12 October 2016

The Ministry of Finance (MOF) has, on 3 October 2016 accepted for implementation 22 of the 48 suggestions on the draft Income Tax (Amendment) (No. 3) Bill 2016. The suggestions were received during the public consultation exercise held from 8 July to 29 July 2016.

According to the MOF, the remaining suggestions were not accepted for implementation as they are “inconsistent with the policy objectives of the proposed legislative changes”.

Key suggestions received that were accepted by the MOF where they will be incorporated into the upcoming Income Tax Amendment Bill are summarised as follows:

• Business and Institute of a Public Character (IPC) Partnership Scheme (BIPS)

Currently, there is no definition of what constitutes “employee’s working hours” for the purpose of determining expenditure that qualifies for 250% tax deduction. In this regard, the Bill will be amended to allow salary expenditure attributable to the period of time-off given to employees for services performed outside working hours to also qualify for tax deduction under BIPS.

• Specific anti-avoidance mechanism introduced for writing down allowances on intellectual property rights (IPRs) transfers

When IPRs are acquired by instalment payment, the open market price refers to the price in which those rights could have been purchased in the open market at the time of the signing of the agreement. However, when IPRs are not acquired by instalment payment, the open market price is the acquisition date of the IPRs, which is defined to be the date on which those rights are assigned to the company.

Hence, the definition of acquisition date of IPRs under section 19B will be amended to ensure consistency in how the open market prices of IPRs are determined across the different payment arrangements.

• Allocation of pre-commencement expenses to income streams assessed under different tax rates

Section 14Z of the ITA will be amended to make it clear that the allocation of pre-commencement expenses applies to both sets of expenses pre-commencement expenses incurred before the deemed date of commencement of business under the concession for enterprise development, as well as expenses incurred after the deemed date of commencement of business but before the business earns its first dollar of business receipt.

• Tax deduction of up to 200% for issuance costs attributable to retail bonds issuances

Section 14ZA which accords a tax deduction of up to 200% for qualifying expenditure incurred on qualifying issuances (i.e. an issue of qualifying debentures from 19 May 2016 to 18 May 2021, or making available debentures for secondary trading within five years from their issue), will be amended to make clear that qualifying expenditure for qualifying issuances, for which a tax deduction of up to 200% can be claimed, must be incurred on or after 19 May 2016.

Amongst the suggestions rejected were:

• Specific anti-avoidance mechanism introduced for writing down allowances on intellectual property rights (IPRs) transfers

Suggestion to treat transactions between unrelated parties as having taken place at open market prices was rejected as the introduction of an anti-avoidance mechanism for IPRs transfer is to ensure that writing-down allowances under section 19B are granted based on transacted values that are reflective of the open market prices of the IPRs regardless of whether the transaction occurs between unrelated or related parties.

• Introduction of a definition for income support payments (ISP) derived by REITs

Suggestion to expand the scope payers of ISP to include related party of the seller to take into account situations where a related party of the person who sold the property to the trustee of the REIT is a payer of the ISP was rejected as there is a provision to allow Comptroller of Income Tax to approve any person to be a payer of ISP.

For further details, please refer to the MOF’s website.

Source: IRAS, MOF