18 February 2014

On 14 February 2014, Alex Rajan s/o Anthony Samy (“Alex Rajan”), director of Exel Mitsui Technologies Pte Ltd (“EMTPL”) which manufactures machine tool accessories, was charged for making false Productivity and Innovation Credit (“PIC”) claims by the court. Alex Rajan pleaded guilty to the charge and will be sentenced on 21 February 2014 for the offence. Meanwhile, EMTPL was ordered to pay a fine of S$8,000 and a penalty of S$180,000.

Alex Rajan made a false declaration in a PIC cash payout application form that EMTPL had purchased PIC automation equipment for S$168,000 and that his company met the qualifying conditions for the cash payout.

However, investigations by the Inland Revenue Authority of Singapore (“IRAS”) revealed that EMTPL did not incur such expenditure on the equipment. In addition, the company did not employ or make CPF contributions for at least three local employees in the relevant period.  In fact, EMTPL had never been in active business operation.

This is the second case of a company and its director to be charged for making false PIC claims. For the earlier case, please refer to the TAX@SG post “Company director jailed for making false Productivity and Innovation Credit claims”  on 23 September 2013.

The PIC scheme was introduced to support businesses that invest in innovation and productivity improvements. Under the scheme, businesses can enjoy a 400% tax deduction or 30% cash payout for year of assessment (“YA”) 2011 and YA 2012 (60% for YA 2013 to YA 2015) for investments under six qualifying activities.  In Budget 2013, the PIC bonus was introduced to provide an additional dollar-for-dollar matching cash bonus.

The IRAS reiterated that it takes a serious view of any abuse of the PIC scheme. Offenders convicted of PIC fraud will have to pay a penalty of up to four times the amount of cash payout fraudulently obtained.  In addition, they will face a fine of up to S$50,000 and/or imprisonment of up to five years.

Examples of what IRAS regards as abuse of the PIC scheme include:

• Claiming PIC using false records or documents, when the company did not incur the expenditure or where the actual expenditure was lower.
• Creating a shell company to claim PIC on purchase of equipment from a related company, when no such transaction took place and where the equipment continue to be owned and used by the related company.
• Claiming PIC by colluding with a third party to purchase automation equipment, when the seller is not the legal owner of the equipment but merely renting or leasing it.
• Using phantom employees to meet the PIC qualifying condition of having made CPF contributions for three or more local employees.
• Engaging in arrangements that seek to artificially inflate PIC claims such as purchase/lease arrangements bundled with non-qualifying costs.
• Inflating the staff cost allocated to software development.

For more information on the PIC scheme and guidance on claiming PIC, please refer to the IRAS website.

Source: Inland Revenue Authority of Singapore