UPCOMING COMPLIANCE FOCUS FOR COMPANIES IRAS will focus their compliance efforts on these areas:- - Group Relief claims - Recognition of income from construction contracts and provisions claimed by construction companies - Withholding tax obligations on payments made to non-residents ONGOING COMPLIANCE FOCUS FOR COMPANIES: IRAS continues to focus compliance efforts on these areas:- - Timely filing of corporate tax returns - Abuse of tax exemption scheme for new companies - Productivity and Innovation Credit (PIC) claims - Classification of income and expenses by companies with income taxable at a concessionary tax rate and the prevailing corporate tax rate - Related-party transactions and allocation of development cost by real estate developers - Income declaration by companies whose principal activities are that of tutoring services or tuition agencies TIMELY FILING OF CORPORATE TAX RETURNS Currently, about 81% of the corporate taxpayers file their tax returns on time. Companies have at least 11 months (for companies with accounting year ending December) or up to 22 months (for companies with accounting year ending January) to prepare and file their returns. This is a reasonable period for a company to fulfil its filing obligations. Given that the statutory record-keeping period has been reduced from seven to five years, and that filing of tax returns is an annual obligation, it is imperative that companies file their tax returns promptly to ensure timely finalisation of their tax and financial matters. Do note that late/ non-filing of tax returns may attract penalties. ABUSE OF TAX EXEMPTION SCHEME FOR NEW COMPANIES IRAS has observed a number of cases where shell companies have been used to take advantage of the tax exemption scheme for new start-ups and not for genuine commercial reasons. These shell companies do not carry out any activities or significant activities and have no employee or few employees. Their accounts usually show relatively few transactions and low capitalisation (usually at $2). As at March 2013, 94 companies have been audited to check for possible abuse of the tax exemption scheme for newly created companies. This resulted in a tax recovery of $1,013,782 with penalties amounting to $919,110. PRODUCTIVITY AND INNOVATION CREDIT (PIC) CLAIMS Businesses that meet the qualifying conditions can claim tax benefits under the PIC scheme in the Years of Assessment (YAs) 2011 to 2015. IRAS will continue to review selected PIC cash payout claims made by companies to ascertain the claims are in order. In financial year 2013, IRAS will also be auditing companies to determine if they have made errors in their claims for PIC benefits in their Income Tax Returns. Based on the past reviews, IRAS has identified the common mistakes that businesses should avoid in their PIC claims. CLASSIFICATION OF INCOME AND EXPENSES BY COMPANIES WITH INCOME TAXABLE AT A CONCESSIONARY TAX RATE AND THE PREVAILING CORPORATE TAX RATE IRAS is conducting a review of compliance issues relating to classification of income and expenses by companies with income taxable at a concessionary tax rate and the prevailing corporate tax rate. From past experiences, one of the key compliance risks observed from their review is the incorrect classification of income and expenses between the prevailing tax rate and the concessionary tax rate. These companies may have also adopted inappropriate bases in the allocation of common expenses and capital allowances. With the compliance review, we aim to understand the measures/controls put in place by these companies to ensure accuracy of their tax reporting and to make an assessment of their level of compliance. RELATED-PARTY TRANSACTIONS AND ALLOCATION OF DEVELOPMENT COST BY REAL ESTATE DEVELOPERS A property developer can buy land and build properties for sale, for long-term investment or partly for sale and partly for investment. For properties developed for sale, companies are required to state whether the sale price of properties sold to related parties is reflective of the open market value of the properties as at the date of sale when filing their tax returns. Where a project is developed for mixed-use purposes i.e. partly for sale and partly for investment, the actual land costs and development costs attributable to each property should be identified for purposes of computing the developer’s taxable profits for units held for sale. IRAS has conducted a review on the costs of properties claimed and related party sales for selected developers. As at 31 Mar 2013, the costs allocation for mixed-use development project for properties held for sale or sold have been found to be generally acceptable. INCOME DECLARATION BY COMPANIES WHOSE PRINCIPAL ACTIVITIES ARE THAT OF TUTORING SERVICES OR TUITION AGENCIES IRAS is conducting a review on selected companies. The objective of this review is to assess the standards of record keeping and the level of tax compliance within this sector.
Posted on: Wed, 15 Jan 2014 11:33:36 +0000
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