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You and the Taxman Insights on tax issues that matter Issue 4, 2014

The OECD rewrites international tax rules

Changing expectations on transfer pricing documentation

Greater clarity on tax treatment of hybrid instruments

Compliance and reporting: blending global and local

Private equity: How do Singapore and Hong Kong compare?

Tax relief for intellectual property

Debt funding Australian investments

Connecting with clients in Asia-Pacific

The capital-revenue divide on management corporations

You and the Taxman

3 | You and the Taxman Issue 4, 2014

Issue # – Month Year

1You and the Taxman Issue 4, 2014 |

The international tax landscape is clearly changing. Foremost in the minds of tax directors and other key stakeholders are developments related to the Organisation for Economic Co-operation and Development’s (OECD) Action Plan on Base Erosion and Profit Shifting (BEPS). This project to rewrite the global tax system will have significant ripple effects on multinational companies and the way they structure their businesses.

“The OECD rewrites international tax rules” keeps you up to speed on the latest developments in the BEPS sphere. In September 2014, the OECD issued seven of the deliverables due under the BEPS Action Plan. These cover a wide spectrum of areas: the digital economy, hybrid mismatch arrangements, harmful tax practices, tax treaty abuse, intangibles, transfer pricing documentation and multilateral instruments. These deliverables will have implications for multinational companies doing business in Singapore, with issues surrounding substance likely coming to the fore.

It’s been eight years since Singapore introduced transfer pricing guidelines. In that span of time, there have been significant changes in the international tax landscape and multinational companies across the world have seen their transfer pricing practices coming under the spotlight as the battle against BEPS escalates. In light of this, the Inland Revenue Authority of Singapore (IRAS) has issued a consultation paper that proposes that taxpayers prepare contemporaneous transfer pricing documentation to support their positions. Many of the proposals are also broadly aligned with the OECD’s BEPS Action 13 report. If implemented, this will hit hard companies which have not historically prepared transfer pricing documentation for Singapore purposes. Read “Changing expectations on transfer pricing documentation” for more.

Another change we’ve seen this year is the introduction of an e-Tax guide by the IRAS on the income tax treatment of hybrid instruments. This provides taxpayers with greater transparency on IRAS’ position on these instruments, given that there has traditionally been no neat divide where hybrid instruments can fall under dividend-generating equity or interest-free debt. “Greater clarity on tax treatment of hybrid instruments” discusses how the guidance affects issuers and investors and how it aligns with the OECD’s efforts to neutralise the effects of hybrid mismatch arrangements under Action 2 of the BEPS Action Plan.

“Compliance and reporting: blending global and local” highlights why global compliance and reporting (GCR) processes should not be an afterthought. Driven by evolving business models and finance functions, as well as a complex regulatory landscape, multinational companies need to redesign their GCR processes to gain better control, increase efficiency, mitigate risk and improve performance.

“Private equity: How do Singapore and Hong Kong compare?” examines how Singapore and Hong Kong’s tax exemption scheme for private equity stack up against each other.

“Tax relief for intellectual property” provides suggestions on how the writing-down allowances regime under section 19B of the Income Tax Act can be improved. These include widening the scope to include in-house development of intellectual property, including incidental costs as qualifying costs and exempting the clawback of allowance, amongst others.

“Debt funding Australian investments” shares the Australian income tax considerations which investors need to take into account when using third-party or related-party debt to fund investments into Australia. Importantly, the safe harbour rule for thin capitalisation has recently been reduced.

EY’s flagship tax event, the Asia-Pacific Tax Symposium, was recently held in Singapore and provided a unique opportunity for clients across the globe to come together and exchange views and insights on the key Asia-Pacific tax issues and trends affecting them. Find out more about the key highlights of this event from our interview with our Asia-Pacific Tax Managing Partner, Jim Hunter in “Connecting with clients in Asia-Pacific”.

Lastly, the capital-revenue divide is once again explored, this time in the case of BLP v CIT. In this case, the taxpayer is a management corporation (instead of a company), and the receipt under contention is the monies collected from its members for the purposes of retrofitting and upgrading the common property. Read “The capital-revenue divide on management corporations” for an analysis of the case.

I hope you enjoy this issue.

Tax

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chMrs Chung-Sim Siew MoonPartner and Head of Tax Ernst & Young Solutions LLP


You and the Taxman

04 The OECD rewrites international tax rules The Organisation for Economic Co-operation and

Development (OECD) has issued seven of the deliverables due under its Action Plan on Base Erosion and Profit Shifting (BEPS) and these will have an impact on multinationals doing business in Singapore.

06 Changing expectations on transfer pricing documentation

Singapore’s tax authority has released a consultation paper, proposing that taxpayers be required to prepare documentation to support transfer pricing positions and to have this in place by the time the company tax return is filed.

09 Greater clarity on tax treatment of hybrid instruments

The introduction of an e-Tax guide on the income tax treatment of hybrid instruments is a welcomed step towards providing taxpayers with greater direction in determining the potential tax implications of these instruments.

12 Compliance and reporting: blending global and local

Multinational companies need to evaluate and redesign their global compliance and reporting processes to have greater control, visibility and accountability.

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Issue 4, 2014



Managing editor: Chung-Sim Siew Moon

Editor: Russell Aubrey

Contributors: Amy Ang Luis Coronado Chris English Goh Siow Hui Jim Hunter Darryl Kinneally Lim Ting Ting David Scott Soh Pui Ming Jonathan Stuart-Smith Henry Syrett Tan Ching Khee Tan Peh Huang Desmond Teo Stella Teo Editorial: Karen Lew

Design: Irene Lee

Email: [email protected]: www.ey.com/sg

For more information on the articles published in this issue, please contact:

The EditorYou and the TaxmanErnst & Young Solutions LLPOne Raffles QuayNorth Tower, Level 18Singapore 048583Tel: +65 6535 7777Fax: +65 6532 7662

Editor note: You and the Taxman is published exclusively for clients of Ernst & Young Solutions LLP. Although every care has been taken in its production, it cannot take the place of specific advice for clients’ particular circumstances. Readers are advised to contact Ernst & Young Solutions LLP for more details and any update on the topics discussed in any of our publications before taking action based on the advice and views expressed by our writers. For specific tax questions, please contact the Ernst & Young Solutions LLP tax executive who handles your tax affairs.

MCI (P) 096/12/2013

Printed by Hock Cheong Printing Pte Ltd

15 Private equity: How do Singapore and Hong Kong compare?

An attractive tax exemption regime plays an important part in attractive private equity funds and Singapore appears to have a slight edge over Hong Kong in this regard.

A fresh look at

18 Tax relief for intellectual property

The writing down allowances regime available on intellectual property (IP) acquisition costs under section 19B of the Singapore Income Tax Act could be further refined to make it more relevant and attractive to investors using Singapore as an IP holding location.

Elsewhere outside Singapore

22 Debt funding Australian investments

Investors using both third-party and related-party debt to fund investments into Australia do so for tax efficiency reasons and flexibility in returning cash. They will need to consider Australian income tax matters when using debt funding especially the new, lower, safe harbour for thin capitalisation.

In conversation with

26 Connecting with clients in Asia-Pacific

EY’s Asia-Pacific Tax Symposium sees a huge turnout as BEPS gets on the radar of organisations. Find out why clients see value in our flagship tax event.

Lessons in case law

29 The capital-revenue divide on management corporations

The case of BLP v CIT examines whether the contributions received by a management corporation from its members for the purposes of retrofitting and upgrading common property should be classified as capital or revenue in nature.

At a glance

32 This section lists the latest Inland Revenue Authority of Singapore

e-Tax guides, Monetary Authority of Singapore circulars and treaties signed or ratified.


You and the Taxman

On 16 September 2014, the Organisation for Economic Co-operation and Development (OECD) issued seven of the deliverables due under its ambitious 15-point Action Plan on

Base Erosion and Profit Shifting (BEPS). For the past couple of years, there has been significant global political and media pressure for reform of the current system of cross-border taxation, to counter the perception that some multinational enterprises (MNEs) may be shifting income to low-tax jurisdictions and undertaking transactions that result in double non-taxation.

Since the OECD commenced the BEPS project in February 2013, it has worked closely with the G20 member countries to seek a consensus on how to rewrite the international tax rules. These 44 countries, representing 90% of the world economy, together with representatives from other jurisdictions including over 80 developing countries, have worked hard to reach an agreement. These seven deliverables go a long way to paint the picture of how the new tax world will look. The remaining eight deliverables will be announced by September and December 2015.

In essence, the deliverables seek to ensure alignment between taxation and the relevant substance that creates economic value. The OECD argues that globalisation, combined with increasingly complex operating models, has opened up opportunities for MNEs to reduce their tax burden. As a result, tax laws and OECD principles designed to prevent double taxation have also led to instances of reduced taxation, or in some cases double-non taxation.

The deliverables take the form of recommendations on changes in domestic tax law, as well as changes to the OECD model tax treaty. A quick summary of the 700 pages covered by the seven deliverables is as follows.

Action 1: The digital economy The report notes that the “digital economy” cannot be isolated from the economy as a whole. It reviews the taxation challenges raised by the digital economy and considers options for addressing these challenges, including taxable nexus (permanent establishment),

withholding tax and value-added tax (VAT). Further work will be done in this area. Also, several of the other deliverables are expected to deal with digital economy issues: controlled foreign corporation rules; permanent establishment rules and transfer pricing.

Action 2: Hybrid mismatch arrangements The report outlines recommended domestic tax law and tax treaty changes to neutralise the tax mismatch. The proposed linking rules are aimed at preventing double deductions of the same item of expense, and situations where the expense is deductible in one country but the income is tax-exempt in the other country.

Action 5: Harmful tax practicesThe report reviews OECD member country preferential tax regimes, mainly focusing on intellectual property (IP) regimes such as patent boxes. It calls for tax incentive regimes to require substantial activity and considers a nexus approach to determine the substance of the activity. For example, only the proportion of the IP income that corresponds to the level of R&D activities carried out in that jurisdiction may qualify for tax benefits. The OECD outlines a process for compulsory, spontaneous exchange of information on tax rulings between tax authorities. However, there is no requirement for the ruling to be made public.

Action 6: Tax treaty abuse This report aims to put an end to “treaty shopping” and double non-taxation, by preventing access to tax treaties where there is a lack of substance in the country of residence. It offers two options for doing this: a US-style, objective “limitation on benefits” article; or a more subjective, European-style “principal purpose” test. Countries may also adopt both options.

Action 8: IntangiblesThe report gives interim guidance on how to allocate the returns derived from intangibles developed by an MNE. The returns to “cash box” companies, who fund the development of intangibles, should be limited. The allocation of returns should be in line with value creation. The report will be finalised in conjunction with work on the other deliverables.

The OECD rewrites international tax rulesJonathan Stuart-Smith reviews the current state of the OECD’s BEPS project



“Tax rules are being rewritten and good governance requires companies to anticipate the changes and be prepared for the new world.“

Jonathan Stuart-Smith Global Tax Desk Leader, Asia-Pacific and Japan Tax Desk jonathan.stuart-smith@ sg.ey.com

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Action 13: Transfer pricing documentation The report recommends a three-tiered approach, including a master file and a local file, which is consistent with the approach set out by the Singapore tax authorities in the current consultation document regarding transfer pricing documentation. Action 13 also calls for a “country by country report”. This is one of the most important parts of BEPS. It will give tax authorities the “big picture” about where an MNE earns its revenues and profits; where it has its share capital, retained earnings, tangible assets and employees; and where it pays tax. By comparing these data points, tax authorities will be able to derive ratios, for example profitability versus tax payments, which will allow it to focus attention on areas for further investigation. The OECD is not calling for this information to be made public.

Action 15: Multilateral instrumentThe report concludes that it is legally feasible and practically desirable to develop a multilateral instrument that will translate the changes to the OECD model tax treaty to changes in the 3,000 actual bilateral tax treaties. The alternative of renegotiating each and every treaty would take many years.

Potential impact on Singapore

These seven deliverables are likely to affect many MNEs doing business in Singapore, be they home-grown businesses expanding overseas, or MNEs investing in Singapore.

The OECD is looking closely at preferential tax regimes around the world and it is expected that Singapore will form part of its review, to be reported next year. As such, the Singapore business community and government agencies should carefully consider the discussions regarding substance and the implications for Singapore, especially with the spontaneous exchange of information on tax rulings with other tax authorities.

We expect that many countries will implement the country by country report, so Singapore businesses should review their IT systems to see whether they can retrieve the data requested. Secondly, the data should be analysed to identify any outliers or variances that may be questioned by the tax authorities. Companies may need to reconsider their transfer pricing policies and execution, as well as their substance footprint.

On treaty shopping, this has long been on the watch list of the Singapore tax authorities and hence should have minimal impact on Singapore businesses.

Conclusion

Singapore is not a member of the OECD, however, given its position as an international hub, the BEPS deliverables will impact Singapore businesses. Tax rules are being rewritten and good governance requires companies to anticipate the changes and be prepared for the new world.

This article was first published in The Business Times on 25 September 2014


You and the Taxman

It has been eight years since the Inland Revenue Authority of Singapore (IRAS) first released its Circular on Transfer Pricing Guidelines. During that time, there have been significant changes in

the international tax landscape. In Singapore, we have seen supplementary guidance from the IRAS to clarify the transfer pricing treatment of related party loans and services as well as guidance on how to apply for advanced pricing agreements. Across ASEAN, we have seen significant developments in transfer pricing rules in Indonesia, Malaysia, the Philippines, Sri Lanka and Vietnam over the past year.

Looking further afield, major multinational companies have found themselves exposed, accused of using transfer pricing to engage in Base Erosion and Profit Shifting (BEPS) activities. In some cases, this perception of tax avoidance has led to product boycotts and other actions that have been detrimental to their wider businesses.

On a mandate from the G20, in July 2013, the Organisation for Economic Development and Co-operation (OECD) initiated an action plan to tackle BEPS. The action plan consisted of 15 actions, four of which relate to transfer pricing. Of these four, the OECD released two deliverables on 16 September (Action 8 on transfer pricing for intangibles and Action 13 on Transfer Pricing documentation and Country-by-Country (CbC) reporting).

It is in this context that, on 1 September 2014, the Inland Revenue Authority of Singapore (IRAS) released a proposed update to Section 4 of its transfer pricing guidelines, updating its expectations of taxpayers with respect to transfer pricing documentation. The update has been released in the form of a consultation paper, inviting comments from the public by 24 September 2014.

Introduction of contemporaneous documentation requirements

The most eye-catching element of the consultation paper is that for the first time in Singapore, there would be a requirement for taxpayers to prepare contemporaneous transfer pricing documentation, in other words, to prepare documentation to support transfer pricing positions and have this in place (at the latest) by the time of filing the company tax return.

Practices around the region vary with respect to filing and reporting obligations. Some countries including China, require certain taxpayers to actually submit transfer pricing documentation by a specified deadline.

Meanwhile, the Malaysian and Vietnam rules require taxpayers to indicate in the tax return that transfer pricing documentation has been prepared. Others have a requirement to prepare and file a specific transfer pricing information return attached to their annual income tax return.

The IRAS has not gone down this path. Under the consultation paper, the taxpayer is not required to submit the transfer pricing documentation with the tax returns. Instead documentation should be made available upon request.

There are exemptions for certain types of transaction and for SMEs, but only to the extent that the SMEs do not have transactions with overseas group entities nor with Singapore entities that have a different tax rate.

Changing expectations on transfer pricing documentationLuis Coronado and Henry Syrett discuss Singapore’s proposal to bring transfer pricing documentation in line with international standards


“The IRAS consultation paper introduces the concept of a two-tiered approach towards documentation, in line with the OECD guidance.”


Luis Coronado Partner, Transfer [email protected]

Henry SyrettPartner, Transfer [email protected]

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Alignment to OECD’s documentation guidance

Many of the proposals put forward by the IRAS are in fact broadly aligned with those of the OECD Action 13 report. The IRAS should be seen as pioneers in introducing these concepts to its domestic guidance.

Specifically the IRAS consultation paper introduces the concept of a two-tiered approach towards documentation, in line with the OECD guidance. Taxpayers are expected to present significant information pertaining to its global group on one level, and on the other level, some very specific information relating to the local entity’s operations. Where the 2006 guidelines were more accommodating to differing approaches to documentation, the 2014 iteration is far more specific.

A notable omission in IRAS’ proposed guidance is the need to prepare a CbC reporting template. By the OECD’s own admission, this is one of the most controversial aspects of the whole BEPS project and attracted more public comments than any other aspect of the plan.

The main controversy stems from the need for taxpayers to open up significant extra-territorial information to local tax authorities. Whilst the IRAS does request certain extra-territorial information in its group level information, it has stopped short at this stage of requiring taxpayers to prepare and provide a CbC reporting template similar to that proposed by the OECD.

Some tax authorities may be waiting for the outcome of the OECD’s February 2015 meeting before introducing such requirements. This meeting has been proposed to conclude on the way to file and share the CbC reporting tool, preserving the confidentiality of the document. It remains to be seen whether the IRAS is one such tax authority.

Penalties of non-compliance

Again, the IRAS and the OECD are broadly aligned when it comes to penalising taxpayers for not adhering to transfer pricing documentation requirements. The OECD advocates the use of fixed monetary penalties where contemporaneous documentation has not been prepared and monetary penalties in the event of an adjustment, which can be more severe in the absence of documentation to support the initial position taken. A final approach suggested by the OECD where the burden of proof typically sits with the taxpayer is to shift the burden of proof to the tax administration where adequate documentation is provided on a timely basis.

The IRAS has proposed a mix of these approaches in its consultation paper. A fixed monetary penalty may be imposed on the basis that the taxpayer has not complied with record-keeping requirements. In addition the IRAS has reiterated that taxpayers may be subject to transfer pricing adjustments, which may themselves be subject to tax-geared penalties. The way that this is currently worded would suggest that the burden of proof would only shift to the IRAS when adequate documentation has been prepared to support a particular position.

Finally, the IRAS has stated that they may not support taxpayers in defence of their positions in front of other tax administrations (under Mutual Agreement Procedure or Advanced Pricing Agreements), if the taxpayer is considered to be remiss in meeting its transfer pricing documentation obligations.

What happens next?

At an OECD level, the G20 has a series of meetings in Australia in the coming months, during which the current BEPS papers will be reviewed for ratification. However the other Actions will be reported on in 2015 and finalisation of all the papers will not take place until these deliverables are also confirmed.

Closer to home, the IRAS has sought views and comments on five particular aspects of the consultation paper. Following this, we expect the new guidelines to be released towards the end of the year. The implementation date remains to be confirmed but implementation of the Singapore rules are unlikely to wait until the OECD finalises its positions.

This article was previously published in the 14 November 2014 issue of the Tax Management International Journal


You and the Taxman

On 19 May 2014, the Inland Revenue Authority of Singapore (IRAS) issued an e-Tax guide on the income tax treatment of hybrid instruments. This is a welcomed step towards

providing taxpayers with greater transparency on IRAS’ position on such instruments.

The tax treatment of hybrid instruments — financial securities with both debt and equity features — has long generated uncertainty among investors and issuers. The Income Tax Act does not define what constitutes a debt or equity instrument. Unlike traditional financial securities, there is no neat divide where hybrid instruments can fall under dividend-generating equity or interest-bearing debt.

The classification of whether a hybrid instrument is equity or debt is important, however, because it determines whether the distributions from these instruments are taxable or tax deductible. For example, a perpetual debt security is legally a debt instrument, yet it can also be accounted as equity on the issuer’s balance sheet because it displays equity-like qualities. Should the distributions on such a security be treated as taxable / tax-deductible interest, or non-taxable / non-tax deductible dividends?

Do the new guidelines provide taxpayers with sufficient certainty on the tax treatment for hybrid instruments? Do they also align with the Organisation for Economic Co-operation and Development’s (OECD) efforts to neutralise the effects of hybrid mismatch arrangements under Action 2 of its Action Plan on Base Erosion and Profit Shifting (BEPS)?

IRAS’ position on the income tax treatment of hybrid instruments

The e-Tax guide sets out the IRAS’ approach in determining whether to characterise a hybrid instrument as a debt or equity for income tax purposes.

Greater clarity on tax treatment of hybrid instruments Amy Ang and Tan Peh Huang highlight how the Singapore tax authority characterises hybrid instruments for income tax purposes and discuss how this affects issuers and investors

The characterisation of a hybrid instrument for financial accounting purposes is predominantly based on the substance of the instrument. However, the following approach will be used to determine the tax characterisation of the hybrid instrument:

Step 1: Determine the legal form of the hybrid instrument — examine the legal rights and obligations created by the instrument. The instrument is generally characterised as equity if the legal terms of the instrument indicate ownership interests in the issuer.

Step 2: If the legal form of the hybrid instrument does not reflect the legal obligations and rights, then look at the facts and circumstances and a combination of factors. These factors include but are not limited to the following: (a) Nature of interest acquired — is there any shareholding and residual interest in the issuer? (b) Right to participate in issuer’s business (c) Voting rights conferred by the instrument (d) Obligation to repay the principal amount — is there a fixed repayment date in the reasonably foreseeable future regardless of the issuer’s business performance? If not, is there any step-up feature that provides for an increase in the rate of distribution at a specific point in time or interval? (e) Payout — is payment of distribution at the discretion of the issuer? Is it non-cumulative or dependent on the issuer’s profits? (f) Investor’s right to enforce payment (g) Classification by other regulatory authority in Singapore

(h) Ranking for repayment in the event of liquidation or dissolution


Where the hybrid instrument is issued by a foreign issuer, the IRAS will examine the facts and circumstances, including the characterisation of the hybrid instrument in the country of the foreign issuer, as well as the factors above, to determine the characterisation of the distributions derived by investors in Singapore.

Where the issuer of the hybrid instrument is a Singapore branch of a company incorporated outside Singapore, the IRAS will regard the issuer as a Singapore-based issuer if the instrument is issued solely and separately by the branch and is reflected in the branch’s accounts, and the proceeds are used by the branch. If there is a mismatch between the classification of the hybrid instrument by Singapore and the jurisdiction in which the head office of the Singapore branch is located, the IRAS will evaluate the basis for the different characterisations. It will consider the specific facts of the case, before determining the character of the instrument for Singapore tax purposes.

If the hybrid instrument was issued for the purposes of avoiding tax (which section 33 of the Income Tax Act (ITA) applies), the IRAS may disregard or vary the arrangements and make appropriate adjustments.

Tax treatment of hybrid instruments

The following tax treatment will apply for a hybrid instrument once it has been characterised as debt or equity for income tax purposes:

Does the e-Tax guide provide certainty to issuers and investors?

The published guidelines are in line with the IRAS’ recent steps to provide greater tax certainty and clarification on its position to taxpayers.

While the e-Tax guide does not offer absolute certainty on the tax treatment of hybrid instruments, it does provide a roadmap for taxpayers to evaluate the appropriate classification.

The IRAS recognises that the listed factors are not exhaustive. Taxpayers can, on a case-by-case basis, include other factors to better evaluate the debt versus equity nature of a hybrid instrument.

Interestingly, the IRAS has stated that the accounting classification of a hybrid instrument, which would typically look at the substance of the instrument, may not necessarily be aligned with the classification of the instrument for tax purposes.

Based on the approach described in the e-Tax guide, the legal form of the instrument, as well as the legal obligations and rights of the issuer and investor respectively will be critical in determining the income tax implications. While this provides flexibility in adopting different classifications for accounting versus tax purposes, it could also mean less certainty on the tax implications in the absence of a tax ruling.

Often, the lack of certainty of a hybrid instrument’s tax treatment may restrict the attractiveness of its issuance to potential investors. Therefore, it is likely that issuers would still opt for an advance ruling to confirm the classification of the hybrid instrument before its issuance.

The e-Tax guide requires the issuer to communicate the ruling obtained to investors or prospective investors through the appropriate channels. By making such rulings public, taxpayers, potential issuers and investors can refer to the factors and features which lead to a hybrid instrument being eventually ruled as a debt or equity for income tax purposes. This could indirectly lead to more certainty on the tax treatment of any hybrid instrument, provided there is no change in the policy adopted by the IRAS.

How is the e-Tax guide aligned with the BEPS Action Plan 2?

The BEPS Action Plan, which lists 15 action steps, was approved by the OECD on 25 June 2013. Action 2 of the Plan calls for the development of “model treaty provisions and recommendations regarding the design of domestic rules to neutralise the effect of hybrid instruments and entities.” Action 2 states that “this may include:(a) Changes to the OECD Model Tax Convention to ensure that hybrid instruments are not used to obtain the benefits of treaties unduly

(b) Domestic law provisions that prevent exemption or non-recognition for payments that are deductible by the payor

Regarded as debt Regarded as equity

Issuer Distribution is an interest payment• Tax deductible if normal deductibility rules are met• Singapore withholding tax may apply if paid to a non-resident investor

Distribution is a dividend payment• Not tax deductible• Singapore withholding tax is not applicable

Investor Distribution received is interest income• Taxable unless specifically exempted

Distribution received is dividend income • Generally exempted from tax unless it is a foreign dividend that does not qualify for exemption• Distribution by real estate investment trusts is generally taxable)


(c) Domestic law provisions that deny a deduction for a payment that is not includible in income by the recipient (and is not subject to taxation under controlled foreign company (CFC) or similar rules)

(d) Domestic law provisions that deny a deduction for a payment that is also deductible in another jurisdiction

and

(e) Where necessary, guidance on co-ordination or tie-breaker rules if more than one country seeks to apply such rules to a transaction or structure”

Hybrid mismatch arrangements incorporate techniques that exploit a difference in the characterisation of an entity or arrangement under the laws of two or more tax jurisdictions to produce a mismatch in tax outcomes. The Action Plan focuses on hybrid mismatches that shift profits between jurisdictions or permanently erode the tax base of a jurisdiction. It calls for domestic rules designed to put an end to these arrangements.

The e-Tax guide does not specifically address the approach and principles towards neutralising hybrid tax mismatches. However, it does state that the IRAS may take into consideration the characterisation of a hybrid instrument

in the country of the foreign issuer in determining the characterisation and accordingly the tax treatment of the distributions derived by investors in Singapore.

Although Singapore is not an OECD member, it generally aligns its tax policies with the OECD’s recommendations. Given the heightened focus on the BEPS Action Plan and the IRAS’ stricter enforcement of the section 33 tax avoidance provision (as demonstrated in AQQ vs Comptroller of Income Tax, the first Singapore case law invoking section 33), taxpayers need to take into consideration the commercial purpose of hybrid instruments.

The very nature of the mix of attributes present in a hybrid instrument potentially makes its tax treatment susceptible to challenge by the tax authorities. Having a bona fide commercial purpose to support its issuance and use will be critical to defend against any attempt to neutralise its tax outcome.

Final thoughts

Hybrid instruments are expected to continue flooding the markets, especially in light of various regulatory requirements and companies’ differing needs. For example, a company may access cheaper capital through the issuance of perpetual debt securities. On the other hand, these

“While the e-Tax guide does not offer absolute certainty on the tax treatment of hybrid instruments, it does provide a roadmap for taxpayers to evaluate the appropriate classification.“

debt securities may be accounted for as equity on the issuer’s balance sheet, thus mitigating a negative impact on the issuer’s credit rating.

Although the e-Tax guide does not provide absolute tax certainty on the tax implications of hybrid instruments, it is a welcomed step towards providing taxpayers with greater direction in determining the potential tax implications.

Amy Ang Partner, Financial Services [email protected]

Tan Peh HuangSenior Manager, Financial Services [email protected]

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You and the Taxman

Multinational companies (MNCs) with operations spread over many countries face a massive compliance challenge each year: filing thousands of tax returns with national and

local governments on top of other statutory filings. Getting the numbers right is a challenge.

Global Compliance and Reporting (GCR) encompass the key elements of a company’s finance and tax processes used to prepare financial and tax filings in countries around the world. These duties include: statutory accounting and reporting, tax accounting and provisions, income tax compliance, indirect tax compliance, and governance and control of these processes.

Evolving business models, transforming finance functions and an increasingly complex regulatory landscape are forcing MNCs to reevaluate their approach to GCR processes. How can companies better optimise efficiency, control and value of their GCR processes to mitigate risk and improve performance? The question is no longer if companies need to redesign their GCR processes, but how and when.

Drivers sparking a catalyst for improving GCR

Changing business models as well as relentless focus on cost-control and operational agility translate to a need for a redesign of finance operating models in order to take advantage of opportunities for growth. Companies are now focused on creating standardised business processes — particularly in finance. This translates to an opportunity to create vastly more efficient GCR processes across all areas. While companies may have established global processes for tax accounting, many may have omitted income tax compliance, value-added tax returns, financial statements or some other important filings.

Compliance and reporting: blending global and local

Soh Pui Ming highlights why companies need to get their global compliance and reporting processes in order and share snapshots of an EY survey

An expanding web of evolving regulations has led to greater complexity of financial reporting and tax rules. This translates to challenges in the compliance and reporting processes as companies have to deal with the impact of these changes in rules.

At the same time, tax authorities are also becoming more aggressive in collecting taxes. Under pressure to increase revenue, they are working hand in hand with peers in other jurisdictions to get their fair share of taxes. As a result, companies have often been surprised with unexpected visits by the taxman, additional tax assessments and penalties.

Based on an EY survey of more than 200 finance and tax executives from the Forbes Global 200 companies, survey respondents believe that there is significant risk of increased cost due to inaccurate filling if a company excludes GCR from its change initiatives. The table below shows the percentage of respondents who identified the following risks of excluding GCR from finance transformation:

Incomplete or inaccurate data 69%

Additional cost of compliance or reporting 68%

Missed deadlines or incurring penalties related to compliance 57%

Increased tax burden 50%


“This blend of internal resources and external providers to optimise GCR enables the company’s finance and tax teams to focus on core operations and governance without sacrificing the quality of its local compliance and reporting.”


MNCs which do not get their compliance in order could suffer business disruptions. Compliance failure could result in goods confiscated by customs agents and revocation of authority to do business due to statutory financial reporting problems. Executives could even be faced with personal fines or risk of arrest due to unpaid taxes. It is therefore crucial that global businesses which are undergoing redesign or transformation include a comprehensive review of the GCR functions and put in place the right processes and controls to reduce GCR risks.

Going global, yet retaining local expertise

Based on the EY survey, between 64% and 78% of survey respondents indicated that local-country resources are vital to successful compliance with tax and regulatory requirements. Yet the trend in finance has been to reduce or redeploy the in-country finance resources that traditionally support local GCR processes to global or regional centres. At the same time, the trend toward more aggressive tax enforcement actually heightens the need for skilled local expertise. Accordingly, it is essential that GCR functions have access to the right local expertise, either in the form of internal or external resources, in a manner that supports both quality and efficiency and drives value.

Leading global companies should use a mix of global and local personnel by taking advantage of global service providers. This hybrid solution involves locating in-house finance personnel in a few key countries and then filling in the gaps by partnering with a global service provider that has an extensive network of local tax and accounting professionals.

This blend of internal resources and external providers to optimise GCR enables the company’s finance and tax teams to focus on core operations and governance without sacrificing the quality of its local compliance and reporting. Not only does this provide access to expertise, but it also offers much needed levels of flexibility and scalability.

In short, the best of both worlds: globally efficient yet locally excellent.

GCR is not an afterthought

With so much at stake, MNCs cannot allow their GCR processes to continue performing to yesterday’s standards. They need to clearly assess the state of their GCR functions and formalise plans for adapting and improving GCR for the future. Soh Pui Ming

Partner and Asean Global Compliance and Reporting [email protected]

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To have greater control, visibility and accountability, effective GCR models need to have a strong governance structure. By clarifying GCR requirements, process ownership and geographic coverage, companies can improve effectiveness and avoid costly and time-consuming surprises across the worldwide GCR spectrum such as unplanned audits.

Strong corporate governance is a prerequisite for simplification, standardisation, automation and centralisation of key processes. It is also a vital ingredient for most successful transformations.

GCR should not be just an afterthought.


You and the Taxman

Singapore and Hong Kong are vying with each other for the mantle of Asia’s leading private equity centre. An attractive tax exemption regime is an important element in achieving their ambitions as a magnet for private equity funds.

In 2013, total assets managed by Singapore-based asset managers grew by 11.8% to S$1.82t (US$1.5t), in part, fueled by a 33.6% rise in assets managed by private equity managers to S$74.7b1. In the same year, Hong Kong’s combined fund management business grew 27% to hit a record HK$16 trillion (US$2 trillion)2.

These phenomenal figures are no accident. Both Singapore and Hong Kong have been spearheading efforts to establish themselves as the epicentre of asset management activities in the region.

The Monetary Authority of Singapore aims to build, in their words, “a holistic legislative framework which provides a conducive environment where funds are not unduly burdened with Singapore tax costs by virtue of their fund managers operating in Singapore”. Singapore’s tax exemption scheme for both offshore and onshore funds, as well as its position as a gateway to the ASEAN (Association for Southeast Asian Nations) region has helped to entrench itself as an appealing private equity hub.

Hong Kong, on the other hand, has been billed as a springboard to Mainland China. Foreign investors have been utilising Hong Kong as an asset management platform to access growing opportunities in the greater China and North Asia region. To capture a greater slice of the private equity pie, Hong Kong is broadening its existing offshore funds exemption scheme. This should allay industry concerns that the existing regime is too restrictive.

Private equity: How do Singapore and Hong Kong compare?Darryl Kinneally and Desmond Teo compare how Singapore and Hong Kong’s tax exemption scheme for private equity stack up against each other

With both Singapore and Hong Kong in pursuit of private equity funds, how do these two jurisdictions stack up against each other in terms of providing an inviting business and tax environment for these funds?

In March 2014, the Financial Services and the Treasury Bureau of Hong Kong issued a consultation paper for the development of open-ended fund company structures in Hong Kong. This was aimed at expanding the choice of available legal structures which can be used to establish investment fund vehicles. Commonly used as fund vehicles in financial markets, the introduction of open-ended investment company structures should attract more funds to domicile in Hong Kong.

This move would broadly align Hong Kong with Singapore’s more comprehensive offshore funds exemption regime. Whether or not it is on par with Singapore’s fast developing onshore fund exemption regime remains to be seen.

Singapore’s fund regime

Under normal tax rules, income from investments and assets of funds managed by Singapore-based fund managers may be liable to tax in Singapore because such funds are deemed to be carrying a trade or business in Singapore. To promote the development of Singapore’s fund management industry, there are various tax incentives in Singapore to exempt such funds from tax if specified conditions are met.

Under these tax exemption schemes, such as the Offshore Fund Scheme, Onshore Fund Scheme and Enhanced Tier Fund Scheme, income and disposal gains from these funds do not attract tax, subject to certain conditions. These conditions are fairly business-friendly and include (but are not limited to) the following:

1Source: The Monetary Authority of Singapore’s 2013 Singapore Asset Management Industry Survey 2Source: The Securities and Futures Commission of Hong Kong’s Fund Management Activities Survey 2013


• The tax exemption would cover “specified income” derived from “designated investments”. These include disposal gains and dividends from equities, foreign interest, certain Singapore interest and gains from prescribed derivatives etc.

• The fund must be a qualifying fund with at least one foreign investor (this requirement is removed if the enhanced tax exemption is granted).

• Non-individual Singapore resident investors are allowed to invest in the qualifying funds as long as the percentage held in the fund by such investor and its associates do not exceed 30% of the value of the issued securities of the fund. If the fund has 10 or more investors, this investor threshold increases to 50% (from 30%).

In addition, the Financial Sector Incentive – Fund Management scheme offers fund managers a concessionary tax rate of 10% (instead of the prevailing 17% corporate income tax rate) on fees derived from fund management or investment advisory services on qualifying funds.

Besides having a favourable tax regime for funds, Singapore’s extensive tax treaty network makes it an attractive and conducive environment for foreign investment in the region. With more than 70 double tax treaties in place, this positions Singapore as an attractive place to domicile funds.

In particular, Singapore’s attractive tax treaties with China, India and Myanmar, are commonly used by Singapore tax resident private equity, real estate and infrastructure funds. The tax treaty with India expressly only allows Singapore and not India to tax gains from the alienation of property (other than gains from the alienation of immovable property in India, and certain other assets). As such, the gain may be exempt in Singapore and also not taxable in India as long as the gain is “specified income” from a “designated investment”.

Hong Kong’s fund regime

Under the existing Revenue (Profits Tax Exemption for Offshore Funds) Ordinance introduced in 2006, all non-resident persons (including individuals, corporations, partnerships and trusts) are exempt from tax in Hong Kong if their activities in Hong Kong are restricted to “specified transactions” and the transactions incidental thereto, provided that certain other conditions are also met. Here, “specified transactions” include, amongst others, transactions in securities, other than shares or debentures etc. in a private company.

Many industry players, in particular private equity funds, had found this exclusion too restrictive on the basis that private equity funds often invest in start-up businesses with growth prospects, in the form of shares or debentures etc. in private companies.

In the 2014/15 Budget, the Financial Secretary John Tsang reported that an industry consultation for extending the tax exemption for offshore funds to private equity funds has been completed. In a consultation paper issued by the Financial Services and the Treasury Bureau (FSTB) to industry in December 2013 on the tax exemption of private funds, the FSTB proposed that transactions in shares or debentures, etc. of the following companies would also qualify as “specified transactions”:

(a) A non-resident private company incorporated or registered outside Hong Kong that does not:

(i) Carry on any business through or from a permanent establishment in Hong Kong

and

(ii) hold immovable property situated in Hong Kong the value of which exceeds a stipulated percentage

of the value of all the assets of the private company at any time

within the three years before the alienation or transaction of the shares or debentures, etc. of the private company

(b) A special purpose vehicle, whether incorporated or established in Hong Kong or elsewhere, in relation to the private company in paragraph (a)

However, the government has not yet issued their views on when the legislative work will be completed and the extended offshore funds exemption become effective.

Besides considering extending its existing offshore funds regime to cover PE funds, Hong Kong has been expanding its tax treaty network. As of July 2014, Hong Kong has concluded 30 comprehensive double taxation agreements (CDTAs) with its trading and investment partners. While this is less than half of the CDTAs concluded by Singapore, Hong Kong has made incredible progress in the last decade considering it had concluded only one CDTA (with Belgium) in 2004.

Notably, Hong Kong has one of the most attractive tax treaties with China with some of the lowest withholding tax rates on dividends, interest and royalties. Another treaty worth noting is that with Indonesia which has a practical limitation of claiming dividend withholding tax relief under the CDTA in relation to dividends paid from Indonesian companies to Hong Kong residents. This is because of the requirement, under Indonesia’s domestic regulations regarding the avoidance of tax treaty abuse, that the dividends received by the Hong Kong resident must be subject to tax in Hong Kong (despite dividends not being taxable in Hong Kong) notwithstanding there is no such requirement under the CDTA. This issue has not yet been resolved.


Darryl Kinneally Executive Director, Transaction Tax, [email protected]

Desmond TeoPartner, Financial Services [email protected]

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A tight race

So, who will win the race to become Asia’s private equity sweet spot?

Hong Kong’s offshore fund regime appears to lag behind Singapore’s various tax exemption schemes for the fund industry. This comparison is in terms of the types of funds eligible for tax exemption in Hong Kong being restricted to non-resident funds and the scope of exemption, even considering the proposal for the exemption of private equity funds, appears to be lower.

In this regard, Hong Kong is moving in the right direction with its initiative to establish in January 2013 the Financial

Services Development Council (FSDC) in response to the industry’s aspiration for a high-level government advisory body to support the sustained development of the industry. The FSDC considers and makes appropriate recommendations on the offshore fund regime including whether it should be extended to Hong Kong resident funds. This is evident that the Hong Kong government is seriously considering the views and needs of the industry in formulating its tax policy to promote the fund industry.

For now Singapore has the advantage given its more extensive tax treaty network. However, no one would bet that Hong Kong will stand still and let Singapore have this lucrative business to itself.

“Besides having a favourable tax regime for funds, Singapore’s extensive tax treaty network makes it an attractive and conducive environment for foreign investment in the region.”


A fresh look

Singapore retained its pole position in Asia for having the best intellectual property protection, according to the World Economic Forum’s Global Competitiveness Report 2014-2015. This

bodes well for Singapore’s ambition to become a global intellectual property hub in Asia.

A series of measures, as part of a 10-year IP Hub Master Plan1, has been initiated to build Singapore as a vibrant marketplace for IP transactions — a place where brands can create, protect, manage and exploit their IP.

An attractive tax regime plays a crucial role in encouraging investments in IP. One of the key tax reliefs available for IP ownership and management in Singapore is the writing down allowances (WDA) available on IP acquisition costs under section 19B of the Singapore Income Tax Act (ITA).

History and progress of WDA in Singapore

The foundations for positioning Singapore as a knowledge-based economy were laid in 2001, when the then Minister for Finance Dr Richard Hu expanded the scope of qualifying IP rights for section 19B WDA claims from two to seven categories.

Section 19B was subsequently amended to include the granting of automatic WDA claims to an acquirer with both legal and economic ownership of the IP rights. From 2006, companies which had economic, but not legal, ownership of the IP rights could seek approval from the Economic Development Board to qualify for the WDA.

Tax relief for intellectual property

Goh Siow Hui and Stella Teo suggest how the existing tax allowance regime for intellectual property in Singapore can be improved

More than a decade has passed since the first refinements to section 19B were made. Today, the section 19B WDA is available to companies in a trade or business that have incurred capital expenditure on the acquisition of qualifying IP rights in eight categories: patents, copyrights, trademarks, registered designs, geographical indication of integrated circuits, trade secrets or information that has commercial value, and the grant of protection of a plant variety.

Finetuning section 19B

Singapore’s tax regime has constantly evolved to keep pace with local or global developments. There is certainly room for section 19B to be further fine-tuned to make it more relevant and attractive to investors using Singapore as an IP holding location.

1. Introducing an “IP Box” or similar tax regime One of the recommendations in the IP Hub Master

Plan is for Singapore to implement an IP Box or similar tax regime.

IP Box regimes have become increasingly popular since several European jurisdictions began introducing them a few years ago. These broad-based tax incentive schemes offer tax exemption or lower effective tax rates on IP-related income such as licensing fees.

An enhanced section 19B WDA may be a key feature of the Singapore IP Box regime.

Details of the Singapore IP Box regime have yet to be announced. However, the IP Hub Master Plan clearly states that in order to enjoy the tax benefits of the IP Box, IP owners must have substantive management decision-making functions anchored in Singapore.

1Formulated by the IP Steering Committee set up by the Ministry of Law in May 2012


“It is now more crucial than ever to ensure that IP value creation and economic substance are aligned with profitability.”


2. Greater clarity on qualifying IP for section 19B WDA

The list of qualifying IP for section 19B WDA has been left largely unchanged since 2001. The category “trade secret or information that has commercial value” is open to broad interpretation since it is not defined in the ITA.

In Budget 2014, it was proposed that a negative list be inserted in section 19B to provide further clarity on items that do not meet the description of “information that has commercial value”. This list would include customer-based intangibles and documentation of work processes. It is proposed to be legislated by December 2014.

Prior to the Budget 2014 clarification, the Inland Revenue Authority of Singapore (IRAS) usually considered the following factors in evaluating WDA claims in the “information that has commercial value” category2:

• Whether the information is of the same class or nature as a trade

secret or other forms of IP rights expressly listed in the definitions and is not merely information that has a market price or which can be valued

• Whether the information is of a nature that is protected by the law of confidence

• Whether not having the right to use the information would

constitute an infringement that would render the transferee liable to legal action

• Whether the transferor is able to confer legal and economic

ownership of the information to the transferee

In addition, based on the Organisation for Economic Cooperation and Development (OECD) commentary on the Model Tax Convention3, it is noted that payments for a list of potential customers developed specifically for a payer out of generally available information will not be considered as “know-how”. On the other hand, a payment for the confidential list of customers to which the payee has provided a particular product or service would constitute a payment for “know-how” as this would relate to the commercial experience of the payee in dealing with these customers.

The government’s efforts to provide more certainty in tax law by defining what is not included in “information that has commercial value” is welcomed. This could be taken a step further, by providing specific guidance and examples on what constitutes the two excluded items: customer-based intangibles and documentation of work processes. This will provide greater clarity for taxpayers in determining whether their IP expenditure can qualify for the WDA.

3. Widening the scope to include in-house development of IP

Section 19B WDA is only granted on the acquisition of qualifying IP and not on internally-generated IP. Costs incurred in developing and creating a company’s IP such as consultancy costs relating to logo creation and brand building costs do not qualify for relief under section 19B WDA. Some of these internal IP creation costs may not meet the definition of “research and development (R&D)” in the ITA and thus, will not qualify for tax deduction claims.

Should there be a distinction between internally-generated and acquired IP for tax relief purposes? A company’s investment in generating or developing IP in-house is an equally important process of building brand equity. This “intangible” should not be ignored.

Expanding the section 19B WDA to allow claims on the development costs of in-house IP will encourage more home-grown companies to build their own brands and house their global IP management activities in Singapore.

4. Including incidental costs as qualifying costs

Under the ITA, qualifying section 19B WDA costs specifically exclude legal fees, stamp duty and other costs related to the acquisition of the IP4. Such costs are often regarded as capital expenditure since they are incurred in bringing into existence an asset of enduring benefit. As these are incidental costs that have to be incurred prior to the ownership of the IP, we hope that they will be allowed as qualifying expenditure for section 19B WDA.

This move will put Singapore on par with Hong Kong and Ireland where certain incidental costs such as legal expenses, valuation fees and application fees are accepted as qualifying costs for the WDA.

5. Exempting the clawback of allowance Currently under section 19B, WDA is

granted equally over five years. If a disposal occurs within this period, no further WDA is allowed in the year of disposal or subsequent years.

2EY Budget Synopsis 20143Although Singapore is not a member state of the OECD, the IRAS generally views the commentary issued by the OECD on the Model Tax Convention as persuasive but not binding4Patenting costs and qualifying IP registration costs may be deductible under section 14A of the ITA.


Goh Siow HuiPartner, Tax [email protected]

Stella TeoManager, Tax [email protected]

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WDA previously allowed will also be clawed back through a charge to the company in the tax year the disposal took place. This charge is the lesser of the amount of WDA previously claimed or the price which the rights are sold, transferred or assigned.

A five-year writing down period is not excessively long. It is on par with the writing down period under Hong Kong’s WDA regime for certain classes of IP. It also trumps the 15-year writing down period under Ireland’s WDA regime. As one of the anti-avoidance provisions in section 19B, these rules ensure that the IPs are owned, managed and exploited in Singapore for a sufficient period of time.

However, the government could perhaps consider providing an exemption on the clawback of section 19B WDA previously claimed if the IP rights are held for a significant period of time, say 15 years. This would provide greater certainty and transparency of the tax treatment while ensuring that the IPs would have been sufficiently exploited in Singapore. This will also send a strong signal regarding Singapore’s commitment to being a global IP Hub.

6. Exempting capital gains from disposal of IP

Singapore does not presently have a capital gains tax. In most cases, gains arising from the divestment of the IP held on capital account are not taxable in Singapore. However, the onus is on the company to prove such capital claims as this is subject to the IRAS’ review and agreement.

To minimise compliance costs, greater upfront certainty on the tax treatment for gains arising from the divestment of IP would be welcomed. In particular, a tax exemption on gains arising from the divestment of IP under certain scenarios could be considered.

7. Introducing a cash conversion option Under the Productivity and Innovation

Credit scheme, taxpayers may make an annual election to convert up to S$100,000 of qualifying expenditure to cash in lieu of a WDA claim, subject to conditions.

With some tweaks, a permanent cash conversion option under section 19B may be an attractive option. The cash conversion option will benefit start-up companies which may not have substantial taxable income during their initial operating years to offset against the WDA. The cash grant received may be more useful to these taxpayers as it will provide much welcomed cash flow. After all, cash is king.

Substance is critical

Singapore is well poised to achieve its vision of being a global IP hub in Asia, supported by an attractive tax environment. Enhancements to section 19B, the introduction of new IP tax regimes as well as various tax schemes available for R&D are strategies which could help to attract and anchor IP management activities in Singapore.

However, in today’s age of anti-tax avoidance, IP tax regimes are coming under increasing scrutiny. Therefore, a cautionary note must be struck.

The OECD issued its 15-point Action Plan on Base Erosion and Profit Shifting in July 2013 to tackle questionable tax avoidance practices. On 16 September 2014, the OECD released a series of deliverables that addressed 7 of the 15-point Action Plan. The interim report with respect to Action 5 (Harmful Tax Practices) and the report with agreed draft recommendations under Action 8 (Transfer Pricing for Intangibles) will have an important impact on IP practices. The issue of substance is a consistent message in these reports.

In light of these developments, it is now more crucial than ever to ensure that IP value creation and economic substance are aligned with profitability. The mere relocation of IP without substance could invite challenges from tax authorities.


Elsewhere outside Singapore

Australia has become highly attractive to Singapore investors in recent years, thanks to its close location to Asia, business-friendly environment and investment opportunities in a wide range of industries.

Singapore investors have been investing in property developments including high rise residential housing, hotels and shopping malls, as well as taking strategic stakes in diverse sectors such as agriculture, food processing, IT, entertainment and commodity trading.

It is common for investors to use both third-party and related-party debt to fund investments into Australia for tax efficiency reasons and flexibility in returning cash. Investors need to consider the following Australian income tax matters when using debt funding:

• Debt and equity characterisation rules

• Limitations on deductions as a consequence of thin capitalisation rules and transfer pricing

• Implications of the “Taxation of Financial Arrangement” rules on the timing of deductions

• Withholding tax

• Foreign exchange gain or loss rules

Debt and equity characterisation rules

The character of returns made on funds provided to Australian investments and operations is dependent on the application of Australia’s debt/equity borderline rules. The debt/equity rules are relevant when determining your Australian thin capitalisation position, Australian tax payable and withholding tax implications.

Debt funding Australian investments

David Scott and Chris English discuss the tax considerations Singapore investors need to take into account when using debt to invest in Australia

The debt/equity rules operate to classify financial arrangements as either debt or equity, which is relevant in determining the nature of returns on these arrangements for Australian income tax purposes. Where funds contributed to an Australian entity are classified as debt, the returns are treated as interest and can be deducted against income of the Australian entity. Where the funds are classified as equity, the returns are treated as dividends and are not deductible.

The debt/equity rules adopt a “substance over legal form approach” to determine whether the arrangement is debt or equity.

Broadly, arrangements with non-contingent returns where it is likely the financial benefits under the arrangement provided will be at least equal to the benefit received are debt interests.

An interest is an equity interest where the interest is a share, an interest providing returns that depend on the issuer’s economic performance, an interest providing returns at the discretion of the issuer, or an interest that may or will convert into such an interest or share.

If the arrangement is both a debt and equity interest, a tiebreaker rule deems the interest to be a debt interest.

It is generally advantageous from an Australian income tax perspective to structure financing arrangements in such a manner so that they are treated as debt. However the amount of debt used to fund Australian operations must also be considered in light of Australia’s thin capitalisation rules.


“Where the total debt exceeds the allowable debt amount the excess debt deductions is non-deductible and is unable to be carried forward for deduction in future years.”


Revised thin capitalisation rules

Typically, foreign investors will fund the acquisition of an Australian company through a mix of debt and equity. Maximising the amount of debt funding used is a particularly attractive to investors from low tax jurisdictions such as Singapore, due to the arbitrage opportunities arising from the taxation of interest income at a rate of 17% in Singapore and the deduction of the interest expense in Australia at a rate of 30% against its Australian income.

Under the thin capitalisation rules there are three key methods of calculation:• Safe harbour

• Arm’s length debt amount

• Worldwide gearing test (This test is only available for outward and not inward investing entities)

Historically, the safe harbour test allowed foreign-owned Australian groups to maintain a maximum debt amount equal to 75% of the value of Australian assets. However, effective 1 July 2014 the Australian government has reduced that to 60%. Where the total debt exceeds the allowable debt amount the excess debt deductions is non-deductible and is unable to be carried forward for deduction in future years. The safe harbour calculation is required to be undertaken annually.

This change has caused Australian businesses to rethink their funding mix. In practice, we have seen Australian groups with debt-to-equity ratios above 60% employ various strategies to bring their gearing levels below this limit. These strategies include:

• Refinancing existing debt, including repaying debt or swapping intra-group debt for equity

• Issuing new equity to the foreign resident parent to rebalance the funding mix

• Revaluing assets on the balance sheet that are conservatively valued or undervalued compared to their present market values

• Recognise and value “off-balance sheet” intangibles (such as intellectual property assets) for thin capitalisation purposes to increase the value of assets taken into account when calculating the maximum allowable debt amount

We recommend that companies investing in Australia perform detailed modelling to ensure that debt levels remain below this level over the life of the relevant investment.

Transfer pricing considerations

Armed with new legislation, the Australian Tax Office (ATO) has in recent times begun to focus on international related party transactions with vigour. At the centre of this are the new Australian transfer pricing rules, which require taxpayers to self-assess whether they have derived a “transfer pricing benefit” from an international related party transaction, a linking of penalties to the level of transfer pricing documentation maintained by taxpayers, and the granting of powers to the ATO to reconstruct transactions to reflect what it deems the relevant arm’s length conditions of the transaction to be.

Of particular relevance to foreign investors is the new documentation standard. The ATO has stated in its interpretive guidance of these new rules that if the ATO believes the pricing of cross-border intra-group transactions does not reflect the prevailing arm’s length conditions, taxpayers will

only be protected from penalties where they have complete documentation before the lodgement of the tax return that meets the standard of a “reasonably arguable position” (i.e., more likely than not to be correct).

To ensure compliance, care must be given to ensure an appropriate arm’s length level of debt and rate of interest. Taxpayers need to have robust legal and transfer pricing documentation that supports the choice of pricing methodology, arm’s length basis and pricing that meets the ATO’s expectations.

Taxation of financial arrangements

In 2010, new rules were implemented that govern the taxation of gains and losses arising from financial arrangements (known as the Taxation of Financial Arrangements (TOFA) regime). These rules replaced the piecemeal rules that previously applied to financial arrangements. The TOFA rules are complex, but it is necessary to be aware of their application and how they affect the funding provided to your Australian operations.

The TOFA rules allow for two “default” methods of taxation — the “accruals” and “realisation” methods. Where gains or losses from the arrangement can be ascertained with sufficient certainty at the inception of the arrangement, an accruals basis of taxation applies to bring to account the gains and or losses over the period of the arrangement. For arrangements such as interest-bearing loans, this treatment is broadly similar to the accounting treatment adopted with respect to interest-bearing loans.

Where there is not sufficient certainty, gains and losses are recognised only when realised (for example, upon physical payment of interest or settlement of a foreign exchange forward contract).


David Scott Australia Tax Desk Leader, Asia-Pacific Tax Centre and Leader, Global Compliance and Reporting Transformation, Asia-Pacificdavid-edwin.scott@ sg.ey.com

Chris EnglishManager, International Tax EY [email protected]

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Elective methods are also be available in certain circumstances (e.g., with respect to hedging instruments) to effectively match the timing of gains and losses for tax purposes with those for accounting purposes.

Withholding tax considerations

The withholding tax implications of your funding options must be considered when choosing the right funding mix for your Australian investment.

Dividends paid to a Singapore resident are generally subject to withholding tax of 15% under the Australia-Singapore Double Tax Agreement. However this withholding tax can be reduced to the extent that the dividends represent profits that have already been subject to income tax in Australia.

Interest paid to a Singapore resident is generally subject to withholding tax of 10% under the Australia-Singapore Double Tax Agreement. When considering whether the Australian subsidiary should lend funds from Singapore or borrow funds from an Australian bank, interest withholding tax must be taken into account when making this comparison.

Foreign exchange gains or losses

The tax consequences with respect to foreign currency are often ignored when non-residents invest into Australia. It is not uncommon for Singapore investors to borrow in currencies such as Singapore dollars, Euros, US dollars or Japanese yen to get a better cost of funds in the form of lower interest rates.

Foreign currency funding may have implications upon repayment based on Australia’s foreign exchange gain or loss rules. In Singapore, the character and nature of the transaction is likely to be important as to whether foreign exchange gains or losses are on capital account (i.e., not taxable) or on revenue account (i.e., taxable). Under Australian rules all transactions giving rise to a foreign exchange event are taxable on revenue account.

As such, depending on the denomination currency and movement, you are likely to get a different tax treatment depending on the location that takes the currency risk.

The Australian tax risk associated with movements in foreign currency may be mitigated though borrowing funds in Australian dollars to fund the Australian investment. Alternatively, Australian tax law provides the option for an Australian subsidiary of a foreign resident to adopt a functional currency other than Australian dollars, whereby an Australian subsidiary calculates its taxable income in a foreign currency, mitigating the risk of taxable foreign exchange gains.

Furthermore, movement in the value of foreign currency assets and liabilities may have a negative impact on the value of Australian balance sheet that can in turn have implications on the Australian thin capitalisation safe harbour method of calculation.

It is not uncommon for Singapore investors to build in a head room buffer into any thin capitalisation calculations to ensure that the relevant thin capitalisation limits are not breached in the event of movements in the relevant foreign currency rate or other changes in balance sheet values.

Conclusion

In today’s complex business environment, companies making inroads overseas need to be aware of the tax landscape in foreign jurisdictions. Investors using debt or other forms of funding should always do their due diligence when it comes to tax matters.

David Scott relocated to Singapore from Australia in September 2013 to take on a new role including the Australian Tax Desk initiative in Asia-Pacific. He previously worked in Singapore in the 1990s.

Chris English recently spent four months in Singapore as part of the firms “New Horizons” program and worked with David, the Singapore partners and team on a number of Singapore/Australia client matters. He has recently returned to Sydney and provides a further point of contact in Australia familiar with the issues relevant to both our Singapore and Australian clients.


In conversation with

We are delighted to have you in Singapore. How has the response been for the Asia-Pacific Tax Symposium?

Globally, EY’s Tax service line organises many events, seminars and conferences for our clients. But the three most outstanding events — what I would call our signature marquee

tax events — are the Asia-Pacific Tax Symposium, the International Tax Conference in New York and the “aHead of Tax” conference in Zurich. Out of these, the Asia-Pacific Tax Symposium has received the best response by far.

We’ve been running the Asia-Pacific Tax Symposium for 14 years now and we’ve been getting feedback that it gets better and better every year! It’s an invitation-only event for our biggest global tax clients. The event gives us a chance to have meaningful two-way engagement on tax issues and trends with our key clients.

This is the sixth year Singapore is hosting the Symposium and it is a great location for our delegates. The Marina Bay Sands is impressive and has all the facilities and space we need, not to mention a breathtaking view of Singapore’s skyline.

The response this year’s has been fantastic! More than 650 clients from all over the globe participated in the event, a 50% increase on last year’s attendance. And almost 300 of our key tax market segment, sector and sub-service line leaders played hosts to our clients this year.

We’re delighted at how much attention the Symposium is getting. We had 64 of our global 360 accounts in attendance, more than any other event in the firm globally, including other service lines. These G360 accounts are clients that are, or will one day be, truly

Connecting with clients in Asia-PacificThe editorial team caught up with Hong Kong-based Jim Hunter, EY’s Managing Partner for Tax in Asia-Pacific. The meeting followed EY’s successful Asia-Pacific Tax Symposium held from 11 to 13 November 2014 at the Marina Bay Sands, Singapore. Here, Jim highlights how the Symposium adds value to clients.

global in scale and scope. They require seamless cross-border service delivery and an integrated approach across multiple markets.

What has driven this year’s impressive rise in attendance?

Well, a year ago, base erosion and profit shifting or BEPS for short, was probably not on the radar of many senior executives. Perhaps they were aware about this issue, but were unsure whether they should respond to it. Many were taking a wait-and-see attitude.

Twelve months later, we’re now finding that many senior executives - not just tax directors, but also the C-suite — are very eager to know more about how BEPS will impact their organisations and what action they need to take to respond to BEPS. Our clients are actively looking to resource-up. They want to make sure that they have the right team and processes in place to deal with BEPS.

This awareness about BEPS was key to driving up the attendance to our symposium by close to 50% this year. We hit a home run with a very relevant programme for our clients. It was well thought-out and provided many insights, not just on BEPS, but also about tax developments in the Asia-Pacific region and how these likely changes will affect our clients.

People are interested in Asia-Pacific because of its growth potential. At the same time, the tax landscape in this region is so diverse, resulting in a real complexity of doing business — there are so many practical and regulatory factors to take into account. Some of the more popular segments for our clients were the breakout sessions on indirect tax, discussions on transformations of shared service centres and operating in a transformed environment.


“The tax landscape in this region is so diverse, resulting in a real complexity of doing business – there are so many practical and regulatory factors to take into account.”


Jim HunterAsia-Pacific Tax Managing [email protected]

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Based in Hong Kong, Jim Hunter is EY’s Managing Partner for Tax in Asia-Pacific

Editor note: The three-day invitation only Asia-Pacific Tax Symposium is EY’s annual flagship tax event, providing clients with the opportunity to join in debates and in-depth discussions on the most pressing tax issues and concerns. The event also provides a great chance to network and exchange views with other top tax executives from around the world.

And of course, we had the huge privilege of having Pascal Saint-Amans, the Director of the Centre for Tax Policy and Administration from the Organisation for Economic Co-operation and Development (OECD) to present the keynote address. As you know, the BEPS Action Plan originated from the OECD, so it was a tremendous opportunity for our clients to hear directly from the OECD about its plans to tackle BEPS. This played a big part in harnessing the huge interest in our event this year.

What opportunities have clients had to learn not just from EY but also from each other?

We had more than 1,000 formal face-to-face meetings. This was a great opportunity for us to get to know our clients better and share our insights on what’s going on in the world of taxation and of course hear from our clients on the issues that they are facing.

There were also plenty of informal networking opportunities. A big feature of the conference this year was the Let’s Connect room, where everybody flocked to during their free time to mingle and chat.

We also created a number of peer-to-peer sessions where clients share their experiences and provide valuable tips. These were primarily sector-focused such as on technology, financial services, oil and gas. Interestingly, we even had a session on airplane leasing and about 50 clients showed up for this. Despite this being such a niche topic, there were people interested to learn about key issues and impact.

And we had a lot of interest from clients who wanted to get more involved in panels and key technical discussions. At least half breakouts and panels on stage featured clients that were part of discussions. So the Symposium was not just about EY talking, but also clients talking to clients.

How do clients in Asia-Pacific feel about BEPS?

I think there are mixed reactions. On one hand, some are welcoming about BEPS, as it tackles the double taxation issue. On the other, there’s a lot of uncertainty and pessimism about implementation issues and how global tax authorities will be able to pull it off in a concerted way. There may be short-to-medium term chaos for a while before we see the benefits, and we just need to navigate the storm.

Will we see you again in Singapore soon?

The Symposium will be heading to Shanghai in 2015. But we plan to be back in Singapore the following year. The identity of the Asia-Pacific Tax Symposium is intertwined with Singapore and we want to maintain that. I look forward to catching up with our clients and my colleagues each time.


Lesson in case law

The distinction between capital and revenue is seldom straightforward. As once aptly pointed out by Justice Andrew Phang: “The concept of capital on the one hand and that of revenue

on the other is often elusive and even illusory. Even in the most promising of occasions, there are tremendous difficulties of application.”

In the case of BLP v CIT [2014] SGHC 127, the overarching issue of whether a receipt is capital or revenue is once again brought in front of the Court. Interestingly, in this case, the taxpayer is a management corporation (instead of a company), and the receipt under contention is the monies collected from its members for the purposes of retrofitting and upgrading the common property.

The taxpayer submitted that such monies were of a capital nature. The Board of Review ruled otherwise. The case was escalated to the High Court and the taxpayer’s appeal was allowed.

Facts of the case

BLP is the management corporation of a development. It sought to retrofit and upgrade the development. To finance the retrofitting and upgrading project, BLP obtained a loan of S$11.6m. As the existing management and sinking funds were inadequate to finance the loan, BLP resolved, via a special resolution, to collect a “special levy” from each of its members, for the sole purpose of financing that loan. The levy was payable monthly over a period of 13 years, between 1 August 1997 and 31 July 2010.

The income tax computation of BLP for the Year of Assessment (YA) 2006 was prepared based on section 11(1) of the Singapore Income Tax Act (SITA).

The capital-revenue divide on management corporations

Tan Ching Khee and Lim Ting Ting discuss the case of BLP v CIT, where the contributions received by a management corporation from its members are under the spotlight

Where the revenue receipts from the members of a management corporation is half or more than its total revenue receipts, the management corporation will not be considered a business under section 11(1), and hence will not be taxable under section 10(1)(a) of the SITA.

Where less than half of the management corporation’s gross revenue receipts are from members, section 11(1) deems the whole of the income from transactions both with members and others, as receipts from a business chargeable to tax under section 10(1)(a).

When BLP filed its YA 2006 tax return, it adopted the position that the special levy contributions were capital in nature. Consequently, BLP’s gross revenue receipts from members worked out to be less than half of its total revenue receipts. The whole of BLP’s income was deemed to be receipts from a business, and subject to income tax under section 10(1)(a). Thus, BLP was able to claim more generous tax deductions and capital allowances against its taxable income under this basis.

The Comptroller of Income Tax, on the other hand, argued that the special levy was revenue in nature and should be included as gross revenue receipts for section 11(1) purposes. If so, BLP would not be deemed to carry on a business and is only taxable on income from all other non-section 10(1)(a) sources derived from non-members. Under this basis, the tax deduction on expenses is restricted and capital allowances are not available.

Decision of the Board of Review

In determining whether the special levy is on the capital or revenue account, the Board adopted the “purpose test” laid down in the Court of Appeal case of CIT v IA [2006] 4 SLR(R) 161.


The Board was of the view that there was a sufficient linkage between the retrofitting and upgrading project and the S$11.6m loan. The Board also accepted BLP’s submission that the special levy, the loan and the project were inextricably linked. The crux of the analysis lay in the purpose of the retrofitting and upgrading project. If the project was undertaken by BLP for revenue purposes, the special levy should constitute revenue receipts and vice-versa.

The Board examined the retrofitting and upgrading project and found it to be suitably characterised as “maintenance and repair works” (albeit major works), and not of a capital nature. It also considered the statutory duties and obligations of a management corporation.

Under the Building Maintenance and Strata Management Act (BMSMA), a management corporation’s duties include the carrying out of repair, maintenance and improvement of the common property. The BMSMA also requires a management corporation to establish and maintain a management fund (for regular maintenance and repair) and a sinking fund (for major repairs and improvements, etc.).

Where the contributions received by a management corporation were in the nature of management fund, sinking fund or both, the Board shared the Comptroller’s view that such contributions constitute revenue receipts.

The Board regarded the special levy collected by BLP as contributions to the sinking fund and held the contributions to be revenue in nature.

Judgement of the High Court

While the High Court acknowledged the Board’s adoption of the “purpose test”, it was unable to agree with the Board’s conclusion that the purpose of the retrofitting and upgrading project was revenue in nature.

The High Court noted that the project comprised various aspects, such as the construction of new studio units, replacement of floor finishes and repainting of concrete panels. While replacement and repainting are typically regarded as maintenance works, the High Court pointed out that dissecting the project and scrutinising each item may only lead to contradictory outcomes. A more coherent approach, as adopted by the High Court, is to consider the project as a whole.

The High Court questioned the Board’s reliance on the BMSMA. It found the BMSMA was merely part of the regulatory framework for management corporations and should not determine the tax treatment of the special levy. The crucial detail in this case was the purpose of the special levy.

The development was built more than 25 years ago and no major retrofitting was undertaken throughout these years. Given the circumstances, the High Court opined that the retrofitting and upgrading project resembled a one-time overhaul targeted to strengthen the development’s premise, and even create new assets (in the new studio units).

The High Court concluded that the project was undertaken for a capital purpose. It follows that the special levy contributions (which were inextricably linked with the project) were also capital in nature.

Our comments

Although the dramatis persona of the BLP case is a management corporation, the principles underlying Court’s judgement are relevant to all taxpayers.

The Court has made it clear that the taxation of an entity should not be determined by the statutory duties and obligations conferred to it under the relevant regulatory framework. This principle was adopted by the Court of Appeal in an earlier case of CIT v BBO [2014] 2 SLR 609, which held that the purpose of the Insurance Act was the regulation and not the taxation of the insurance industry. By refuting the Board’s reliance on the BMSMA, the Court has reinforced the ruling in the BBO case.

The application of the “purpose test” (promulgated by the IA case) in the capital-revenue divide is also reaffirmed by the Court. In the case of BLP, there was no dispute that the special levy, the loan and the retrofitting and upgrading project were all inextricably linked. If the linkage is not sufficient, a different outcome could have resulted. It is important for taxpayers to be able to demonstrate the link between the loan and the main transaction.

Lastly, the Court’s elaboration on the principle of mutuality provides a better appreciation of section 11(1). Strictly speaking, the contributions received by management corporations, clubs and other similar institutions from members are not income per se. However, as such institutions may receive money from sources other than their members, the formula under section 11(1) helps to determine whether the principle of mutuality should prevail or whether such institutions are deemed to carry on a business.


Tan Ching Khee Partner, Tax [email protected]

Lim Ting TingSenior Manager, Tax [email protected]

Contact us

Could there be wider application of the principles laid out in this BLP case?

Currently, when a taxpayer has incurred expenditure on renovation work, an analysis must be provided to the Comptroller indicating amounts applicable to:

• Repairs which are deductible as revenue expenses

• Refurbishment works which are deductible under section 14Q of the ITA

• Plant and machinery which qualify for capital allowance claim

or

• Other non-deductible or non- claimable items.

“The Court has made it clear that the taxation of an entity should not be determined by the statutory duties and obligations conferred to it under the relevant regulatory framework.”

In the BLP case, the Court put forth the notion of a “coherent approach” in examining a retrofitting project. Here, the project should be considered as a whole and not dissected into individual components. If the Comptroller adopts such an approach in tax computation, this could mean that taxpayers would not be able to claim any revenue deduction on retrofitting projects which are considered as capital in nature.

It is unlikely, however, that the Comptroller would depart from its current practice. Taxpayers should still be entitled to claim revenue deduction on items of renovation works that relate to repairs with no elements of improvement. Such expenses on repair are specifically allowed under section 14(1)(c) of the ITA.

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At a glanceIncome tax

30 October 2014 Research and development tax measures (third edition)

10 October 2014 Income tax treatment of a trust registered under the Business Trusts Act

10 October 2014 Income tax: liberalised treatment of expenses incurred in Singapore to derive foreign income

8 October 2014 Income tax treatment of trusts

8 October 2014 Qualifying conditions for pension/provident funds to be approved under section 5 of the Income Tax Act

8 October 2014 Tax treatment under section 11(2) of the Income Tax Act and qualifying conditions for company limited by guarantee to be subject to section 11(2)

19 September 2014 Productivity and innovation credit (fourth edition)

12 September 2014 Benefits to company directors from interest-free/subsidised loans

12 September 2014 Deduction for statutory and regulatory expenses

12 September 2014 Tax treatment of director’s fees and bonuses from employment (second edition)

3 September 2014 Income tax: concession for enterprise development - deduction of certain expenses incurred before business revenue is earned (second edition)

29 August 2014 Pioneer incentive: tax treatment of gains and losses from a separate trade (second edition)

29 August 2014 Pioneer incentive: capital allowances upon expiry of tax relief period (second edition)

22 August 2014 Research and development tax measures (second edition)

18 August 2014 Income tax: tax deduction for borrowing costs other than interest expenses (second edition)

29 July 2014 Determination of the date of commencement of business

30 May 2014 Income tax: tax exemption under section 13(12) for specified scenarios, real estate investment trusts and qualifying offshore infrastructure project/asset (second edition)

26 May 2014 Carry-back relief system (second edition)

26 May 2014 Change to assess the income of a husband and wife as separate individuals

19 May 2014 Income tax treatment of hybrid instruments

16 May 2014 Income tax & stamp duty: mergers and acquisitions scheme (second edition)

16 May 2014 Pharmaceutical manufacturing industry: tax treatment of research & development and intellectual property — related expenditures (second edition)

24 March 2014 Writing-down allowance on payment for indefeasible right of use

1 March 2014 Income tax treatment of limited liability partnerships (LLPs) (second edition)

1 March 2014 Income tax treatment of limited partnerships (LPs)

IRAS e-Tax guides issued or revised from 1 January 2014 to 31 October 2014

Goods and Services Tax (GST)

13 October 2014 GST: guide for the banking industry (third edition)

8 October 2014 GST: do I need to register?

8 October 2014 GST: general guide for businesses


You and the Taxman Issue 4, 2014 | 33

Goods and Services Tax (GST)

31 July 2014 GST guide for the hotel industry

31 July 2014 GST: how do I prepare my GST return?

30 July 2014 GST guide on the electronic tourist refund scheme (eTRS) (second edition)

30 July 2014 GST guide for retailers participating in tourist refund scheme (second edition)

30 July 2014 GST guide for visitors on tourist refund scheme (second edition)

25 July 2014 GST: assisted compliance assurance programme (ACAP) (sixth edition)

16 June 2014 GST treatment of hire purchase agreements and financing instruments

9 June 2014 GST: GST and the gold jewellery industry (chinese version)

9 June 2014 GST: GST and the gold jewellery industry (english version)

30 May 2014 GST: guide on attribution of input tax

1 April 2014 GST: guide for the fund management industry

31 March 2014 GST guide for e-commerce

31 March 2014 GST guide for retailers participating in tourist refund scheme

31 March 2014 GST guide for the aerospace industry

31 March 2014 GST guide for the biomedical industry

31 March 2014 GST guide for visitors on tourist refund scheme

31 March 2014 GST guide on the electronic tourist refund scheme (eTRS)

31 March 2014 GST guide on purchase of land for residential development

31 March 2014 GST: assisted compliance assurance programme (ACAP)

31 March 2014 GST: assisted self-help kit (ASK) annual review guide

31 March 2014 GST: clarification on “directly in connection with” and “directly benefit”

31 March 2014 GST: guide for retailers

31 March 2014 GST: guide for the insurance industry

31 March 2014 GST: import GST deferment scheme

31 March 2014 GST: major exporter scheme

31 March 2014 GST guide on specialised warehouse scheme and zero-rating of supplies

31 March 2014 GST: guide on the use of business premises by third party for free

21 March 2014 GST: advance ruling system

17 February 2014 GST: approved refiner and consolidator scheme (ARCS) (third edition)

28 January 2014 GST: general guide for businesses (second edition)

You and the Taxman


At a glance


Property tax

2 September 2014 Property tax: guide for hotel owners and operators

2 September 2014 Treatment of fixed machinery under the Property Tax Act

2 September 2014 Guide on shopping centre assessment

2 September 2014 Property tax treatment of en-bloc sales sites

2 September 2014 Investor’s guide to property tax

2 September 2014 Property tax: treatment of contributions to management fund and sinking fund

2 September 2014 Property tax assessment on common property

Stamp duty

16 May 2014 Income tax & stamp duty: mergers and acquisitions scheme (second edition)

21 February 2014 Budget 2014: streamlining the stamp duty rate structure

5 August 2014 Tax incentive scheme for captive insurers

30 May 2014 Changes to the designated unit trust scheme

30 May 2014 Changes to the fund management tax incentive schemes

30 May 2014 Income tax treatment of Basel III additional tier 1 (“AT 1”) instruments

30 May 2014 Tax incentive schemes for trusts

6 May 2014 Agreement to facilitate compliance by Singapore financial institutions with US tax laws

31 March 2014 GST remission on expenses for prescribed funds managed by prescribed fund managers in Singapore

Monetary Authority of Singapore (MAS) circulars issued from 1 January 2014 to 31 October 2014


35You and the Taxman Issue 4, 2014 | You and the Taxman Issue 4, 2014 | 35

DTAs signed

31 October 2014 Singapore – United Arab Emirates (Second Protocol)

26 August 2014 Singapore – Rwanda

9 July 2014 Singapore – Seychelles

3 April 2014 Singapore — Sri Lanka

21 February 2014 Singapore — Lao People’s Democratic Republic

DTAsratified

12 September 2014 Singapore – Kazakhstan (Protocol)

12 September 2014 Singapore – Czech Republic (Protocol)

25 July 2014 Singapore – Liechtenstein

25 April 2014 Singapore — Barbados

6 February 2014 Singapore — Austria (exchange of diplomatic notes)

6 February 2014 Singapore — Poland (revised DTA)

15 January 2014 Singapore — Morocco

AgreementsforAvoidanceofDoubleTaxation(DTAs)signedorratifiedfrom1January2014to31October2014


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You and the Taxman Issue 4, 2014 | 39

Tax has risen to become the biggest type of cost that businesses deal with today, especially those operating globally. Although often seen as a hidden burden, the impact on the bottom line is very real. Find out how to make it a positive impact.Visit ey.com/sg/tax

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Tax thought leadership

Ernst & Young Solutions LLP’s Tax practice aims to give you insights on the tax issues that matter in today’s fast-changing business environment. To find out how these tax issues impact your business, read You and the Taxman.

Past issues of You and the Taxman can be downloaded from http://www.ey.com/SG/en/Services/Tax/Library---You-and-the-taxman

You and the Taxman Issue 3, 2014

You and the Taxman Insights on tax issues that matter Issue 3, 2013

The battle against BEPS

The impact on Singapore of the OECD’s new tax roadmap

Permanent establishments: now you see them, now you don’t

Up in the air: taxing the cloud

Reining in withholding tax risks

Indirect share transfers in Asia cast under the spotlight

Managing above the line: how customs planning can save costs

Know your entity classification

You and the Taxman

Issue 3, 2013

Ernst & Young Solutions LLP









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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

© 2014 Ernst & Young Solutions LLP. All Rights Reserved.

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Ernst & Young Solutions LLP (UEN T08LL0784H) is a limited liability partnership registered in Singapore under the Limited Liability Partnerships Act (Chapter 163A).

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

www.ey.com/sg/tax

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