23 April 2012
IRAS is seeking public consultation for its plans to change from an “exemption-approach” to a “rights-based approach” to characterise the following payments for tax purposes:
- payments for software, and
- payments for the provision of information and digitised goods.
Under the existing exemption-based approach, payments made by an end user to a non-resident person which do not give the end user the right to commercially exploit the copyright (including duplicating copies, modifying or adapting the software, information or digitised goods) constitute royalty payments but these payments are currently exempt from tax. As a result of the exemption, withholding tax is not applicable.
With the adoption of the rights-based approach for characterising software payments, as well as payments for information and digitised goods, the existing withholding tax exemption regimes for such payments will no longer be relevant and as such, will be removed.
The current prescriptive method of exempting specific categories of royalty payments, whose descriptions may not have covered all possible intended transactions and require constant updating within a short period of time to keep up with rapidly changing technology and business practices, may no longer afford the same level of tax certainty needed by businesses as compared to the rights-based approach.
The consultation period is from 16 April 2012 to 14 May 2012.