliance Agreements) (Common Reporting Standards) Regulations 2016 (the CRS Regulations), which entered into force on 1 January 2017, to incorporate CRS obligations under domestic law.
Under the CRS Regulations, certain Singapore financial institutions are required to do the following:
- carry out due diligence on certain financial accounts maintained;
- determine the tax residence of such account holders or controlling persons, as the case may be; and
- submit financial account information to IRAS by 31 May of the year subsequent to the calendar year in which such accounts were maintained.
The IRAS may then exchange such information with foreign tax authorities in jurisdictions with which Singapore has entered into a competent authority agreement (including bilateral and multilateral agreements).19
The Tax Information Exchange Agreement (TIEA) between Singapore and the United States, which was signed on 13 November 2018 entered into force on 5 March 2020. The TIEA allows Singapore and the United States to exchange information for tax purposes. The reciprocal Foreign Account Tax Compliance Act Model 1 Intergovernmental Agreement between Singapore and the United States of America (the IGA), which was signed on 13 November 2018, also entered into force on 1 January 2021. The IGA provides for the automatic exchange of information with respect to financial accounts under the United States of America's Foreign Account Tax Compliance Act.
ii Tax treaties
Singapore has a wide network of DTAs, and the majority of Singapore's treaties are based on the OECD Model Tax Convention on Income and on Capital.
Recent changes to and outlook for treaty network
With Singapore's recent ratification of the MLI, Singapore intends for 86 of its DTAs to be amended by the MLI.20 A DTA will only be amended by the MLI should both parties to the DTA agree to it and if both parties have ratified the MLI.
The IRAS has indicated21 that the main changes to Singapore's DTAs arising from the MLI are as follows:
- a new preamble will be included to the effect that the purpose of the DTA is to eliminate double taxation without affording avenues for lower or no taxation through evasion or avoidance;
- a 'principal purpose test' provision will be included as an anti-abuse provision to disallow benefits under the DTA in cases of abuse; and
- provisions will be included in certain DTAs to permit taxpayers to submit for mutual agreement procedure cases to undergo arbitration if the competent authorities cannot agree on such matters within the specified time period.
i Wee Teng Yau v. Comptroller of Income Tax and another appeal (Wee Teng Yau)22
In Wee Teng Yau, the High Court considered whether an arrangement (Arrangement), whereby a dentist (Dr Wee) in a clinic had incorporated a private limited company (Company) such that he provided the same dental services to patients in the clinic but the clinic paid the remuneration for Dr Wee's services to the Company instead of to Dr Wee, would be regarded as tax avoidance under Section 33 of the ITA. The clinic then paid a salary and director's fees to Dr Wee, with the significant part of the income paid to Dr Wee as exempt dividends from the Company after such income had been taxed in the hands of the Company (bearing in mind that the corporate tax rate in Singapore is lower than the highest marginal tax rate for individuals).
The High Court in Singapore considered that the Arrangement was caught by the tax avoidance provision in Section 33 of the ITA. The net result of the Arrangement was that Dr Wee obtained the same amount of overall remuneration from the clinic through the Company but avoided paying the tax he used to pay because he could use the Company to extract tax benefits that he could not himself obtain. The High Court also held that it may be argued that one of the purposes of the Arrangement was to separate the personal liability of Dr Wee's from that of the clinic's, but this was not its only purpose. One of the main purposes of the Arrangement was to allow Dr Wee to receive the same income he used to receive from the clinic but to reduce his tax liability. In considering whether the Arrangement had any bona fide commercial purpose to fall within the statutory exception to Section 33 of the ITA, the High Court held that the court must inquire into the tax advantage that the taxpayer hopes to obtain from the arrangement in question. If the taxpayer's intentions, as inferred from the surrounding evidence or features of the arrangement, were to reduce or avoid tax liability, the statutory exception does not apply for the taxpayer's benefit, and one should bear in mind that this exception is supplemental to the main anti-avoidance provision and is intended to facilitate the interpretation thereof.
It is worth noting that Section 33 of the ITA has since been repealed and re-enacted with effect from 7 December 2020, pursuant to Section 30 of the Income Tax (Amendment) Act 2020. Under the current Section 33(1) of the ITA, Section 33(2) applies where the Comptroller is satisfied that the purpose or effect of any arrangement is directly or indirectly:
- to alter the incidence of any tax that is payable by, or that would otherwise have been payable by, any person;
- to relieve any person from any liability to pay tax or to make a return under the ITA; or
- to reduce or avoid any liability imposed or which would otherwise have been imposed on any person by the ITA.
Section 33(2) of the ITA then provides that, without affecting any validity that the arrangement may have in any respect for any other purpose, the Comptroller must disregard or vary the arrangement and make any adjustment that the Comptroller considers appropriate, including (but not limited to) 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. Section 33(7) of the ITA also provides that this section does not apply to any arrangement carried out for bona fide commercial reasons and had not as one of its main purposes the avoidance or reduction of tax.
Previously, Section 33(1) conferred discretion on the Comptroller to exercise certain powers where an arrangement is regarded to be tax avoidance. However, the recently amended Section 33(2) imposes an obligation on the Comptroller to exercise such powers where an arrangement is regarded to be tax avoidance. This evidences the IRAS' strong stance against tax avoidance. In particular, with respect to the medical industry, the IRAS has also published a circular in November 2019 on 'Incorporation of Companies by Medical Professionals and Relevant Tax Implications'.23
Outlook and conclusions
In light of international developments in the tax sphere, volatility across global markets and the economic impact from the covid-19 pandemic, the Singapore government is likely to continue using tax policy as a tool to grow Singapore's economy, including through attracting foreign investment into Singapore. Tweaks to the tax regime in Singapore will be inevitable and will take the form of reactionary responses to international developments as well as proactive steps by the Singapore government to maintain the city-state's competitive edge over other international financial centres.
1 Sunit Chhabra is a partner and Ruth Sim Yi Li is a senior associate at Allen & Gledhill LLP.
2 Section 36A of the ITA.
3 The Variable Capital Companies Act 2018 (No. 44 of 2018) was gazetted on 12 November 2018.
4 Second Reading Speech by Ms Indranee Rajah, Second Minister for Finance on the Variable Capital Companies Bill (2018), 1 October 2018, available from: www.mof.gov.sg/Newsroom/Speeches/second-reading-speech-by-ms-indranee-rajah-second-minister-for-finance-on-the-variable-capital-
5 Section 10(25).
6 See, for example, Pinetree Resort v. Comptroller of Income Tax  3 SLR(R) 136, Comptroller of Income Tax v. IA  4 SLR(R) 161, T Ltd v. Comptroller of Income Tax  2 SLR(R) 618 and BFC v. Comptroller of Income Tax  4 SLR 33.
7 Section 34D of the ITA.
8 See the IRAS e-Tax Guide 'Transfer Pricing Guidelines (Fifth Edition)', published on 23 February 2018.
10 See MOF Press Release 'Singapore Joins Inclusive Framework for Implementing Measures against Base Erosion and Profit Shifting (BEPS)' dated 16 June 2016 ('MOF 2016 Press Release'), available from:
11 See MOF 2016 Press Release.
12 See MOF Press Release 'Singapore to Sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting' dated 7 June 2017, available from: www.iras.gov.sg/irashome/News-and-Events/Newsroom/Media-Releases-and-Speeches/Media-Releases/2017/Singapore-
13 See MOF Press Release 'Singapore Ratifies the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Sharing' dated 21 December 2018, available from:
14 See MOF Press Release 'Singapore Signs Multilateral Competent Authority Agreements to Enhance Tax Co-operation on Exchange of Information' dated 21 June 2017 (MOF 2017 Press Release), available from: www.iras.gov.sg/irashome/News-and-Events/Newsroom/Media-Releases-and-Speeches/Media-Releases/2017/Singapore-Signs-Multilateral-Competent-Authority-Agreements-to-Enhance-Tax-Co-operation-on-Exchange-of-Information/.
15 See the IRAS e-Tax Guide entitled 'Country-by-Country Reporting (Third Edition)' published on 7 August 2018.
16 See MOF 2017 Press Release.
17 See the IRAS website at: www.iras.gov.sg/irashome/Quick-Links/International-Tax/CRS_CAAs/#CRSMCAA.
19 See the IRAS e-Tax Guide 'Common Reporting Standard', published on 23 July 2019.
20 See 'List of treaties notified under the MLI', available from the IRAS website at: www.iras.gov.sg/irashome/Quick-Links/International-Tax/Multilateral-Instrument/.
21 See the IRAS e-Tax Guide 'Avoidance of Double Taxation Agreements (DTAs) (Second Edition)', published on 15 June 2018.
22  SGHC 236 (Wee Teng Yau).