CROSS-BORDER LINKAGES:

Relief from Double Taxation

What reliefs are available to a SR for FT

suffered on FSI received in SGP?

12/03/2017 (C) POH 1

Cross-border issues

Issue Topic no.

Taxation of NR deriving SSI
• Locating source of the income [3] – done
• Taxation of NR individuals [8] – done
• Taxation of NR companies – [10] – next topic
withholding tax

Taxation of SR receiving FSI in SGP

• Reliefs available to a SR for FT today
suffered on FSI received in SGP

12/03/2017 (C) POH 2

Outline
 Meaning and causes of double taxation
 How double taxation arises for a SGP resident
 Meaning of ‘received in SGP’
 General methods of relieving double taxation
 Specific reliefs in SGP
 Credit code provisions
 FTCs for foreign dividends
 Tax sparing relief

12/03/2017 (C) POH 3

 Meaning and causes of double taxation

12/03/2017 (C) POH 4

Cross-border / juridical double taxation

 Two (or more) countries want to tax the

same income on the same person
 Caused by overlapping jurisdictions
 Country of source (of income) and Country
of residence (of taxpayer) are different
 Dual or multiple residence

 Deemed source rules, resulting in dual or

multiple source for the same income

12/03/2017 (C) POH 5

Two examples of potential
double taxation
 A US tax resident derives interest
income deemed sourced in SGP under
s12(6)

 A SGP tax resident company receives in

SGP profits from its HK branch
operations

12/03/2017 (C) POH 6

 How double taxation potentially arises
for a Singapore resident

Meaning of ‘received in Singapore’

12/03/2017 (C) POH 7

Double taxation potentially arises
for a SGP resident only if the FSI is …
SGP o/s SGP
FSI

SR

(1) FT in foreign country

12/03/2017 (C) POH 8

… received in SGP

SGP o/s SGP

FSI
received in SGP
SR

(2) ST in SGP (1) FT in foreign country

12/03/2017 (C) POH 9

Section 10(25)
– When is FSI received in SGP?
FSI is ‘received in SGP’ if it is:

 remitted to / transmitted to / brought into SGP; OR

 used to settle a debt incurred in respect of a

trade/business carried on in SGP; OR

 used to purchase movable property which is then

brought into SGP,

regardless of whether the source of income overseas has

ceased

12/03/2017 (C) POH 10

FSI deemed received in SGP:
Settlement of a debt incurred in respect of a
trade/business carried on in SGP

SGP o/s SGP

FS
interest
SR co income
(biz in SGP)
Settlement of fee
Consultancy fee

Biz advice
Biz Consultant

12/03/2017 (C) POH 11

 General methods of delivering relief
from double taxation

12/03/2017 (C) POH 12

General methods for relieving
double taxation
 Credit method
 DTR in country of residence
 Tax the FSI at the gross (i.e. bef. FT) amount
 Give a tax credit for the FT suffered

 Exemption method
 DTR in country of source or residence
 Exemption may be full or partial

 Deduction method
 DTR in country of residence
 Tax the FSI at the net (i.e. aft. FT) amount

12/03/2017 (C) POH 13

 Reliefs available to SR for FT suffered
on FSI received in SGP

12/03/2017 (C) POH 14

Reliefs in SGP and the
methods used to deliver the reliefs

Relief in SGP Method used

s13(7A) exemption Exemption method
s13(8) to (11) exemption Exemption method
s13(12) exemption Exemption method
Tax treaty relief Credit method (s50)
Unilateral tax credit relief Credit method (s50)
Relief by concession Deduction method

12/03/2017 (C) POH 15

Reliefs to SR for FT suffered on FSI
received in SGP
 Section 13(7A) Exemption

 FSI of resident (and non-resident)

individuals received in SGP exempt from tax

 Exemption does not cover FSI received

through a partnership in SGP

12/03/2017 (C) POH 16

Reliefs to SR for FT suffered on FSI
received in SGP
 Section 13(8) exemption
 Income covered:
 foreign dividends*
 profits of overseas branch of SR co
 foreign professional, consultancy and other service
income (derived in the course of a trade/business)
 Conditions:
 tax* suffered in foreign jurisdiction from which FSI was
immediately received
 headline tax rate in above foreign jurisdiction  15% in
the year FSI was received in SGP
* In the case of a foreign dividend, tax refers to either the shareholder’s tax on the dividend income or the
corporate (underlying) tax on the corporate profits out of which the dividend was paid.

12/03/2017 (C) POH 17

Reliefs to SR for FT suffered on FSI
received in SGP
 Tax Treaty Relief

 FSI from a treaty country

 Credit method (s50 credit code) used

12/03/2017 (C) POH 18

Some aspects of tax treaties

 Objectives
 Avoid/mitigate double taxation
 Prevent fiscal evasion

 s49 ITA empowers Minister to enter into tax

treaties on behalf of SGP

 If there is a conflict, treaty provisions prevail

over domestic tax laws (to the extent that the
treaty provides for a more favourable tax
treatment)
12/03/2017 (C) POH 19
Some aspects of tax treaties

 Treaty provisions cannot impose/increase a tax liability

over and above that provided under domestic tax laws

 Treaty provisions are bilateral, e.g. SGP-UK tax treaty

provides relief to:
 SR i.r.o. UK tax suffered on UK-sourced income

 UKR i.r.o. SGP tax suffered on SGP-sourced income

 Singapore’s tax treaties are based on the OECD Model

Convention

12/03/2017 (C) POH 20

Reliefs to SR for FT suffered on FSI
received in SGP

 Unilateral Tax Credit Relief (UTCR) – s50A

 FSI from non-treaty countries

 Credit method (s50 credit code) used

12/03/2017 (C) POH 21

Reliefs to SR for FT suffered on FSI
received in SGP

 Deduction method

 applies where treaty relief or UTCR cannot

be given because taxpayer is not in a tax-
paying position

12/03/2017 (C) POH 22

Example - Deduction method
SR co (UTCR)
• SS biz loss: $5,000 Credit mtd Deduction mtd
• FS royalty received in SGP:
$1,000 (gross); 30% FT suffered
from non-treaty country
$ $
FS royalty (gross / net)
Less: SS biz loss
Unabsorbed biz loss c/f

Tax @ 17%
Less: UTCR
Net tax payable

12/03/2017 (C) POH 23

 Section 50 credit code

12/03/2017 (C) POH 24

Section 50 credit code

 Rules governing the credit method to

deliver foreign tax credits (FTCs) under:

 treaty relief; or

 UTCR

12/03/2017 (C) POH 25

Section 50 credit code rules

 Taxpayer must be a SGP resident

 FSI to be brought to tax at the gross amount (i.e.

before FT to be granted relief)

 FTC to be computed on a source-by-source basis (i.e.

individually for each FSI receipt)

Note: From YA 2012, a FTC pooling system applies.

12/03/2017 (C) POH 26

Section 50 credit code rules
FTC restriction

 FTC is restricted to the lower of:

 Actual FT suffered; or
 ST payable on the FSI*

* ST payable on the FSI = SETR x FSI**

SETR
=
ST payable on all income taxable in Singapore
(before foreign tax credits)
--------------------------------------------------------------
Assessable income

** FSI is after s14 deductions for allowable expenses

12/03/2017 (C) POH 27

Why restrict FTC?

Example

Net FSI of $700 (after 30% FT)

received in SGP by a SR co

(Ignore partial exemption and co tax rebate)

12/03/2017 (C) POH 28

Why restrict FTC?

Singapore Tax Computation

with without
restriction restriction

Gross FSI $1,000 $1,000

Tax @ 17% $ 170 $ 170

Less: DTR (170) (300)
Net tax payable $ 0
Subsidy from Uncle Lee $ (130)

12/03/2017 (C) POH 29

FTC restriction
– tax planning implication

If FTR < SETR

 SGP tax payable on the FSI

What is the tax planning strategy to adopt?

12/03/2017 (C) POH 30

FTC pooling – how it is beneficial
FT suffered ST payable
FSI #1
Gross: $1,000 $300 (30%) $170 (17%)
FSI #2
Gross: $1,000 $100 (10%) $170 (17%)

FTC on source-by-
source basis:
- FSI #1
- FSI #2

FTC on pooled basis

12/03/2017 (C) POH 31

FTC pooling – s50C

 w.e.f. YA 2012
 Annual election for FTC pooling in
respect of qualifying income
 Claim FTC on a source-by-source basis
for:
 income not eligible for FTC pooling
 income in respect of which FTC pooling has
not been elected

12/03/2017 (C) POH 32

FTC pooling – s50C

 Qualifying income:
 Must be subject to income tax in the source
country
 Headline tax rate in source country ≥ 15% (at
the time the income is received in SGP)
 Must be subject to income tax in SGP.
However, income covered by the exemption in
s13(8) may qualify by foregoing the exemption
 Must be eligible for FTC under treaty relief or
UTCR

12/03/2017 (C) POH 33

FTC pooling – s50C

 Pooled FTC for a particular YA =

 aggregate of actual foreign tax suffered on
all the elected income in the source
countries; or
 aggregate of Singapore tax payable for that
YA on all the elected income,
whichever is the lower.

12/03/2017 (C) POH 34

To pool or not to pool?

 Whether to take a s13(8) exemption or to

forego it and do FTC pooling

 Seminar question

12/03/2017 (C) POH 35

 FTCs for foreign dividends

12/03/2017 (C) POH 36

FTCs for foreign dividends

IMPORTANT NOTE:

All that we discuss here is relevant only

if FTCs are being claimed under treaty
relief or UTCR for the foreign dividend,
i.e. the dividend is NOT exempt from tax
in SGP

12/03/2017 (C) POH 37

Scenarios and Issue

 SR co (shareholder) receives in SGP

foreign dividend:
 under classical 2-tier sys. in source country
 under full-imputation sys. in source country

 under one-tier sys. in source country

 Issue: What is the FT that will be allowed

FTC in SGP?

12/03/2017 (C) POH 38

What FT was suffered in the source country?
What FT will be allowed FTC in SGP?

Co tax model used in source country

C2T FI 1T
ST Tax suffered
by shareholder on DWT yes ST yes none
dividend income
UT Tax suffered
by co on co profits UT ?? effectively, UT ??
out of which none
dividend was paid
yes ST/DWT will be allowed FTC in SGP
?? Will the UT (underlying tax) also be allowed FTC in SGP?

12/03/2017 (C) POH 39

Foreign dividend under C2T system
(received in Singapore)

 Issue:

 Does the FTC in SGP cover only the S/H tax (i.e.
DWT)?; or

 Does the FTC in SGP cover both the S/H tax (i.e.
DWT) and UT*?

*UT: underlying tax, i.e. the CO tax on the co profits

out of which the divided was paid

12/03/2017 (C) POH 40

C2T foreign dividend (received in SGP)
Does FTC in SGP extend to UT?
N Y
UTCR Paying co resident in Tax treaty
treaty country?

 25% sharehldg? Waiver? N Treaty extends

N N FTC to UT?

Y FTC for Y Y
DWT only

FTC for DWT and UT

12/03/2017 (C) POH 41

C2T foreign dividend (received in SGP)
Treatment in the tax computation

 Where FTC covers DWT only

 Include gross dividend in SI
 Claim FTC for DWT only*

 Where FTC covers both DWT and UT

 Gross up the income to include UT and include this
“re-grossed” dividend in SI
 Claim FTC for both DWT and UT*

* FTC is subject to s50 credit code restriction

12/03/2017 (C) POH 42

Foreign dividend under FI system
(received in Singapore)

 There is no issue:

 The FTC in SGP will cover the S/H tax

 No UT (CO tax) was effectively suffered –

the CO tax would have been imputed back
to the shareholder in the foreign country

12/03/2017 (C) POH 43

FI foreign dividend (received in SGP)
Treatment in the tax computation

 Include gross dividend in SI

 Claim FTC for S/H tax*

* FTC is subject to s50 credit code restriction

12/03/2017 (C) POH 44

Foreign dividend under 1T system
(received in Singapore)

 Issue:

 Does the FTC in SGP cover the UT (CO

tax)?

No issue of FTC in SGP covering S/H tax

because no S/H tax was imposed in the
foreign country

12/03/2017 (C) POH 45

1T foreign dividend (received in SGP)
Does FTC in SGP cover the UT?
N Y
UTCR Paying co resident in Tax treaty
treaty country?

 25% sharehldg? Waiver? N Treaty extends

N N FTC to UT?

Y No FTC Y Y

FTC for UT

12/03/2017 (C) POH 46

1T foreign dividend (received in SGP)
Treatment in the tax computation
 Where FTC covers UT
 Gross up the income to include UT and include this
“re-grossed” dividend in SI
 Claim FTC for UT*

* FTC is subject to s50 credit code restriction

 Where FTC does not cover UT

 Include the gross (=net) dividend in SI
 No FTC for UT

12/03/2017 (C) POH 47

 Tax Sparing Relief

12/03/2017 (C) POH 48

Tax sparing relief
 Provided for in some tax treaties
 Not a relief from double taxation
 Tax credit allowed by the country of
residence for the tax deemed suffered in
the country of source
 To preserve a tax incentive given in the
country of source
 A form of indirect economic aid from
country of residence to country of source

12/03/2017 (C) POH 49

Tax sparing relief - example
 Country T (LDC):
 Interest from approved loans totally exempt
from tax because of a special tax incentive
 If not for the incentive, such interest would be
taxed at a rate of 30%
 Singapore (DC):
 Co X is resident in SGP and is interested in
making an approved loan in Country T
 Co X remitted to SGP $100 of its interest
income
 Ignore the partial exemption and co tax rebate

12/03/2017 (C) POH 50

Tax sparing relief - example
w/o TSR with TSR

Country T tax: $ 0 $ 0

Singapore tax position:

FSI received in SGP $100 $100

Tax @ 17% $ 17 $ 17
Actual FT: Deemed FT:
Less: DTR / TSR $0 (0) $30 (17)
Net SGP tax $ 17 $ 0

Total tax burden $ 17 $ 0

12/03/2017 (C) POH 51