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Singapore Provides Update On Income Tax Bill Consultation

by Mary Swire,, Hong Kong

27 November 2015

Singapore's Ministry of Finance has accepted 31 of the 70 suggestions received during a public consultation on the draft Income (Amendment) Tax Bill 2016.

The draft Bill contains proposed legislation to effect the tax changes announced in Budget 2015, as well as other changes arising from the periodic review of the income tax system. Suggestions mainly focused on the proposals contained in the Bill to extend and refine the Mergers & Acquisition scheme; enhance the Double Tax Deduction for Internationalization Scheme; introduce the International Growth Scheme; and extend and enhance the Maritime Sector Incentive.

The Bill would extend the 200 percent double tax deduction (DTD) for the internationalization scheme for companies to cover qualifying manpower expenses incurred for Singaporeans posted to new "overseas establishments." Commentators felt that the draft amendment does not address situations where an "overseas establishment" bears the manpower expenses, and subsequently recovers the salary cost from the Singapore entity (that is, the manpower expenses are ultimately recharged to the Singapore entity).

Accepting the view, the Ministry said that the Act will be amended to clarify that the Singapore entity will be treated as having incurred the salary expenditure, if it directly incurs that expenditure, or if the "overseas establishment" incurs the expenditure and is subsequently reimbursed by the Singapore entity.

The Ministry, however, declined to amend the definition of "overseas establishments" to include other entities that are not subsidiaries of the Singapore firm or company. "There is no need to amend the definition of 'overseas establishment' as the 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," the Ministry pointed out.

Next, the Bill proposes to introduce a new tax incentive, the International Growth Scheme, to provide more targeted support for internationalization activities undertaken by larger Singapore companies via a concessionary corporate tax rate of ten percent for a period not exceeding five years on their qualifying incremental income from approved qualifying activities, in excess of a base income.

The Ministry agreed with respondents that the current definition of "international growth company" does not include a company in Singapore that performs services to persons that are domiciled outside Singapore. The Ministry said that the definition will be amended to include a company incorporated and resident in Singapore which provides services to a person or permanent establishment outside Singapore.

Finally, on the proposed changes to the mergers and acquisitions (M&A) scheme, stakeholders said that, unlike the other paragraphs under section 37L(4A) of the Income Tax Act, 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.

The Ministry declined the suggestion stating that "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 percent 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)."

TAGS: compliance | Finance | tax | investment | business | tax compliance | tax incentives | revenue guidance | law | mergers and acquisitions (M&A) | Singapore | enforcement | ministry of finance | agreements | legislation | tax planning | tax rates | tax reform | regulation | Legislative Scrutiny | legislation amendments | services | business investment | Tax

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