Professional Documents
Culture Documents
9-300 to 9-400;
9-500 (omit Loss items that are not transferable, Example 7, and Companies
not eligible for Group Relief on pp.345-346); and
Oct 2015
Question 1
Sky Enterprises Pte Ltd (Sky), Ekin Pte Ltd (Ekin) and Luke Pte Ltd (Luke) are three
Singapore-incorporated and resident companies. Since 1 April 2014, the corporate
group structure, together with the ultimate individual shareholders, has been as
presented in the diagram below:
Mr Chew
35%
Ms Yeo
45%
Mrs Lee
20%
SKY
80%
20%
EKIN
90%
10%
LUKE
Note: % refers to the percentage of issued and fully paid-up ordinary shares.
The above shareholding structure is not expected to change in the foreseeable
future.
Historically, Skys shareholders and their shareholding percentages have been as
follows:
Shareholder
Mr Arthur
Mr Chew
Mrs Lee
Mr D Veloo
Miss Threepio
Ms Yeo
1.4.2013 to 31.3.2014
0
10
20
40
0
30
100
Oct 2015
The following information relates to the tax positions of Sky, Ekin and Luke:
YA 2015
Adjusted profit/(loss) for YE 31.12.2014
Capital allowances
250% deduction for approved donations
Prior Year Item
Unabsorbed business loss
- YE 31.12.2012
Sky
$
(80,000)
Ekin
$
150,000
Luke
$
400,000
70,000
50,000
10,000
60,000
90,000
Based on the tax computation previously submitted to the IRAS, Skys chargeable
income for the Year of Assessment 2014 amounted to $200,000, with the tax
assessed of $23,800 [i.e., ($200,000 x 17%) less 30% tax rebate] already paid to the
IRAS.
Required
(a) Comment on whether Ekin is able to set off its prior-year business loss of $90,000
against its taxable income in the Year of Assessment 2015.
(b) Advise Sky, Ekin and Luke as to whether and to what extent the Group Relief and
Carry-Back Provisions may be used to mitigate the income tax exposure of the
three companies in the Year of Assessment 2015. Assume that no waiver (should
it be required) of the Shareholdings Test is obtained. You should present relevant
income tax computations to support your advice.
Oct 2015
Question 2 (adapted)
Adios Pte Ltd (D Co), Arrivederci Pte Ltd (R Co), Auf Wiedersehen Pte Ltd (W Co) and
Au Revoir Pte Ltd (V Co) are all companies incorporated and resident in Singapore.
The following diagram presents the corporate group structure to which these
companies belong:
D Co
100%
80%
R Co
W Co
90%
V Co
From 1.4.2014
to 31.3.2015
000 shares
From 1.4.2015
000 shares
700
1,000
300
0
1,200
300
300
2,200
1,200
0
0
2,800
Shareholder
Mr Grazie
Ms Danke
Ms Gracias
Mdm Merci
The following tax data pertains to the various companies for the Years of Assessment
2015 and 2014:
D Co
R Co
W Co
V Co
$
$
$
$
YA 2015 (YE 31.3.2014)
Adjusted profit/(loss)
(600,000)
(100,000)
2,000,000
500,000
Capital allowances
250,000
650,000
1,400,000
100,000
YA 2014 (YE 31.3.2013)
Adjusted profit
Capital allowances
850,000
230,000
1,000,000
300,000
2,400,000
1,500,000
450,000
150,000
Oct 2015
Your answer should clearly indicate the amounts (if any) of the unabsorbed items that
you recommend R Co to carry back, carry forward and/or transfer to another company
under the Group Relief scheme, and explain how these amounts were arrived at. You
are NOT required to present the tax computations of any of the companies.
100%
Hawk
Eagle
80%*
20%
Sparrow
Vulture is a company incorporated and tax-resident in the United States. Its ordinary
shares are beneficially owned by Mr John Beak (90%) and Ms Jane Feather (10%).
Vulture carries on business in both the United States and, through a branch, in
Singapore.
Hawk, Eagle and Sparrow are all Singapore-incorporated and tax-resident companies
carrying on business in Singapore. Recently, Sparrow underwent a corporate
restructuring exercise that entailed the following:
Up until 30 June 2014, Sparrows ordinary shares were beneficially held by Mr Paul
Wing (40%), Mdm Sally Claw (20%), Ms Jane Feather (20%), and Eagle (20%). On
1 July 2014, the individual shareholders (i.e. Mr Wing, Mdm Claw and Ms Feather)
sold all of their respective shareholdings in Sparrow to Hawk; and
Oct 2015
The following presents certain Singapore income tax related data for the four
companies in the Vulture Group:
Vulture
Hawk
(Singapore
branch)
$
$
Year of Assessment 2015
Adjusted
profit/(loss)
for
31.12.2014
YE 5,000,000
Eagle
Sparrow
400,000
800,000
(1,000,000)
700,000
900,000
200,000
600,000
150,000
330,000
450,000
800,000
Assume that no waiver of the Shareholdings Test for the set-off of unabsorbed items
will be granted by the IRAS in the event that the test is not satisfied.
Required
Advise Sparrow on how it can tax-efficiently utilise its Year of Assessment 2015
unabsorbed capital allowances of $600,000 and unabsorbed trade loss of $1,000,000,
including the options (where possible) to elect for group relief and/or carry-back. You
are NOT required to present the full income tax computation of any of the companies.
Oct 2015
Question 4
(14s2 question)
This question combines Topic 6 with Topic 7 DTR. For Topic 6, do ONLY part (a).
The Pasta Group comprises five private limited companies incorporated and taxresident in Singapore. These companies are Pasta, Spaghetti, Macaroni, Vermicelli
and Lasagne. All the companies carry on their respective businesses in Singapore
although, as mentioned below, Spaghetti also carries on business through a branch in
MamaMia Republic while Lasagne ceased to carry on its business on 31 December
2014.
The corporate group structure of the Pasta Group is depicted in the diagram below and
this structure has been in place since 1 January 2005. Since that same date, 70% of
Pastas ordinary shares have been beneficially held by Mr Roberto Rotini, with the
remaining 30% by Mr Fabio Fusilli.
Pasta
65%
Spaghetti
72%
Macaroni
80%
Vermicelli
28%
72%
Lasagne
Note: % refers to the percentage of beneficial ownership of ordinary
shares. The remaining 35%, 28% and 20% of the ordinary shares in
Spaghetti, Macaroni and Vermicelli respectively are held by various
minority shareholders.
On 31 December 2014, Lasagne ceased permanently to carry on its business and
became dormant. Its only item of plant, which had a tax written down value of
$600,000 as at 31 December 2013, was transferred over to Macaroni for a
consideration of $350,000 on 31 December 2014. The consideration of $350,000 was
reflective of the open market value of the plant as at the date of the transfer. Macaroni
immediately put the plant to use for the purposes of its business.
The following information pertains to the companies in the Pasta Group:
Pasta
$
Spaghetti
$
Macaroni
$
Vermicelli
$
Lasagne
$
Oct 2015
750,000
220,000
200,000
30,000
(400,000)
[2] 40,000
100,000
190,000
400,000
[2] 0
[3]
50,000
120,000
120,000
150,000
380,000
340,000
Notes:
[1] The amounts exclude unabsorbed items (if any) from YA 2014.
[2] Capital allowances of $40,000 and $0 for Macaroni and Lasagne respectively
exclude the allowances (if any) relating to the item of plant transferred from
Lasagne to Macaroni on 31.12.2014.
[3] Spaghetti derived the following foreign income in YE 31.12.2014:
-
Both MamaMia Republic and EtnaLand share many similarities in their income tax
systems. Neither country has concluded a tax treaty with Singapore. Both countries
adopt the Classical Two-Tier Model for the taxation of corporate profits and
dividends, with the corporate tax rate at 25% and the dividend withholding tax rate
at 3%. However, neither country imposes any withholding tax on remittances of
branch profits.
Due to an impending economic downturn in 2015 and beyond, all the companies in the
Pasta Group are not expected to be in a tax-paying position in the near future.
Required
(a) Advise on how the Group Relief and/or Carry-Back schemes may be used to
mitigate the total income tax liability of the Pasta Group for the Years of
Assessment 2014 and 2015. Your answer should also include a recommendation
as to whether a section 24 election should be made in respect of the transfer of the
plant from Lasagne to Macaroni on 31 December 2014. You are NOT required to
present full income tax computations for any of the companies for this part of the
question.
(b) Compute Spaghettis income tax liability for the Year of Assessment 2015, making
the most tax-efficient claim for relief from double taxation.
Oct 2015
APPENDIX 1
Self-study Questions (with suggested solutions)
Question 1
(extract from 12s1)
NOTE: The original 12s1 exam question tested content on Topic 6 and also Topic 7
DTR. This extract has been prepared for Topic 6 self-study purposes only.
Co F is incorporated and tax-resident in CraziLand where it carries on its business. Up
until 30 June 2014, Co Fs issued ordinary shares had been beneficially held by Mr
Rabid (55%) and Mdm Neurotic (45%). On 1 July 2014, Mr Rabid transferred his entire
shareholding in Co F to Ms Psychotic.
Co F has investments in three Singapore-incorporated and tax-resident companies, Co
L, Co P1 and Co P2, all of which carry on business in Singapore. Since 2002, the
corporate structure involving the four companies is as depicted below:
Co F
90%
90%
10%
Co P1
Co P2
80%
Co L
Notes:
% refers to the percentage of beneficial ownership of issued ordinary shares.
The remaining 10% of the issued ordinary shares in each of Co L, Co P1 and Co
P2 have been, and continue to be, held by Mr Rabid.
The following presents tax-related information pertaining to Co L, Co P1 and Co P2 for
the Years of Assessment 2015 and 2014:
Co L
$
Co P1
$
Co P2
$
(40,000)
0
(50,000)
10,000
400,000
(9,000)
10,000,000
0
(1,000,000)
900,000
100,000
50,000
Oct 2015
Required:
Advise on whether any of the following independent proposals may be effected in
respect of Co Ls unabsorbed items arising in the Year of Assessment 2015:
(i)
(ii)
(iii)
Question 2
(extract from 14s1 question)
NOTE: The original 14s1 exam question tested content on Topic 6 and also Topic 7
DTR. This extract has been prepared for Topic 6 self-study purposes only.
Hertford Holdings Pte Ltd (HERT) is incorporated and resident in Singapore where it
carries on its business. Since its incorporation in 2010, the ordinary shares of the
company are beneficially held by Ms Broxbourne (60%) and Mr Enfield (40%), and this
shareholding structure is expected to remain unchanged for the foreseeable future.
HERT is the ultimate holding company in a corporate group that also includes Ware
Pte Ltd (WARE), St Margarets Pte Ltd (MARG), and Rye House Pte Ltd (RYE), all of
which are also Singapore-incorporated and resident companies carrying on their
respective businesses in Singapore. The following diagram presents the corporate
group structure:
HERT
60%
80%
WARE
MARG
60%
40%
RYE
Oct 2015
10
HERT
$
WARE
$
50,000
800,000
NIL
50,000
18,000
270,000
MARG
$
RYE
$
(160,000) 1,000,000
190,000
500,000
100,000
700,000
Required
Advise on how the Group Relief and/or Carry-Back schemes may be used to mitigate
the total income tax liability of the corporate group as a whole for the Years of
Assessment 2014 and 2015. You are NOT required to present full income tax
computations for any of the companies for this part of the question.
Suggested dsolution
Group relief
MARG and HERT
- Members of the same co group (80% direct shareholding by HERT in
MARG)
- Not tax-efficient to transfer unabsorbed items to HERT because it would
cause HERT to lose its partial exemption, foreign tax credits, and corporate
tax rebate
MARG and WARE
- Not members of the same co group (HERT holds 80% in MARG but only
60% in WARE)
MARG and RYE
- Members of the same co group (HERT holds 80% in MARG and effectively
84% (60% x 40% + 60%) in RYE)
- Transfer $350,000 ($190,000 + $160,000) of unabsorbed items to RYE,
resulting in a tax reduction of $59,500 ($350,000 @ 17%) for RYE
Carry back
-
Conclusion
Elect for Group Relief to transfer unabsorbed items from MARG to RYE
Oct 2015
11
Question 3
(adapted from past question)
Companies P, Q, R and S are all companies incorporated and tax resident in
Singapore. The companies all carry on business in Singapore and there has been no
change in their respective businesses since their incorporation. The shareholding
structure involving the four companies is indicated in the diagram below. The
percentages in the diagram refer to the percentages of beneficial ownership of issued
ordinary shares in the respective companies.
The remaining 30% shares of Company S are held by minority shareholders. Prior to
31 May 2015, all the shares of Company P are held by an individual, Mr How. On 31
May 2015, Mr Why bought over 60% of the shares of Company P from Mr How.
Company Q has been investing heavily in machines for use in its business in recent
years and it had claimed capital allowances in those years the expenditures were
incurred. As a result, Company Q has unabsorbed capital allowances of $500,000 and
$300,000 brought forward from the Years of Assessment 2014 and 2015, respectively.
The other three companies do not have any unabsorbed capital allowances, trade
losses or approved donations brought forward from prior years.
For the Year of Assessment 2016, Company Q has adjusted trade profit and non-trade
profit of $200,000 and $10,000, respectively.
Required
(a) Advise whether Company Q can set off the unabsorbed capital allowances brought
forward from Years of Assessment 2014 and 2015 against its taxable income for
the Year of Assessment 2016, and calculate the brought forward unabsorbed
capital allowances that will be carried forward to future years.
(b) Assume that Company Q had made a cash donation of $100,000 to the Singapore
Cancer Society, an approved institution of public character, in the financial year
ended 31 December 2015. Quantify the tax benefit arising from this donation and
discuss the options (carry back, current year utilisation, carry forward and group
relief) for Company Q with regard to this tax benefit.
Oct 2015
12
Suggested solution
(a)
(b)
Oct 2015
13