General anti-avoidance provisions enhanced
The Income Tax (Amendment) Act 2020 (ITA), gazetted and in force from 7 December 2020, makes changes to Singapore’s general anti-avoidance rule (GAAR) and the powers of the tax authorities to address tax avoidance activities. Specifically, the GAAR in section 33 of the ITA is repealed and re-enacted with modifications and a new section 33A that introduces a surcharge on anti-avoidance arrangements is added to the ITA.
Both the previous and newly re-enacted section 33 empower the Comptroller of Income Tax (Comptroller) to disregard a tax avoidance arrangement and make an adjustment to an arrangement that has tax avoidance as one of its main purposes and lacks a bona fide commercial purpose. Re-enacted section 33 provides that the reduction or avoidance of tax liability by a person includes a person claiming qualifying deductions transferred to it under Singapore’s group relief scheme. If the Comptroller invokes section 33 to vary or disregard an arrangement that results in an adjustment to transferred deductions, the claimant will be responsible for the tax due and the transferor will be responsible for the surcharge (discussed below).
Surcharge on tax avoidance arrangements
The new section 33A imposes a surcharge on tax avoidance arrangements. Prior to the enactment of the Income Tax (Amendment) Act 2020, the GAAR only allowed the Comptroller to restore taxpayers to their initial tax position as if the tax avoidance arrangement had not been entered, i.e., the Comptroller could only counteract any benefit the taxpayer obtained from the arrangement. To reaffirm Singapore’s position against tax avoidance and deter aggressive taxpayers from taking the risk of later adjustments made by the Comptroller to counteract the arrangement, a surcharge of 50% of the amount of additional income tax payable as a result of the adjustments made under section 33 has been introduced.
The amendment act clarifies that the imposition of the 50% surcharge will not adversely affect taxpayers retroactively, i.e., it will apply only to adjustments made in year of assessment (YA) 2023 or thereafter for income tax purposes. The surcharge must be paid within one month after the date a written notice of the surcharge is served by the Comptroller.
It should be noted that the surcharge may not be deducted for tax purposes on the grounds that the expenditure is not wholly and exclusively incurred in the production of income.
Other tax regulations
Anti-tax avoidance provisions are also found in the Goods and Services Tax Act and the Stamp Duties Act. Both acts have been amended to introduce the above surcharge as a result of adjustments made to counteract a tax avoidance arrangement.