ADIT Paper IID - Singapore option (246kb)

THE ADVANCED DIPLOMA IN INTERNATIONAL TAXATION
June 2014
PAPER IID – SINGAPORE OPTION
ADVANCED INTERNATIONAL TAXATION
TIME ALLOWED – 3¼ HOURS

You should answer FOUR out of the seven questions.

Each question carries equal marks.

Start each answer on a new sheet of paper. If you are using the on-screen method to
complete your exam, you must provide appropriate line breaks between each question,
and clearly indicate the start of each new question using the formatting tools available.

All workings should be made to the nearest month and Singapore Dollar unless the
question requires otherwise.

Marks are specifically allocated for presentation.
1.
James was born and raised outside Singapore. He moved to Singapore two years prior
to the start of the current tax year, and has remained in Singapore ever since. James
earns rent from an apartment which he owns in his home country (his former home).
He also earns rent on an apartment which he owns in Singapore. He had another
apartment in Singapore, but he sold that during the tax year for $300,000 more than he
paid for it two years before. James has a term deposit in a Singapore bank, on which
he has earned $2,000 in interest during the current tax year. James purchased a small
truck during the year for $100,000. He placed advertisements in local newspapers
offering to help people move apartments. These advertisements cost $1,000. James
has earned $4,000 from the removal services, having been hired on three occasions
over the year. He has also had to pay $1,000 in parking fines as he violated the rules
when organising the removals. James needs some more cash and transfers some of
the money from his overseas bank account to Singapore. The money in the account
came from the foreign rental income.
You are required to explain the Singapore Income Tax consequences of all the
above receipts and payments. Give reasons for your answers.
(25)
2.
Mr and Mrs Smith are from a country which has a Double Tax Agreement (DTA) with
Singapore. The DTA is substantively the same as the OECD Model Convention. Mr
and Mrs Smith are the only directors of a company incorporated in their home country.
The home country treats companies incorporated in its jurisdiction as tax residents. It
taxes all residents on their worldwide income, including capital gains. Mr and Mrs Smith
are planning to move to Singapore for at least a few years. They will carry on being the
only directors of the company, as they are able to make all the relevant decisions in
discussion with one another in Singapore. The company has a portfolio of investments
in the home country and in a number of foreign low tax jurisdictions.
You are required to advise Mr and Mrs Smith on how their move to Singapore
may impact their tax affairs, including the company. Give reasons for your
answer.
(25)
3.
Plexus P.L. is a Singapore resident company. Plexus runs a manufacturing business in
Singapore, on which it made a business profit of $5 million. Plexus also owned all the
shares in Mexus P.L., a company incorporated and tax resident in Australia. Mexus
paid a dividend to Plexus of $500,000. The dividend was paid out of untaxed corporate
profits in Australia and did not have any withholding tax imposed on it by Australia; this
is because Australia excludes foreign conduit income from tax at all levels and the
dividend is classed as foreign conduit income, having originally derived from an
offshore branch of Mexus in a third country. Mexus also paid interest of $100,000 to
Plexus. This had been subject to a 10% withholding tax by Australia. Australia and
Singapore have a DTA. Australia has a standard corporate tax rate of 30%.
You are required to explain the Singapore tax consequences for Plexus of the
above information. Give reasons for your answers.
(25)
Page 2 of 4
4.
David is from a foreign country. He has been offered an executive job with a Singapore
company for a period of three years. David will be paid $300,000 per annum under the
contract of employment. David’s job will require him to move to Singapore, but it is
expected that he will spend around 100 days per year outside Singapore as his job
requires that he travel to international sites. David has some investment income in his
current home country. He expects that he will earn some investment income in
Singapore if he moves there. He is from a country which taxes residents of worldwide
income. It is expected that all countries that David visits will have DTAs with Singapore
based on the OECD model.
David has come to you for preliminary advice on how the above will impact his
tax position in Singapore and elsewhere. You are required to provide general
advice with reasons. Tell David what further information you require, if any. (25)
5.
“The Singapore tax rules encourage foreigners to buy Singapore real estate rather than
in their own countries (assuming similar pre tax returns), assuming the foreigners are
from one of the many countries that have comprehensive tax bases.”
You are required to explain and critically discuss the above statement.
6.
(25)
You are required to answer all THREE parts in this question.
1)
John donated $1 million to the Care Foundation (‘CF’) in January 2014.
Under the rules of CF, John was entitled to have a particular building
named after him. John, however, instructed CF to name the building after
his daughter, Victoria. He also requested CF to issue the usual donation
receipt in Victoria’s name.
(6)
2)
In October 2013, Peter incorporated four new companies to start and
operate a cafeteria business. He is the sole shareholder and director of all
four companies. Company A owns the property from which the cafeteria
operates. Company B is a service company that procures and supplies
ingredients and consumables to the cafeteria. Company C is the employer
of Peter and the staff who work in the cafeteria. Company D is the
registered owner of the cafeteria business. Companies A, B and C charge
rent, service fees and manpower costs respectively to Company D.
(13)
3)
XYZ Private Ltd (‘XYZ’) is a company that trades in shares of companies
listed on the stock exchange of Singapore. The capital structure of XYZ is
made up of $2 equity and $2 million in loans from its shareholders.
(6)
You should analyse all the Income Tax issues and implications that may arise
from all of the above transactions in Parts 1, 2 and 3.
Total (25)
Page 3 of 4
7.
Jasmine Private Ltd (‘JPL’) was set up in 2007 as an investment vehicle to invest in
shares of companies listed on the stock exchange of State A, and immovable
properties situated in State B. The management of JPL comprises mainly directors who
reside in Singapore where the major decisions pertaining to the business are made.
The following events that took place in 2013 have been the subject of a tax query from
the tax officer.
JPL owns shares in Pu Er Ltd (‘PEL’), a company listed on the stock exchange of State
A. The shares in PEL were acquired by JPL for $5 million from a bank which sold the
shares following a default by a Singapore-based borrower, who had pledged those
shares to the bank as a security for a loan. Under the terms of the sale agreement, the
borrower has an option to reacquire the shares in PEL from JPL for $6 million within 12
months. The shares in PEL were eventually re-acquired by the borrower in accordance
with the said terms of the loan agreement.
When the prices of real estate escalated in State B, the directors of JPL disposed of
two small shops which they had purchased in 2009 for a net profit of $300,000. None of
the money was remitted to Singapore. The total sale proceeds were reinvested in a
large bungalow located in a prime residential district in State B. The balance of the
purchase price was met by a mortgage loan from a local bank in Singapore.
The tax officer has written a letter to JPL, indicating that she intends to charge the
profits made from the sale of the shares in PEL as well as the gains from the sale of the
two small shops to Income Tax in Singapore.
You are required to write a memo to JPL to advise them on the following options:
1)
What can JPL do in the meantime? Can it apply to court to quash the tax
officer's decision?
(5)
2)
Are the gains from the sale of shares in PEL and the sale of the two small
shops taxable in Singapore?
(15)
3)
Is there any relief from Income Tax in Singapore if the gains are also taxed
in State A and State B at rates of 10 and 20% respectively?
(5)
Total (25)
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