(a) Formulate an advice for SPL on its Singapore withholding tax implications based on its agreement with the parent company. Your advice should include a description of the payment, withholding tax rate, the payment due date to IRAS and/or reason(s) why Singapore withholding tax is not applicable to any payment. You are also to include any measures to mitigate Singapore withholding tax where applicable. Discussion of penalties for non-compliance is not required.(12 marks)

(b) Analyse whether any of SPL’s foreign-sourced income received in financial year ended 31 December 2017 is eligible for exemption under the Singapore Income Tax Act.(4 marks)

(c) Compute SPL’s minimum Singapore income tax liability for the year of assessment 2018, taking into account whether an election for the foreign tax credit pooling should be made. You can ignore any applicable corporate tax rebate. (9 marks)

Solum Pte Ltd (SPL) is a wholly-owned Singapore subsidiary of a parent company which is incorporated outside Singapore. SPL manufactures spare parts used in heavy machinery. SPL always holds its directors’ meetings in Singapore and its parent company always holds its directors’ meetings in its country of incorporation. A review of SPL’s agreement with its parent company showed the following:

Parent company will provide the use of patent to SPL for an annual fee of $100,000. The patent will be used in the manufacturing operations in Singapore as well as the manufacturing operations in SPL’s branch in Country A.

Two technical specialists will be sent by the parent company to SPL’s Singapore business premises to conduct a training on the adoption of the patent in the manufacturing process. A fee of $30,000 will be paid to the parent company for the said training.

An interest bearing loan of $2 million is granted to SPL from the parent company. Half of the loan proceeds were used to finance the purchase of a real estate property in Country B whilst the remaining proceeds were used to for the expansion of SPL’s Singapore operations

SPL’s adjusted trading profit from its Singapore manufacturing operations for the year ended 31 December 2017, after capital allowance claims, is $700,000. Besides its Singapore-sourced income, SPL also derived the following income from non-treaty countries during the year 2017:

Dividend income from Company X

A net dividend of $61,200 was received in Singapore on 23 July 2017 from Company X which is tax resident in Country X. SPL holds a 30% stake in Company X’s shares. Country X’s corporate tax rate is 15% and a 10% withholding tax is applicable to dividends paid out of after-tax profits of companies in Country X.

Dividend income from Company Y

A net dividend of $36,000 was received in Singapore on 4 December 2017 from Company Y which is tax resident in Country Y. SPL holds a 50% stake in Company Y’s shares. Country Y’s corporate tax rate is 10% and Country Y adopts a one-tier tax system for dividends.

Royalty income from Country Z

A net royalty of $28,500 was received in Singapore on 10 October 2017 from Country Z. The amount received is net of 5% withholding tax levied in Country Z. Country Z’s corporate tax rate is 20%.