GST AUDIT COMPLIANCE and TRANSFER PRICING : In 2008 the Comptroller issued a significant number of tax circulars notably on GST for specific industries and on transfer pricing. On GST the tax issues are whether all taxable supplies were charged with the correct GST and are correctly reported to the Comptroller; and whether all claims for input tax refunds are valid and allowed under the GST Act. The Comptroller's concerns are highlighted in the tax circular on GST Compliance Assurance Programme (July 2007) on “accurate GST accounting, record keeping and reporting” and “identification of potential compliance risks through a field visit” for GST audit. From Feb 2009 taxpayers have to report their revenues as additional information in their GST tax returns.

Transfer Pricing Guidelines issued in Feb 2006 were followed by Transfer Pricing Consultations July 2008 where IRAS proposed to send questionnaires to selected taxpayers who have or appear to have significant related party transactions. Taxpayers with significant related party transactions are asked to ensure they have a system in place to maintain adequate and timely transfer pricing documentation to demonstrate compliance with the arms-length principle. The Comptroller also issued a supplementary administrative guideline on Advance Pricing Arrangements (Oct 2008) and finally a tax circular on Transfer Pricing Guidelines for Related Party Loans and Services (Oct 2008).

Tax Principles tested in the Courts and Income Tax Board of Review (ITBR): Some of the interesting tax cases are discussed here. In Comptroller of Income Tax v VJ [2008]SGHC 224 (appeal by the Comptroller from decision of the ITBR) the issues were (a) whether the taxpayer's income was derived from the “business of the making of investments” within the meaning of s.10E of the Act; and (b) whether the expenses (including interest expenses) incurred were tax deductible under s.14(1).

In a 2007 case of NO v Comptroller of Income Tax, the ITBR agreed with the taxpayer that a gain on the sale of a property held for a very short period was capital in nature and not subject to tax. In NP v Comptroller of Income Tax [2007] 4 SLR 599, the High Court accepted the taxpayer's contention that one of the properties were sold because of “bad feng shui” and this was sufficient to establish that the gain from the sale was a capital gain not subject to tax.

An interesting case is Comptroller of Income Tax v KE [2006] SGHC 140 where the Comptroller and the taxpayer could not agree on the application of the completed contract method under Singapore's accounting standards (SAS 16 now FRS 11). Issues on the taxation of gains on employees stock options went to the Court of Appeal in Comptroller of Income Tax v HY [2006] 2 SLR 405, the issue was whether the gains the taxpayer had made from exercising employees stock options were taxable in Singapore even though he never remitted any of the gains to Singapore. In TM v Comptroller of Income Tax [2007] SGITBR the ITBR disagreed with the taxpayer's contention that as he did not sell his shares following the exercise of his employee stock options, he did not make a gain and if he did, it was a capital gain.

TAX EVASION, GST EVASION : In 2008 the Comptroller issued media releases to enable taxpayers to better understand the seriousness of tax evasion. The media releases name the taxpayer, his company and the modus operandi of the tax evasion. A GST trader was charged with making false claims for GST refunds. A trader, and a partner of a food court, were separately charged with understating their share of partnership income. A company director was charged with under-reporting his income. A self-employed bookkeeper was charged with under-stating the profits of her firm.

Income Tax Rulings : Taxpayers may apply for tax appeals and tax rulings such as on (a) the exemption of tax on income on various grounds; (b) the exemption of withholding tax on various grounds; (c) specified tax reliefs; (d) the carry forward of unutilised tax losses and unutilised capital allowances following a substantial change in shareholdings; and (e) tax clarifications.

**********************************************

3 February 2009: We keep clients up to date on tax issues in the Asean region and worldwide from time to time. Our MSI Global Alliance of 7,000 lawyers, accountants, tax consultants, and offshore tax specialists in 100 countries provide us with up to date information which may be relevant and useful to you.

Information is not advice. The information in this publication should not be acted upon without professional advice. As this is an Executive Summary, important conditions and other details are or may be omitted. We accept no liability to persons who act on this publication without consulting us or their professional advisers.