29 September 2014
The Ministry of Finance (MOF) has accepted for implementation 32 out of the 102 suggestions on the draft Income Tax (Amendment) Bill 2014 received during the public consultation exercise held from 4 July to 24 July 2014.
According to the MOF, the remaining suggestions were not accepted for implementation as they were “inconsistent with the legislative drafting conventions or the policy objectives for the proposed legislative changes”.
Most of the feedback received were on the following tax changes:
- PIC Scheme – introduction of changes, putting measures in place to curb abuses and implementation of the PIC+ scheme.
- Granting tax deduction for expenses incurred to comply with statutory and regulatory requirements
- Extending section 19B Writing-Down Allowance (WDA) for Intellectual Property Rights (IPRs) by five years and clarifying the type of “information that has commercial value” that would be eligible for WDA
- Refining the Designated Unit Trust (DUT) Scheme
- Allowing SRS members who qualify for the 50% tax concession to withdraw their SRS investments without liquidation of such investments
- Enabling the ratification of the Convention on Mutual Administrative Assistance in Tax Matters
Key suggestions received that were accepted by the MOF are summarised as follows:
- Introduce Productivity and Innovation Credit Plus (PIC+) scheme to support qualifying Small and Medium Enterprises (SMEs)
Regulation 8 applies to a person who qualifies for PIC+ for YAs 2017 and 2018, having failed the qualifying conditions stated in regulation 2(2) for YA 2016. Regulation 10 applies to a person who qualifies for PIC+ for only YA 2018, having failed the qualifying conditions for YA 2016 and YA 2017. The opening paragraphs of the proposed draft regulations 8 and 10 presuppose that a person has failed both conditions in regulation 2(2). Regulations 8(1) and 10(1) should be reworded to apply to persons who do not meet the employment size or annual turnover condition, but are carrying on a trade or business in the basis period relating to the specified YAs.
- Allowing businesses to claim PIC benefits on training expenses incurred in respect of individuals under centralised hiring arrangements
The proposed draft in section 14R(6) assumes that the “central hirer”, in relation to a central hiring arrangement, is also the party that carries out HR functions for the group of related parties. It also requires the HR functions be carried out by a single entity within the group. In commercial reality, the HR functions may be shared by multiple entities within the group and the entity that hires the individual may not necessarily be the entity that performs the HR function.
It is proposed that the definitions of “central hirer” and “central hiring arrangement” be amended to reflect commercial practices.
- Grant tax deduction for expenses incurred to comply with statutory and regulatory requirement
The proposed wording of section 14X implies that a tax deduction will not be granted for statutory and regulatory expenses if a business has yet to produce any income.
- Extend and refine section 19B Writing-Down Allowance (WDA) for Intellectual Property Rights (IPRs)
Feedback: The proposed amended definition for IPRs to exclude types of items that would not qualify for WDA under the categories of “copyright” and “trade secret or information that has commercial value” appears to be broad and wide-ranging. More specific guidance is needed as there is a wide range of customer information or “information on work processes” which may vary from business to business.
Feedback: It is unclear whether the proposed definition in section 19B(11) will have retrospective effect, and there is uncertainty relating to WDA claimed on certain intellectual property rights in the past. In addition, the proposed amendment to section 19B(11) is applicable to all types of IPRs and is not in accordance with the 2014 Budget Speech announcement that an exclusionary list will be introduced to clarify the meaning of “information of commercial value”.
- Provide for tax treatment of Additional Tier 1 (“AT1”) instruments
Section 43N(4) and relevant Regulations should be amended to clarify that the definition of “debt securities” includes AT1 instruments.
- Provide remission powers for financial penalties
Remission powers should be extended to the Comptroller of Income Tax to remit financial penalty under section 13CA in the same manner as the amendment made to section 37(18B) which enables the Comptroller to remit any financial penalty payable by a registered grant-making philanthropic organisation for contravening any regulation.
- Allow SRS members who qualify for the 50% tax concession to withdraw their SRS investments without liquidation of such investments
As the SRS Operators need time to initiate changes to systems and sort out operational processes, the effective date of the change is proposed to be 1 July 2015.
- Include new section 105MA to allow the Comptroller to address measures taken to circumvent FATCA reporting requirements
The proposed anti-avoidance provision applying to a case where a person “enters into any arrangement” should be broadened to also cover situations where the person takes steps with a main purpose or one of the main purposes of avoiding FATCA reporting obligations.
Amongst the suggestions rejected were those that relate to:
- Introduce measures to curb abuses of the PIC Scheme
The proposed section 37ID(8), which states that “an arrangement is a PIC arrangement if the obtaining of a PIC cash payout, PIC bonus or PIC enhanced deduction, or a higher amount of a PIC cash payout, PIC bonus, or enhanced deduction was the purpose or one of the purposes of the arrangement” is too broad a definition as most arrangements involve obtaining enhanced tax deductions, PIC cash payout, or PIC bonus would be deemed abusive as long as it fulfills the conditions under section 371D(9). Section 37ID(8) should be amended such that the arrangement is a PIC arrangement only if the obtaining of the PIC benefits was the main purpose of the arrangement.
- Refine the Designated Unit Trust (DUT) Scheme
The proposed section 10(20B) deems undistributed DUT income to be taxable in the hands of certain investors when the deeming provision is triggered. However, the distribution made by a DUT to a unit holder who is not a foreign investor will be deemed to be income of the unit holder under the provisions of section 10(20) and (20A). This results in a double taxation of the same DUT income.
- Enable the ratification of the Convention on Mutual Administrative Assistance in Tax Matters (Convention)
The proposed wording “foreseeably relevant” in section 6 may be too general and may lead to a wider disclosure requirement than intended under the law. It is proposed to replace “foreseeably relevant” with either “reasonably relevant” or “directly relevant” to avoid a fishing expedition for information that is not reasonably or directly relevant to the tax administrations in foreign countries.
Suggestions accepted will be incorporated into the revised Income Tax (Amendment) Bill 2014. Those comments seeking clarification will be addressed in the IRAS’s e-Tax Guide.
For further details, please refer to the MOF’s website.
Source: Ministry of Finance