SINGAPORE Law and Practice Contributed by: Azmul Haque, Ashley Chew, Hu Yutong and Aaron Leong, Collyer Law LLC
same group to transfer specified current year unuti - lised tax losses, capital allowances and donations to another company within the same group. The relief applies only to current year losses and does not extend to losses carried forward or carried back. Broadly, to qualify for group relief, companies must: • be incorporated in Singapore; • be part of the same group, with at least 75% direct or indirect shareholding, maintained throughout the relevant basis period; and • have the same financial year end. The transfer is made by election between the surren - dering and claimant companies. Other Reliefs Companies may also carry forward unutilised tax losses, capital allowances and donations. Subject to qualifying conditions being met, unutilised capital allowances and trade losses can be carried forward indefinitely, while unutilised donations can be carried forward for up to five years of assessment. Companies may also carry back current year unu - tilised capital allowances and trade losses to offset income of the immediately preceding year of assess - ment, subject to a cap of SGD100,000. Transaction-specific reliefs may also be available, such as stamp duty reliefs for qualifying intra-group transfers. 5.5 Thin Capitalisation Rules and Other Limitations Singapore does not impose specific thin capitalisation rules, such as fixed debt-to-equity ratios, that restrict the amount of interest deductible based on a com - pany’s capital structure. However, the deductibility of interest is subject to general tax principles, including the requirement that expenses be wholly and exclu - sively incurred in the production of income, as well as transfer pricing rules requiring related-party financing to be conducted on an arm’s length basis. In addition, the general anti-avoidance provisions may apply to disregard or vary arrangements entered into
for the purpose of obtaining a tax advantage. These rules may, in practice, limit the extent to which interest expenses are deductible. For large multinational groups, the introduction of OECD Pillar Two may indirectly affect financing struc - tures. While not a thin capitalisation rule, it imposes a minimum effective tax rate of 15%, which may reduce the tax benefits of highly leveraged structures. 5.6 Transfer Pricing Singapore applies transfer pricing rules to transac - tions between related parties, including dealings between a head office and branch. The regime is based on the arm’s length principle, which requires related-party transactions to be conducted on terms that would have been agreed between independent parties in comparable circumstances. IRAS may adjust a taxpayer’s profits where such transactions are not conducted on an arm’s length basis. In such cases, IRAS may impose upward tax adjustments and a surcharge (generally 5% of the transfer pricing adjustment). Taxpayers are required to maintain transfer pricing documentation for at least five years from the end of the basis period in which the transaction took place, unless an exemption applies. This documentation should support the pricing of related-party transac - tions and demonstrate compliance with the arm’s length principle. Additional penalties may apply for failure to maintain adequate documentation. 5.7 Anti-Evasion Rules Singapore has anti-evasion and anti-avoidance rules under the Income Tax Act 1947. The primary provi - sion is the general anti-avoidance rule (GAAR), under which the Comptroller of Income Tax may disregard or make relevant adjustments to arrangements where they are entered into with the main purpose or effect of avoiding tax. In particular, this applies where the purpose of the arrangement is, directly or indirectly: • to alter the incidence of any tax that is payable, or that would otherwise have been payable, by any person;
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