Interestingly, the Singapore Court of Appeal has ruled that interest expenses on capital employed to earn income constitute deductible capital expenditure and, in effect Section 14(1)(a) of the ITA carves out an unstated exception to Section 15(1)(c). This is somewhat unorthodox - because the prohibitions in Section 15 of the ITA are said to apply ... notwithstanding the provisions of this Act ... so it is questionable if there can be any implicit carve-out. The more orthodox view was stated by the Privy Council in Wharf Properties Ltd v Commissioner of Inland Revenue [1997] AC 505, that once interest on a capital loan is incurred to produce income, it is magically transmuted into a revenue expense. Then again, perhaps the Singapore Court of Appeal conceptually did not fancy the idea of the nature of interest expense being magically transmuted from a capital expense to a revenue expense at the point the loan becomes income-generating - and indeed, one must admit the logical justification for such a transmutation is not at all easy to find. So the Court of Appeal was confronted with that Scylla of a mysterious transmutation and the Charybdis of what appeared to be an over-riding prohibition in the opening words of Section 15. The best solution, going forward, is to clarify that the prohibition in Section 15(1)(c) does not prohibit the deduction of interest expenses falling within Section 14(1)(a), as the UK have done in their Section 74(f) of the Income and Corporation Taxes Act 1988 ...
Posted on: Sun, 17 Aug 2014 06:56:42 +0000
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