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Singapore's Finance Minister, Heng Swee Keat, has presented the country's latest budget, which includes proposals for a new safe harbor rule for cost-sharing agreements for research and development projects and a preferential intellectual property tax regime.
The Budget, delivered on February 20, 2017, includes a proposal for a patent box regime that is said to confirm with the "modified nexus approach" put forward by the OECD under Action 5 of the base erosion and profit shifting project. BEPS Action 5 proposed that a taxpayer be allowed to benefit from an IP regime only to the extent that it can show that it itself incurred the expenditure, such as on R&D, that gave rise to IP income in that territory. Existing arrangements will remain for companies until June 30, 2021, and will be closed to new entrants from July 1, 2017.
Next, the Budget proposes to introduce a safe harbor rule for payments made under cost-sharing agreements (CSAs) for R&D projects.
Presently taxpayers claiming tax deduction for R&D expenditure under Section 14D of the Income Tax Act (ITA) for payments made under a CSA ("CSA payments") are subject to specific restriction rules for certain categories of expenditure disallowed under Section 15 of the ITA. As such, the breakdown of the expenditure covered by the CSA payments is examined so as to exclude the disallowed expenditure.
It is proposed, to ease compliance, taxpayers may opt to claim tax deduction under Section 14D for 75 percent of the payments made under a CSA incurred for qualifying R&D projects instead of providing the breakdown of the expenditure covered by the CSA payments. The change will apply to CSA payments made on or after February 21, 2017.
Finally, the Budget enhances and extends the corporate income tax rebate. The CIT rebate cap is proposed to be raised from SGD20,000 (USD14,064) to SGD25,000 for the 2017 assessment year (with the rebate rate unchanged at 50 percent of corporate tax payable); and the CIT rebate will be extended for another year to the 2018 assessment year, at a reduced rate of 20 percent of tax payable and capped at SGD10,000.
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