PERSON

How are different ‘persons’ taxed?

• Companies (today)
• Individuals (next topic)

10/02/2017 (C) POH 1

Income Tax Aspects Peculiar
to Companies

10/02/2017 (C) POH 2

Outline
 Shareholdings Test for setting off b/f and c/b
unabsorbed items
 Computing the co tax liability
 Co tax rate and co tax rebate
 Partial Tax Exemption
 Full Tax Exemption (newly incorporated
companies)
 Group relief
 Taxation of corporate distributions

10/02/2017 (C) POH 3

Corporate income tax computation
YA 20X2 (BP: A/C Yr ended xx.xx.20X1) $

Net accounting profit/(loss) X

Add/(Less): various adjustments X/(X)

Adjusted profit X

Less: Capital allowances (1) S/H Test for b/f items (X)

s10(1)(a) income X

Add: Non s10(1)(a) income (net of related deductible expenses) X

STATUTORY INCOME X

10/02/2017 (C) POH 4

Corporate income tax computation (con’t)

YA 20X2 (BP: A/C Yr ended xx.xx.20X1) $

STATUTORY INCOME X

Less: Trade losses b/f (2) (X)

Deduction for approved donations (3) (X)

Group relief transferred in from another company (4) (X)

Unabs. items c/b from YA 20X3 (5) S/H Test for c/b items (X)

ASSESSABLE INCOME X

Less: Partial exemption (6) (X)

CHARGEABLE INCOME X

10/02/2017 (C) POH 5

Corporate income tax computation (con’t)

YA 20X2 (BP: A/C Yr ended xx.xx.20X1) $

CHARGEABLE INCOME X

Tax @ 17% X

Less: Foreign tax credit/s (X)

Less: Corporate tax rebate (X)

NET TAX PAYABLE X

10/02/2017 (C) POH 6

Income Tax Aspects Peculiar
to Companies
Shareholdings Test

10/02/2017 (C) POH 7

Recap

 Unabsorbed items generally may be c/f or c/b

for set-off against future or past taxable
income

 For a company, b/f and c/b unabsorbed items

can be set off provided the Shareholdings Test
is satisfied

10/02/2017 (C) POH 8

Shareholdings Test

To set off b/f or c/b unabsorbed items,

the shareholders of and their
shareholdings in the company must be
substantially (i.e. 50% or more) the same
as at two relevant dates

10/02/2017 (C) POH 9

Shareholdings Test
– Relevant Comparison Dates
 for the set-off of b/f unabsorbed CA
 31 December of the YA in which the allowances arose; and
 1 January of the YA in which the allowances are to be set off.
 for the set-off of b/f unabsorbed trade losses and donations
 31 December of the calendar year in which the loss was incurred or
the donation was made; and
 1 January of the YA in which the loss or donation is to be set off.
 for the set-off of c/b unabsorbed CA
 1 January of the YA in which the allowances arose; and
 31 December of the YA in which the allowances are to be set off.
 for the set-off of c/b unabsorbed trade losses,
 1 January of the calendar year in which the loss was incurred; and
 31 December of the YA in which the loss is to be set off.

10/02/2017 (C) POH 10

Purpose of the Shareholdings Test
(for c/f of unabsorbed items) *

It is an anti-avoidance provision to
prevent profitable companies from
buying over ‘loss companies’ to take
advantage of the latter’s unabsorbed
items

* An analogous rationale applies for the c/b of unabsorbed items – see CAST
14.2.2.

10/02/2017 (C) POH 11

How to perform a Shareholdings Test?

Question 1 – loss co’s immediate shareholders

are all individuals

Question 2(a) – loss co is held by another co

 trace to ultimate individual shareholders

 compute effective shareholdings

10/02/2017 (C) POH 12

Failure of the Shareholdings Test
- IRAS Waiver

 if IRAS waiver is not obtained, affected

unabsorbed items are permanently
disregarded

 waiver by IRAS if substantial change in

shareholders is not tax-motivated
 for affected unabsorbed CA or trade loss, these
can be set off only against income from the
same trade

10/02/2017 (C) POH 13

Shareholdings Test and CA claim

Question 3
 Meaning of ‘Defer a claim for CA’

 Difference b/w deferring a CA claim and

unabsorbed CA

 Why defer a CA claim (as opposed to

maximising a CA claim)?
 See CAST Ch. 14, Ill. 6 for a numerical example

10/02/2017 (C) POH 14

Income Tax Aspects Peculiar
to Companies
Computing the Co Tax Liability

10/02/2017 (C) POH 15

Corporate income tax computation (con’t)

YA 20X2 (BP: A/C Yr ended xx.xx.20X1) $

CHARGEABLE INCOME CI

Tax @ 17% (of CI) X

Less: Foreign tax credit/s (X)

Less: Corporate tax rebate (50% of T, capped at $20K) (X)

NET TAX PAYABLE X

10/02/2017 (C) POH 16

Corporate tax rate
 Corporate tax payable
= Chargeable income
x Corporate tax rate

 Corporate tax rate

20% YA 2005 to YA 2007
18% YA 2008 and YA 2009
17% w.e.f. YA 2010

10/02/2017 (C) POH 17

Corporate tax rebate

 For each of the years YA 2013 to YA 2015

 30% of tax payable (after foreign tax credits*)
 Capped at $30,000 per annum

 For each year YA 2016 and YA 2017

 50% of tax payable (after foreign tax credits*)
 Capped at $20,000 per annum

* KIV to ‘Relief from Double Taxation’

10/02/2017 (C) POH 18

Partial exemption
Exempt Taxable
income income

$ $

1st $10,000 CI (before P Ex.) is 75% exempt 7,500 2,500

Next $290,000 CI (before P Ex.) is 50% exempt 145,000 145,000

Therefore, if CI (before P Ex.) ≥ $300,000, 152,500

Partial exemption = $152,500

10/02/2017 (C) POH 19

Corporate income tax computation (con’t)

YA 20X2 (BP: A/C Yr ended xx.xx.20X1) $

STATUTORY INCOME X

Less: Trade losses b/f (X)

Deduction for approved donations (X)

Group relief transferred in from another company (X)

Unabs. items c/b from YA 20X3 (X)

ASSESSABLE INCOME (CI before P Ex.) X

Less: Partial exemption (X)

CHARGEABLE INCOME X

10/02/2017 (C) POH 20

Partial Exemption - Illustrations

$ $

ASSESSABLE INCOME (CI before P Ex.) 600,000 250,000

Less: Partial exemption (152,500) (127,500)

CHARGEABLE INCOME 447,500 122,500

10/02/2017 (C) POH 21

Full Tax Exemption
for New Companies
Full tax exemption re: first $100,000 of
chargeable income for new companies for
its first 3 Ys/A
 SGP-incorporated
 SGP-resident

 ≥ 1 individual shareholder holding ≥ 10% of

total no. of issued ordinary shares
 Not an investment holding company or a
property development company
10/02/2017 (C) POH 22
Income Tax Aspects Peculiar
to Companies
Group Relief

10/02/2017 (C) POH 23

Group relief - Illustration

Holding Company
- AI before group relief: $1,152,500

Subsidiary company
- Trade Loss: $400,000

Note: Corporate tax rebate will be ignored in this illustration

10/02/2017 (C) POH 24

Without group relief
Holding Co Subsidiary Co
AI $1,152,500
Less: Partial exemption ( 152,500)
CI $1,000,000
Tax @ 17% $ 170,000
Trade loss c/f $400,000
Group profits $ 752,500
($1,152,500 - $400,000)
Group tax $170,000
Group effective tax rate 22.6%

10/02/2017 (C) POH 25

With group relief
Holding Co Subsidiary Co
(Claimant co) (Transferor co)
AI before group relief $1,152,500
Less: Group relief claimed ( 400,000)
Less: Partial exemption ( 152,500)
CI $ 600,000
Tax @ 17% $ 102,000
Trade loss $400,000
Less: Transfer under group relief (400,000)
Trade loss c/f $ 0
Group profits $ 752,500
($1,152,500 - $400,000)
Group tax $102,000
Group effective tax rate 13.6%

10/02/2017 (C) POH 26

Qualifying conditions
 Transferor co and claimant co must be
Singapore-incorporated companies
 They must be members of the same group as
at the end of the basis period
 Ordinary Shareholding Test
 Residual Profits and Residual Assets Tests
 They must have the same accounting date
(i.e. their basis periods for the YA concerned
must end on the same day)
 They must have made an election for group
relief

10/02/2017 (C) POH 27

Ordinary Shareholding Test
37C(3) For the purposes of this section, 2
Singapore companies are members of the same
group if –
(a) at least 75% of the total number of issued
ordinary shares in one company are beneficially
held, directly or indirectly, by the other; or
(b) at least 75% of the total number of issued
ordinary shares in each of the 2 companies are
beneficially held, directly or indirectly, by a third
Singapore company.

10/02/2017 (C) POH 28

Members of the same co group –
s37C(3)(a)

Transferor Co SIC Claimant Co SIC

≥ 75% ≥ 75%
Claimant Co SIC Transferor Co SIC

10/02/2017 (C) POH 29

Members of the same co group –
s37C(3)(b)

Holding Co SIC

≥ 75% ≥ 75%

Transferor Co SIC Claimant Co SIC

10/02/2017 (C) POH 30

Indirect shareholdings
SIC
T Co
90%

SIC
X Co
100%

SIC
Y Co
90%

SIC
C Co
Are T Co and C Co members of the same co group?

10/02/2017 (C) POH 31

Direct and indirect shareholdings

5% Holding Co SIC

90% 90%
Co A SIC Co C SIC

80% 100%
SIC Co D FIC
Co B
100%
Which pair of cos are members
of the same co group? Co E SIC

10/02/2017 (C) POH 32

More illustrations on
Ordinary Shareholding Test

See CAST Appendix 14-1

10/02/2017 (C) POH 33

Loss items
that can be transferred

 Current year unabsorbed CA, trade loss,

approved donations

10/02/2017 (C) POH 34

Manner of transfer and claim

 For transferor co:

 Transfer out (current year) loss items in the order
of: (1) CA; (2) trade loss; and (3) approved
donations

 For claimant co:

 Set off transferred-in loss items against AI before
group relief

10/02/2017 (C) POH 35

Group Relief

Illustrations 1 and 2
Question 2(b)

10/02/2017 (C) POH 36

Group Relief

Transfers to more than one claimant co

Transfers from more than one transferor co

See CAST 14.4.4.4 and 14.4.4.5

10/02/2017 (C) POH 37

Income Tax Aspects Peculiar
to Companies
Question 4

10/02/2017 (C) POH 38

Income Tax Aspects Peculiar
to Companies
Taxation of Co Distributions

10/02/2017 (C) POH 39

Outline
 Integration in taxation of companies and their
shareholders
 Corporate tax models
 Classical two-tier system
 Full-imputation system
 One-tier corporate tax system
 Singapore corporate tax system
 Resident companies
 Up to 31.12.2002
 1.1.2003 to 31.12.2007
 w.e.f. 1.1.2008
 Non-resident companies (KIV to ‘Relief from Double
Taxation’)

10/02/2017 (C) POH 40

Integration b/w Co and S/h taxation

 LEGAL FORM of a Co:

 separate legal entity from shareholders
(owners)
 income of Co and dividends paid to S/h out
of such income are separate sources of
income
 therefore, tax a company independently of
its shareholders  NO INTEGRATION

10/02/2017 (C) POH 41

The No Integration Extreme
(Classical Two-Tier System)

Co income
S/h income (dividend)
Company Shareholder
Tax on co income
Tax on S/h dividend
Tax Authority

10/02/2017 (C) POH 42

Integration b/w Co and S/h taxation

 ECONOMIC SUBSTANCE of a Co:

 artificial entity through which individuals
(shareholders) conduct economic activities
 income of Co and dividends paid to S/h out
of such income are the same source of
income
 therefore, should ‘consolidate’ taxation of
Co and taxation of S/h
FULL INTEGRATION

10/02/2017 (C) POH 43

The Full Integration Extreme

Co income (ultimately belongs to S/h)

Company Shareholder

Tax on Co income
Tax Authority

10/02/2017 (C) POH 44

Integration b/w Co and S/h taxation
- Corporate tax models
No Full
integration integration

Classical 1-tier Full-imputation

2-tier

10/02/2017 (C) POH 45

Classical two-tier system
(without a DWT)
* out of after-tax Co income

Co income
Gross dividend*
Company Shareholder
Corporate tax Tax on gross dividend
(on Co) (on S/h)
Tax Authority

10/02/2017 (C) POH 46

Classical two-tier system
(with a DWT)
* out of after-tax Co income, net of DWT

Co income
Net dividend*
Company Shareholder
Corporate tax DWT
(on Co) (i.e. S/h tax collected by Co)

Tax Authority

10/02/2017 (C) POH 47

Assumptions made in the illustrations

 Corporate income = $1,000

 Corporate tax = 30%
 All corporate profits distributed as a
dividend
 Shareholder’s tax rate (if any) = 10%

10/02/2017 (C) POH 48

Classical two-tier system

*Gross div: $700 (i.e. after co tax)

CI: $1,000
Net Div: $630*
Company Shareholder
CT: $300 (30%) DWT: $70 (10%)

Tax Authority

10/02/2017 (C) POH 49

Classical two-tier system

 CT imposed on CI at Co level ($300 = 30% of $1,000)

 Gross div declared out of after-tax CI
 DWT imposed on gross div ($70 = 10% of $700)
 S/h tax
 collected by Co

 Net div paid to S/h

 CI effectively taxed twice (CT and DWT)

10/02/2017 (C) POH 50

Full-imputation system

* Gross div: $1,000 (i.e. before co tax)

CI: $1,000
Net Div: $700*
Company Shareholder
CT: $300 (30%)
ST: $100 (10%)
Tax Authority IMP CR: $300

10/02/2017 (C) POH 51

Full-imputation system
 CT imposed on CI at Co level ($300 = 30% of $1,000)
 Gross div declared out of before-tax CI
 Net div paid to S/h = Gross div - CT
 ST imposed on gross dividend ($100 = 10% of $1,000)
 S/h tax @ s/h marginal tax rate
 CT imputed back to S/h as IMP CR
 S/h pays (ST-IMP CR) ($200 refund = $100 - $300)
 CI effectively taxed once (i.e. ST)
10/02/2017 (C) POH 52
One-tier corporate tax system

* after co tax (Gross = Net)

CI: $1,000
Gross Div: $700*
Company Shareholder
CT: $300 (30%)

Tax Authority

10/02/2017 (C) POH 53

One-tier corporate tax system

 CT imposed on CI at Co level ($300 = 30% of $1,000)

 Div paid to S/h is exempt

 CI effectively taxed once (i.e. CT)

10/02/2017 (C) POH 54

Recap

 Source of dividend
 look at where the company paying the
dividend is resident for tax purposes

 SGP-sourced dividends paid by SGP

resident companies

 Foreign-sourced dividends paid by non-

resident companies

10/02/2017 (C) POH 55

Singapore corporate tax system

 Dividends paid by non-resident companies

(i.e. foreign-sourced dividends)

KIV to ‘Relief from Double Taxation’

10/02/2017 (C) POH 56

Singapore corporate tax system
 Dividends paid by Singapore resident companies
(i.e. Singapore-sourced dividends)
 dividends paid on/before 31.12.2002
 franked dividends under full-imputation system

 normal exempt dividends o/s imputation system

 dividends paid on/after 1.1.2008

 exempt one-tier dividends under one-tier corporate tax system

 dividends paid on/after 1.1.2003 but on/before 31.12.2007

 company is under the one-tier corporate tax system for the
purpose of paying dividends
 company remained under the full-imputation system for the
purpose of paying franked dividends (under transitional rules
for the period 1.1.2003 - 31.12.2007)

10/02/2017 (C) POH 57

A chronological summary
– Singapore-sourced dividends

FI system Transitional period 1-T system

31/12/2002 31/12/2007
- FI franked div Co remaining on FI sys - 1-T ex div
- N ex div (if eligible) - FI franked div
- N ex div (if eligible)
Company moved to 1-T sys
- 1-T ex div
- N ex div (if eligible)

10/02/2017 (C) POH 58

Summary of tax treatment –
Singapore-sourced dividends
FI franked 1-T exempt Normal exempt
dividend dividend dividend
Were underlying Yes Yes No
profits subjected to co
tax on the company?
Is dividend taxable on Yes (at the No No
the shareholder? gross amt)
Does the dividend Yes No No
carry an imp. credit?
Which SR co pays Co Co on 1-T Co with profits
such a dividend? remaining system exempted
on FI under certain
system incentives

10/02/2017 (C) POH 59