ISCA Breakfast Talk: Highlight of income tax and transfer pricing changes in 2017
Chai Wai Fook
Partner, Tax Services
Ernst & Young Solutions LLP
10 January 2018
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Topics
► FRS 115 tax treatment
► FRS 109 tax treatment
► Legislative changes on transfer pricing
10 January 2018 ISCA Breakfast Talk
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Abbreviations
ECL Expected credit loss
FI Financial instrument
FRS 115 Financial Reporting Standard 115 “Revenue from Contracts
with Customers”
FRS 39 Financial Reporting Standard 39 “Financial Instruments:
Recognition and Measurement”
FRS 109 Financial Reporting Standard 109 “Financial Instruments”
FVTPL/ FVPL Fair value through profit and loss
FVTOCI/ FVOCI Fair value through other comprehensive income
IRAS Inland Revenue Authority of Singapore
ITA Income Tax Act (Chapter 134)
ORE Opening retained earnings
YA Year of Assessment
10 January 2018 ISCA Breakfast Talk
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FRS 115 tax treatment Default tax treatment
Default tax treatment*
► Accept accounting revenue under FRS 115 for tax purposes unless
exceptions apply
Specific tax treatment established through case law or provided under the tax law
► Follow existing tax treatment (e.g., developers)
Significant deviation between accounting treatment and tax (including contracts with significant financing components)
Tax
adjustments
to be made
to your
accounting
revenue
Yes Yes
What are the exceptions?
*Source: FRS 115 consultation paper issued by the IRAS in October 2015
10 January 2018 ISCA Breakfast Talk
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FRS 115 tax treatment Transitional adjustments
► New section 34I legislated in the ITA on 26 October 2017
► Applies to financial accounts of the first basis period for a YA in which
FRS 115 is first adopted (initial YA)
► No option to opt-out
► Sets out the tax treatment of transitional gain or loss recognised upon
adoption of FRS 115 by a person (including partnership) in the
initial YA
► To tax or allow transitional gain/loss in the initial YA based on the tax
rates applicable to the entity for the initial YA
If no early adoption of FRS 115, YA 2019 will be the initial YA
(for entities with 31 December financial year end)
10 January 2018 ISCA Breakfast Talk
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FRS 115 tax treatment Formula for single tax treatment
Section 34I(3)(a)
► If income amount C of the person/partner for initial YA is subject to a
single tax treatment*
► * It is (i) subject to tax at one rate of tax; or (ii) exempt from tax
► Amount C comprises income governed by FRS 115
► Transitional gain or loss to be taxed at the same rate as the income
amount C or allowed against the income amount C
10 January 2018 ISCA Breakfast Talk
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Section 34I of the ITA Formula for different tax treatment
Section 34I(3)(b)
► If income amount C of the person/partner for initial YA is subject to
different tax treatments
►
10 January 2018 ISCA Breakfast Talk
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Takeaways
► Are you affected by FRS 115 with transitional adjustments to
your ORE?
► Do you fall within the exceptions to the FRS 115 tax treatment,
e.g., significant financing components?
► Do you have the necessary details to support the tax
adjustments for tax provisions and tax computations to be
submitted to the IRAS?
Do not assume no income tax impact or
adopt the “wait-and-see” stand
10 January 2018 ISCA Breakfast Talk
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FRS 109 tax treatment
10 January 2018 ISCA Breakfast Talk
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FRS 109 tax treatment Overview
► New Section 34AA legislated in the ITA on 26 October 2017
► IRAS issued an e-Guide providing guidance on 22 November 2017
► Tax treatment aligned with accounting treatment unless exceptions
apply (consistent with FRS 39 tax treatment)
► No option to opt-out, i.e., taxpayers under pre-FRS 39 tax treatment
will automatically come under FRS 109 tax treatment
► If entity does not need to comply with FRS 109, pre-FRS 39 tax
treatment or FRS 39 tax treatment continues to be applicable
10 January 2018
If no early adoption of FRS 109, YA 2019 will be the initial YA
(for entities with 31 December financial year end)
ISCA Breakfast Talk
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FRS 109 tax treatment Default tax treatment
Section 34AA(1)
► Any profit, loss or expense in respect of any financial instrument of a qualifying person to be taxed or allowed is the amount, which is recognised in accordance with FRS 109 (subject to exceptions)
Exceptions
1) Sections 34G(3), (4) and (5) (for companies redomiciled in Singapore)
2) Anything that is capital in nature [Section 34AA(2)]
3) Prescribed exceptions in Section 34AA(3)
10 January 2018 ISCA Breakfast Talk
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FRS 109 tax treatment Some of the new tax changes
► ECL of a FI (on
revenue account)
must be credit-
impaired to be tax
deductible
Tax implications
► Tax adjustment
required for ECL on
non-credit impaired FI
(on revenue account)
► Deferred tax impact
(on revenue account)
► Unrealised gain or loss of an
equity instrument on revenue
account measured at FVOCI
recognised in OCI not taxable or
deductible until derecognition
Tax implications
► Deferred tax impact on
unrealised gain or loss
► On derecognition, tax adjustment
required to bring the cumulative
gain or loss to tax or allow (as no
transfer of such gain or loss in
OCI to P&L for accounting
purposes)
10 January 2018 ISCA Breakfast Talk
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FRS 109 tax treatment Transitional tax treatment from pre-FRS 39 tax treatment
► From pre-FRS 39 tax treatment to FRS 109 tax treatment, tax
adjustments to be made for financial assets on revenue account
Transitional tax adjustments
► Need to compute on an FI-by-FI basis to tax or allow the difference
computed using the formula below
A – B + C
Where
A is the remeasured amount of the FI on date of initial application (FRS 109)
B is the cost of the instrument
C is any impairment loss allowed previously and not yet written back
► For debt instrument (asset), to allow any impairment loss recognised
in ORE in respect of credit-impaired FI
10 January 2018 ISCA Breakfast Talk
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FRS 109 tax treatment Transitional tax treatment from pre-FRS 39 tax treatment
► From pre-FRS 39 tax treatment to FRS 109 tax treatment, tax
adjustments to be made for financial assets on revenue account
Transitional tax adjustments (cont’d)
► For debt instrument, to tax or allow the difference computed using
the formula below (on an FI-by-FI basis)
X – Y
Where
X is sum of interest income previously recognised in the P&L under FRS 39
Y is the sum of interest income previously taxed
10 January 2018 ISCA Breakfast Talk
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FRS 109 tax treatment Transitional tax treatment
► From FRS 39 tax treatment to FRS 109 tax treatment, tax
adjustments to be made for financial assets on revenue account
Transitional tax adjustments
► Need to determine the unrealised gain or loss in the ORE at date of
initial application (FRS 109) to be taxed or allowed as deduction
► Need to identify any reversal of impairment loss in the ORE at date
of initial application (FRS 109) to be taxed
► Need to identify the impairment loss in the ORE at date of initial
application (FRS 109) in respect of credit-impaired FI, if applicable
10 January 2018 ISCA Breakfast Talk
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Takeaways
► Are you affected by FRS 109, especially on initial adoption?
► Are you currently under pre-FRS 39 tax treatment and owned FI on
revenue account?
► Are you currently under FRS 39 tax treatment and owned FI on
revenue account?
► Do you have the necessary details or documentation to support the
submission of itemised financial assets on capital or revenue
account?
10 January 2018
Do not assume no income tax impact or
adopt the “wait-and-see” stand
ISCA Breakfast Talk
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Legislative changes on transfer pricing
10 January 2018 ISCA Breakfast Talk
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Transfer pricing amendments
► Amendments to section 34D of ITA legislated on 26 October 2017
► Clarifies the meaning of “arm’s length conditions”
► Clarifies the type of actions that the IRAS may take to counteract the
tax advantage, which could be:
i. Increase the amount of income
ii. Reduce the amount of deduction or allowance
iii. Reduce the amount of loss
Specifically, for (i), the amount of income that is increased is treated as
accruing in or derived from Singapore or received in Singapore from
outside Singapore, as the case may be.
10 January 2018 ISCA Breakfast Talk
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Section 34E – New section
► Introduces a surcharge on transfer pricing (TP) adjustments for non-
compliance with the arm’s length principle
► Equal to 5% of the amount of
(i) Increase in income
(ii) Reduction of deduction or allowance
(iii) Reduction of loss
will be recoverable by the Comptroller for non-compliance with the
arm’s length principle
► Surcharge will apply with effect from YA 2019
10 January 2018 ISCA Breakfast Talk
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Section 34F – New section
► Introduces the requirement for mandatory TP documentation (TPD)
with effect from YA 2019
► Applies to (i) a company, (ii) a firm or (iii) trust if either of the
following conditions is met:
► Gross revenue from its trade or business for the basis period
concerned exceeds S$10 million or
► TPD is required to be prepared for a transaction by the
company, firm or trustee in the previous basis period
► Prepare TPD (i.e., no later than the time for making the tax return)
and retain for at least five years
► Furnish a copy of the TPD to the IRAS within 30 days of notice
on request
10 January 2018 ISCA Breakfast Talk
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Section 34F – New section ► Penalties for non-compliance
► A person who fails to comply with the following shall be guilty of an
offence and shall be liable on conviction to a fine not
exceeding S$10,000
► The Comptroller may compound any offence relating to the above
► Similar penalties apply to a person who knowingly provides false
or misleading documentation to the Comptroller
10 January 2018 ISCA Breakfast Talk
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Takeaways
► Be aware of the deemed remittance rule
► 5% surcharge is applicable even if the company is enjoying tax
incentive (0% tax rate) or in non-taxable position
10 January 2018
Do you already have in place
a set of current TPD?
ISCA Breakfast Talk
ISCA Breakfast Talk: Goods and Services Tax (GST) updates
Yeo Kai Eng
Partner, Indirect Tax Services
Ernst & Young Solutions LLP
10 January 2018
Page 24
Topics
► Customer accounting for Prescribed Goods
► Other GST updates
10 January 2018 ISCA Breakfast Talk
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Customer accounting for Prescribed Goods
10 January 2018 ISCA Breakfast Talk
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Customer accounting for Prescribed Goods
► Effective 1 January 2019
► Customer accounting will be implemented for local sale of
prescribed goods by a GST-registered supplier to a
GST-registered customer for his business purpose if the
GST-exclusive value of the sale exceeds S$10,000 in a
single invoice
► IRAS has issued an e-Tax Guide – GST : Customer
Accounting on Prescribed Goods on 15 September 2017
10 January 2018 ISCA Breakfast Talk
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Customer accounting for Prescribed Goods
► Prescribed goods:
► Mobile phones
► Memory cards
► Off-the-shelf software
10 January 2018 ISCA Breakfast Talk
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Customer accounting for Prescribed Goods
► Excepted supply – supply of prescribed goods that is
specifically excluded from customer accounting:
► Supply of goods under Gross Margin Scheme
► Supply of goods made under the Approved Third Party Logistics
Company Scheme or Approved Refiner and Consolidator Scheme
to an approved or specified person
► A deemed taxable supply of goods arising from the transfer or
disposal of goods for no consideration
10 January 2018 ISCA Breakfast Talk
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Customer accounting for Prescribed Goods
► Prescribed goods:
► Mobile phones – those that:
(i) Can transmit and receive spoken messages over a cellular
network (whether or not it has any other function)
(ii) Has a screen size of 17.5 cm or less, measured diagonally from the
top corner to a bottom corner, excluding the bezel
► Exclude
► Tablet, walkie-talkie, satellite phone, smart watch, cordless phone
► Mobile phones that are bundled with mobile subscriptions and call
services plans (excluding pre-paid plans) supplied by a
GST-registered approved mobile telecommunication service provider
► Mobile phone accessories sold separately
10 January 2018 ISCA Breakfast Talk
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Customer accounting for Prescribed Goods
► Prescribed goods:
► Memory cards
► A memory card is a prescribed good for customer accounting purpose
if it is an electronic flash memory data storage device used for storing
digital information. E.g., CompactFlash, SD card, memory stick
► Exclude
► Thumb drive
► Portable external hard disk
10 January 2018 ISCA Breakfast Talk
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Customer accounting for Prescribed Goods
► Prescribed goods
► Off-the-shelf software - is one that is not customised for a
particular customer and where:
(a) The software is stored in a compact disc (CD) or similar storage
medium which is provided as part of the supply
(b) The software may be accessed by the use of a product key or
license key that is provided in a physical box packaging as part of
the supply
► Exclude
► Software that is pre-loaded on any hardware or computer, as part of
the supply of the hardware or computer
► Software downloaded from internet which is accessed by a
product/license key not supplied in a boxed package
10 January 2018 ISCA Breakfast Talk
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What is customer accounting?
► GST-registered customer will be:
► Responsible for accounting for the
sales and the output tax payable on
behalf of the GST-registered supplier
► Able to claim the input tax on the
purchase of the prescribed goods,
subject to the conditions governing
input tax claims
10 January 2018 ISCA Breakfast Talk
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What is customer accounting?
► The GST-registered supplier should only:
► Collect the GST-exclusive price of the prescribed goods and issue
a valid tax invoice with the following additional details to the GST-
registered customer:
► Customer’s GST registration number
► A statement: “Sale made under customer accounting. Customer
to account for GST of S$X.” or “Customer accounting: Customer
to pay GST of $X to IRAS.” – where $X refers to the amount of
output tax payable on the supply of prescribed goods for which the
GST-registered customer will account on the GST-registered
supplier’s behalf
► Report the GST-exclusive value of the prescribed goods sold as
standard-rated supplies in the GST return
10 January 2018 ISCA Breakfast Talk
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What is customer accounting?
► E.g., supplier makes a supply of prescribed goods for $20,000
(excluding GST) to a GST-registered customer for his
business purpose
► Supplier’s GST return
► Standard rated supplies : $20,000
► Output tax : $0
► Customer’s GST return
► Standard rated supplies : $20,000
► Output tax : $1,400
► Taxable purchase : $20,000
► Input tax : $1,400
10 January 2018 ISCA Breakfast Talk
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Preparing for customer accounting of prescribed goods
► For GST-registered supplier, this will include
the ability to manage the following areas to
facilitate customer accounting:
► Classify mobile phones, memory cards and
off-the-shelf software as prescribed goods
► Implement processes to check if a customer
is GST-registered and verify if the prescribed
goods purchased are for the customer’s
business purpose
► Track the sales of prescribed goods and
identify those sales where the GST-exclusive
price exceeds S$10,000 in a single invoice
10 January 2018 ISCA Breakfast Talk
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Preparing for customer accounting of prescribed goods
► For GST-registered supplier, this will include
the ability to manage the following areas to
facilitate customer accounting (cont’d):
► Change the system logic (if GST reporting is
supported by accounting system) such that the
system can automatically recognise and
capture the sales of prescribed goods that are
subject to customer accounting
► Exclude the output tax from the GST return for
the affected sales transactions that are subject
to customer accounting
► Issue valid tax invoices with the additional
details required
10 January 2018 ISCA Breakfast Talk
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Preparing for customer accounting of prescribed goods
► For GST-registered customers, this will
include the ability to manage the following
areas to facilitate customer accounting:
► Ensure that the correct treatment is adopted
on the purchase of prescribed goods from
the GST-registered supplier (e.g. if the
supplier incorrectly charged 7% GST when
the GST-exclusive price of the prescribed
goods exceeds S$10,000 in a single invoice)
► Inform the GST-registered supplier of his
GST-registration number
► Receive valid tax invoices with the
necessary additional details
10 January 2018 ISCA Breakfast Talk
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Other GST updates Goods and Services Tax (Amendment) Act 2017
10 January 2018 ISCA Breakfast Talk
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Other GST updates Goods and Services Tax (Amendment) Act 2017
Customer accounting
for GST-registered Real
Estate Investment
Trusts (REIT) and their
Special Purpose
Vehicles (SPV)
► Currently, customer accounting applies to
the sale of a non-residential property by a
GST-registered supplier to a REIT or its
SPV but does not apply to any movable
assets that are supplied together with the
sale of the property
► With effect from 1 January 2018, customer
accounting will be extended to movable
assets that are supplied together with the
sale of a non-residential property by a
GST-registered supplier to a REIT or
its SPV
10 January 2018 ISCA Breakfast Talk
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Other GST updates Goods and Services Tax (Amendment) Act 2017
Land zone “Rural
Centre and Settlement”
and sale of government
land with existing
building to be
demolished
► With effect from 1 January 2018:
► The zoning under “Rural Centre and
Settlement” will be removed from the
Fourth Schedule to the GST Act as it
is no longer in use
► The GST treatment of the sale of
Government land with existing
building to be demolished will follow
the approved use of the land, instead
of the approved use of the
existing building
10 January 2018 ISCA Breakfast Talk
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Other GST updates Goods and Services Tax (Amendment) Act 2017
Late submission penalty
► To discourage the late filing of GST
returns, with effect from 1 April 2018, the
monthly penalty of S$200 for the late
submission of GST returns will commence
immediately after the filing due date,
instead of one month after the filing
due date
10 January 2018 ISCA Breakfast Talk
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Other GST updates Goods and Services Tax (Amendment) Act 2017
Additional requirement
for invoice details and
electronic record
keeping requirement
► The GST Act has been amended (effective
1 January 2018) to allow the Comptroller
of GST to request a taxable person to
include additional details (e.g., model and
serial number of the goods supplied) on
invoices issued to a non-taxable person
► Selected businesses might also be
required to maintain electronic inventory
system with details of sales
and purchases
10 January 2018 ISCA Breakfast Talk
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Other GST updates Goods and Services Tax (Amendment) Act 2017
“Opt-out” approach for
digital tax notices
► Currently, businesses are required to
provide specific consent before the IRAS
can issue digital tax notices (i.e.,
“opt-in” approach)
► The GST Act has been amended (effective
1 January 2018) to provide an “opt-out”
approach for digital tax notices. Under the
“opt-out” approach, businesses that wish
to receive hardcopies tax notices must
“opt out”. Otherwise, they will only receive
digital tax notices
10 January 2018 ISCA Breakfast Talk
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Contact Details
► Mr Chai Wai Fook
Partner, Tax Services , Ernst & Young Solutions LLP
Accredited Tax Advisor (Income Tax)
Email: [email protected]
Tel: 6309 8775
► Mr Yeo Kai Eng
Partner, Indirect Tax Services, Ernst & Young Solutions LLP
ASEAN Indirect Tax Leader
Accredited Tax Advisor (Income Tax & GST)
Email: [email protected]
Tel: 6309 8208
10 January 2018 ISCA Breakfast Talk
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