SINGAPORE Law and Practice Contributed by: Yang Shi Yong, Drew & Napier LLC
Principal Purpose Test The principal purpose test is to deny DTA benefits where one of the principal purposes of an arrange - ment is to obtain the said treaty benefits in a way that does not cohere with the relevant DTA՚s purpose. As such, if the arrangement relates to a core commercial activity and its form is not artificial, it is unlikely that this will be an abusive case where the provision will apply. 9.10 Transfer Pricing and IP Taxation Impact of Transfer Pricing Changes Introduced by BEPS The Singapore tax authorities have published their own Transfer Pricing Guidelines (the “TP Guidelines”), which was prepared by taking guidance from the OECD Guidelines. The TP Guidelines generally adhere to the main principles set out in the OECD Guidelines. Accordingly, the transfer pricing changes introduced by BEPS do not significantly change Singapore’s tax regime. Taxation of Profits from Intellectual Property The taxation of profits from intellectual property is generally straightforward – royalties accruing in or derived from Singapore are taxable. Practical difficul - ties in ascertaining whether the royalties are sourced in Singapore are alleviated by the Act, which deems royalties that are borne by a Singapore tax resident or a permanent establishment in Singapore (except in respect of any business carried on outside Singa - pore through a permanent establishment outside Sin - gapore), or which are deductible against any income accruing in or derived from Singapore, to be derived from Singapore. The valuation of intellectual property rights, however, remains an area of contention. 9.11 Country-by-Country Reporting and Transparency Provisions The provisions for transparency and CbC reporting have to balance the interests of taxpayers with that of the government. For example, MNEs may face higher compliance costs to prepare a CbC report. They may also have to disclose sensitive commercial information (eg, relating to research and development or intellectual property) even though such information is disclosed confidentially to tax authorities. On the other hand, the additional data from CbC reports pro -
vide governments with a better overview of the entire group, which allows them to better assess transfer pricing risks. In determining the right balance between the inter - ests of the different stakeholders, any provisions for transparency and CbC reporting must contribute to the BEPS project’s policy goal of taxing profits in juris - dictions where the corresponding economic activities are performed and where value is created. 9.12 Digital Economy Businesses Singapore has recently introduced two methods to charge GST on profits generated by the digital econ - omy businesses operating largely from outside Sin - gapore: • the reverse charge mechanism; and • the overseas vendor registration regime. Reverse Charge Mechanism The reverse charge mechanism applies to: • GST-registered persons who: (a) obtain services from overseas suppliers; or (b) import low value goods, including from elec - tronic marketplaces; and (c) are not entitled to claim full input tax credit, or belong to a GST group that is not entitled to do so; or • non-GST registered persons who: (a) obtained services from overseas suppliers and imported low value goods (including from elec - tronic marketplaces) in excess of SGD1 million in a 12-month period; and (b) are not entitled to claim full input tax credit even if they are GST-registered. Under the reverse charge mechanism, GST-reg - istered persons generally have to account for GST on imported services from overseas suppliers or on imported low value goods, as if the former is the sup - plier. Similarly, non-GST registered persons will have to be GST-registered and account for GST on their imported services and low value goods as if they are a GST-registered supplier.
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