Question 3 J Pte Ltd (JPL) is a company incorporated and tax resident in Singapore. It has two whollyowned subsidiaries L Pte Ltd (LPL) in Country L and M Pte Ltd (MPL) in Country M. LPL is a tax resident in Country L and MPL is a tax resident in Country M.

For the purpose of this question, let us assume that today is 30 September 2018 and, on this date, these companies anticipate that the following business activities will occur in the upcoming financial year ending 31 December 2019.

LPL On 1 January 2019, JPL would advance an interest-bearing loan to LPL amounting to $500,000 for the purpose of financing the latter companys working capital. Interest is calculated at a fixed rate of 5% per year (and for the purpose of this question, you can assume that the 5% interest rate is reflective of the market rate).

MPL On 1 January 2019, MPL would be granted the right to use an intellectual property that is owned by JPL in its business. In turn, MPL would be required to pay an annual royalty of $40,000 to JPL. It is planned that the royalty income would be remitted into Singapore in the financial year ending 31 December 2019. In addition, MPL would pay a dividend to JPL amounting to $160,000 net of the applicable withholding tax and this be received in Singapore by JPL in Singapore during the year ending 31 December 2019.

The following is an extract of the relevant tax information in Country L and Country M. Country of Source Corporate tax rate in Country of Source Withholding Tax in Country of Source Withholding tax rate under the DTA with Singapore Interest income L 18% 15% Not applicable Royalty income M 15% 10% 10% Dividend income M 15% 20% 5% Required: Apart from the dividend and royalty income which will be received by JPL in Singapore in the financial year ending 31 December 2019, JPL is also considering whether or not it should repatriate the interest income from LPL in the same financial year. Analyse whether JPL should repatriate the interest income from LPL and elect for foreign tax credit pooling for Year of Assessment 2020 with reference to income tax computations. You can ignore any applicable corporate tax rebate in preparing these income tax computations. (25 marks)