The IRAS released two consultations in recent days, as well as guidance on the General Anti-Avoidance Rule (GAAR).
On July 11, the Ministry of Finance, Monetary Authority of Singapore and the IRAS jointly proposed regulations to allow Singapore to implement the Common Reporting Standard (CRS) with effect from January 1 2017 for the Automatic Exchange of Financial Account Information in Tax Matters (AEOI).
The draft Income Tax (International Tax Compliance Agreements) (Common Reporting Standard) Regulations 2016 includes the due diligence and reporting requirements to implement the CRS, as well as the proposed list of financial institutions and accounts that are excluded from the scope of reporting.
“This is necessary in order for Singapore to meet her international commitment to commence AEOI under the CRS in 2018,” the three authorities said in a joint statement.
More than 100 jurisdictions have endorsed the CRS and will commence AEOI in either 2017 or 2018 as part of an initiative led by the OECD and the Global Forum for Transparency and Exchange of Information for Tax Purposes.
The public consultation, which began on July 11, will run until July 29 2016.
Proposed changes to the Income Tax Act
Earlier, on July 8, the Ministry of Finance published the draft Income Tax (Amendment) (No. 3) Bill 2016 for consultation until July 29.
The Bill proposes amendments that will require multinationals to submit annual country-by-country reports, double the mergers and acquisitions allowance for qualifying deals, enhance the corporate restructuring incentives and expand a number of corporate tax relief schemes.
Country-by-country reporting
“This CbC report is to be submitted within 12 months from the last day of their financial year,” the IRAS said.
“IRAS will exchange the CbC reports with jurisdictions with which Singapore has entered into bilateral agreements for automatic exchange of CbC reports,” it added. However, exchanges will only be made with jurisdictions that have “a strong rule of law and can ensure the confidentiality of the information exchanged and prevent its unauthorised use”, and reciprocate the terms of the information exchanged, the IRAS said.
Once the consultation on the draft law ends, the IRAS said it would consult Singapore-headquartered multinational enterprises further on the implementation details of CbCR, and release these particulars by September 2016.
Economic growth measures
The key changes include:
Enhancing the corporate income tax rebate for the 2016 and 2017 years or assessment. The change will increase the rebate from 30% to 50% of the tax payable, with a cap on the rebate set at S$20,000 per year ($15,000). The higher rebate is targeted at small and medium-sized enterprises;
Enhancing the M&A scheme by doubling the allowance available for qualifying deals. Under the proposed changes, the M&A allowance will increase from S$20 million to S$40 million of the value of the deal. The payment applies to deals in each year of assessment until March 31 2020;
Extending the double tax deduction for the internationalisation scheme for four years until March 31 2020 to support businesses wanting to grow beyond Singapore;
Providing companies with certainty during corporate restructuring by extending the non-taxation of companies’ gains from disposal of equity investments until May 31 2022;
Introducing a pilot Business and Institute of a Public Character (IPC) Partnership Scheme (BIPS) from July 1 2016 to December 31 2018. Under the initiative, businesses that send their employees to volunteer and provide services to IPCs, including secondments, will receive a 250% tax deduction on associated cost incurred, subject to caps; and
Maintaining a progressive personal income tax system by capping the total personal income tax relief at S$80,000 per year of assessment from 2018.
The proposed changes would also grant a double tax deduction for costs attributable to issuance of retail bonds if enacted. The measure would have retrospective effect from May 19 2016 and be available for five years to “encourage the issuance of retail bonds, and broaden the range of investment options available to retail investors”, the IRAS said.
In addition, the proposals enhance Singapore’s status as a finance and treasury centre by providing a 8% concessionary tax rate for qualifying activities. "To access the Finance and Treasury Centre incentive, applicants must meet certain substance requirements such as having professionals based in Singapore, commit to local business spending and provide qualifying services to network companies outside Singapore, amongst other conditions," said Harvey Koenig, tax partner at KPMG in Singapore. "The new incentive compares favourably with similar incentives being offered in Hong Kong and Malaysia and ensures that Singapore continues to be an attractive location for regional headquarter operations for MNEs."
REITs
Clause 5 of the draft law proposes changes to real estate investment trusts (REITs) or a wholly-owned subsidiary of a REIT, to replace subsections (12A) and (12B) of section 13 of the Income Tax Act.
Proposed changes to subsection 12A will “include tax exemption for disposal gains of foreign properties held by Singapore-based REITs (S-REITs) acquired on or before March 31 2020”, said Leonard Ong, tax partner at KPMG in Singapore.
At present, the provisions state that all orders made under subsection (12) are exempt from tax when the income is received by the trustee of a S-REIT on or after April 1 2020. The provision only applies in relation to income derived from any immovable property that is situated outside Singapore and acquired by the trustee or subsidiary before April 1 2020. The trustee or subsidiary must beneficially own the asset on the date of receipt of the income.
From April 1 2020, income received in Singapore that is paid out of income that relates to immovable property situated abroad and acquired by the trustee or subsidiary before that date, and that derived either at a time when the trustee or subsidiary beneficially owns the property (e.g. rental income), or from the disposal of the property (e.g. capital gains) will be tax exempt.
“The proposed inclusion of disposal gains gives more certainty to S-REITs moving forward,” Ong told International Tax Review.
Proposed changes to subsection 12B will give “S-REITs tax transparency on rental support income under certain conditions”, Ong said. “Before the proposed change, there is uncertainty as to whether such rental support income would be taxable, and S-REITs spend a considerable amount of time corresponding with the IRAS on this issue. This proposed change provides clarity and certainty to S-REITs.”
Ong added that a third proposed changes would provide an exemption on the distributions made by S-REITs to foreign governments/foreign sovereign powers. “This is to align the tax treatment with the International Organisations (Immunities and Privileges) Act,” he said. “Before the proposed change, S-REIT trustees need to withhold tax at 10% on such distributions made.”
Singapore explains application of GAAR
Singapore has also published its first guidance on how the General Anti Avoidance Rule (GAAR) will apply.
Singapore introduced GAAR under section 33 of the Income Tax Act (ITA).
To explain how the rules will apply to corporate transactions, the e-tax guide, published on July 11, sets out the Comptroller of Income Tax’s approach to the provision and provides some examples on the types of arrangements that could be viewed as tax avoidance. By providing the examples, the guidance aims to deter taxpayers from entering into such arrangements.
