Question 1

A Pte Ltd (APL) is a company incorporated and tax resident in Singapore. The principal activities of APL consist of providing video marketing and branding services to both its local and overseas clients. APL has two (2) wholly-owned subsidiaries: (i) B Pte Ltd (BPL), a company incorporated and tax resident in Singapore and (ii) C Pty Ltd (CPL), a company incorporated and tax resident in Australia. Over the last two years, the global business environment had been very competitive. One key area of focus for APL is the taxation aspect as taxation cost is a business cost. The Board of Directors (the Board) have expressed a strong desire to look into reducing the taxation cost for the APL Group of companies and identifying potential tax saving opportunities, where applicable. You are the Tax Director of APL and the Board have asked you to conduct a thorough examination of the following ten (10) business transactions from a tax perspective: (1) During the financial year ended 31 December 2019, the Production Team made a request to acquire ten (10) new sets of video production equipment as the current sets were too old. The Finance Department approved a budget of $200,000 for this purpose, out of which the Production Team incurred an amount of $180,000 on purchasing such equipment accordingly (2) To enhance the performance of the staff in the Sales Department, APL engaged D Inc (DI), a company incorporated and tax resident in the US, to conduct a 6-month sales training for all the staff concerned during the financial year ended 31 December 2019. For your information, DI does not have any legal or taxable presence in Singapore. The training was conducted by DI in two parts. Part 1 was completed by two (2) trainers of DI in the form of a live training in APLs office in Singapore on 23 October 2019. Part II was a follow-up training which was completed by DIs trainers on 30 November 2019 virtually. An invoice of $50,000 was issued by DI to APL on 15 December 2019. You can assume that the costs attributable to Part 1 and Part II are $40,000 and $10,000 respectively. (3) During the financial year ended 31 December 2019, the Board decided to terminate the employment of five (5) expatriates who were holding middle management position in APL as a means to reduce the overall staff costs. The total cost incurred by APL in compensating these expatriates for the early termination of their employment was $300,000, consisting of the following: Salary, bonuses and payment in lieu of notice - $250,000 Compensation for the loss of office - $50,000 (4) The Marketing Team advised that APL should explore new markets overseas in order to recruit more new prospective clients. During the financial year ended 31 December 2019, the marketing manager in-charge was asked to undertake two (2) overseas business trips and be responsible for conducting the feasibility study for APL. An amount of $75,000 was incurred for the purpose of conducting the feasibility study. (5) During the year ended 31 December 2019, APL undertook renovation work of its office premises. The total cost incurred for such work was $80,000 and a broad analysis of this amount is as follows: Fixed partitions, wall coverings floorings, false ceiling - $60,000 Designer fees - $15,000 New art installation - $5,000 (6) In order to reduce the financing cost, the Finance Department decided to refinance an existing loan (that was used by APL for business purposes) with XYZ Bank in Singapore during the financial year ended 31 December 2019. As a result of this refinancing exercise, APL is now able to reduce its annual interest costs from $1,000,000 to $800,000. (7) During the financial year ended 31 December 2019, APL received a dividend from CPL amounting to $50,000. The dividend was paid out of the corporate profits of CPL that has been subject to the prevailing corporate tax rate of 30% in Australia. Any dividend paid to non-resident shareholders of Australia is subject to a domestic withholding tax of 30% under the Australian income tax legislation. There is also a comprehensive Double Tax Agreement between Singapore and Australia. (8) The Finance Department has reported to you that during the financial year ended 31 December 2017, an error was made in the characterisation of a fringe benefit to certain APLs employees in the Sales Department. Upon investigation, you discovered that such fringe benefit actually represented the reimbursement of private car expenses incurred by certain APLs employees for business purposes instead of car allowances given to these employees. You were not aware of this error at the time when you prepared APLs income tax computation for Year of Assessment (YA) 2018. As at to-date, the said income tax computation had already been submitted to the Inland Revenue Authority of Singapore (the IRAS) but has yet to be reviewed and/or finalised by the IRAS. (9) During the year ended 31 December 2019, the Board had been approached by a potential investor who expressed a strong interest in acquiring the entire equity interest in BPL from APL. By way of background, BPL has been an active operating subsidiary of APL for more than 10 years. If this deal is confirmed, APL will potentially record a gain of $1,000,000 in its financial statements. (10) APL has also owned an investment property in Singapore for about 7 years. Recently, the Board of Directors have received attractive offers from several potential buyers. It is estimated that if this deal is confirmed, APL will likely derive a gain of $2,500,000 in its financial statements.

Required: Analyse the above ten (10) points and advise the Board on the Singapore income tax implications for the APL Group. Where applicable, advise the Board how to achieve income tax saving and explain any tax planning opportunities available to the APL Group from a Singapore income tax perspective, taking into consideration the latest income tax changes as announced by the Minister for Finance in Budget 2020 on 18 February 2020. You are required to present your answer using the tabular format below (and marks will be deducted for failure to comply with this requirement). You are not required to prepare any income tax computations for the APL Group.

Nature of Business Transactions Singapore Income Tax Analysis 1 Acquisition of new video production equipment by the Production Team 2 Sales training conducted by DI 3 Early termination of five (5) expatriate employees 4 Conducting two (2) feasibility study 5 Office renovation 6 Refinancing the existing loan which is used for finance APLs business 7 Dividend received by APL from CPL 8 Error in reporting the car benefits to tax in YA 2018 9 Potential divestment of the entire equity interest in BPL by APL 10 Potential divestment of an investment property by APL