24 November 2015
The Ministry of Finance (MOF) has, on 17 November 2015 accepted for implementation 31 of the 70 suggestions on the draft Income Tax (Amendment) Bill 2016 (formerly know as the Income Tax (Amendment) Bill 2015). The suggestions were received during the public consultation exercise held from 26 June to 24 July 2015.
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 the Income Tax Act will be amended are summarised as follows:
- Enhance the Double Tax Deduction (DTD) for Internationalisation scheme: In situations where an overseas entity bears the manpower expenses but subsequently recovers the salary cost from the Singapore entity, it is not clear if such recharges qualify.
- Introduction of the International Growth Scheme (IGS): Current definition of “international growth company” does not include a company in Singapore that performs services to persons that are domiciled outside Singapore.
- Extension and enhancement of the Maritime Sector Incentive (MSI): The proposed amendment to the definition of ‘international shipping enterprise’ should specify the minimal stake (i.e. the shareholding requirement) that the Singapore resident company should hold in the SPV in order to qualify as an international shipping enterprise.
- Amend the provisions relating to implementation of Foreign Account Tax Compliance Act (FATCA): Ambit of subsection (2) of the draft section 105PA is very wide (i.e. the duty to provide information prevails over any duty of secrecy “whether imposed by written law, rule of law, any contract or any rule of professional conduct”) and could potentially cover common law legal professional privilege.
Amongst the suggestions rejected were:
- Extension and refinement of the Mergers & Acquisitions (M&A) scheme: Unlike the other paragraphs under section 37L(4A), the proposed paragraph (d) does not specify a period of acquisition within which the acquisition of ordinary shares in a target company (by the acquiring company or an acquiring subsidiary) will qualify for tax deductions under the M&A scheme.
MOF’s response: The purpose of the insertion of paragraph (d) is to specify that any acquisitions made by an acquiring company (or its acquiring subsidiaries) can qualify for the M&A scheme, so long as the acquisitions are made within the same basis period when the acquiring company (and its acquiring subsidiaries) own more than 50% of the total number of ordinary shares in the target company. As companies have different basis periods, it is not meaningful to specify a date in paragraph (d).
- Enhancement of the Double Tax Deduction (DTD) for Internationalisation scheme: The definition of “overseas establishment” requires a direct association between the Singapore firm or company, and the overseas establishment (e.g. subsidiary). This may be too restrictive, and the definition should be amended to include other entities that are not subsidiaries of the Singapore firm or company.
MOF’s response: Current definition already allows for an overseas entity that is not a subsidiary of the Singapore firm or company to qualify for the DTD scheme. There is no requirement for the overseas entity to be a subsidiary of the Singapore firm or company. The overseas establishment must be approved by IE Singapore.
- Extension and enhancement of the Maritime Sector Incentive (MSI): Proposed new definition of “finance leasing” seems to suggest that there is a finance leasing of a container as long as there is a substantial transfer of obsolescence, risks, or rewards incidental to ownership of the container. Suggest replacing the word “or” with “and” in the definition of finance lease, to make clear that there is a finance leasing only if there is a substantial transfer of obsolescence, risks and reward.
MOF’s response: The definition of finance leasing is aligned with that used in other sections of the Act (e.g. sections 10D, 13S, 43Y and 43ZA). MOF will also review the definition of finance leasing when the new Financial Reporting Standard on leases is released by the Accounting Standards Council.
For further details, please refer to the MOF’s website.
Source: IRAS, MOF