ACC309: “That’s unfair! Why did IRAS tax the income from all my three companies under one of them and deny the partial exemption: International Taxation and Tax Planning Assignment, SUSS, Singapore

Question 1

“That’s unfair! Why did IRAS tax the income from all my three companies under one of them and deny the partial exemption from the other two companies? I thought I’ve been following the law,” said Tony, your friend and a medical practitioner in Singapore.

Tony asked for help understanding the above tax issue. As an accredited tax advisor, you agreed to help him. After looking into it, here is what you have discovered:

• Tony owns and manages a specialist clinic. He is the director and shareholder of A Pte Ltd (“APL”), a company incorporated in Singapore that provides medical consultation services to his patients. All consulting fee income was booked in APL as income.
• In addition, Tony incorporated B Pte Ltd (“BPL”) in Singapore to sell the medicine and other related supplements to his patients immediately after the medical consultation services. Such income was booked in BPL.
• Sometimes, patients may require urgent surgery, which Tony performed in the same clinic. The income from performing surgery was booked in C Pte Ltd (“CPL”), another company incorporated by Tony in Singapore.
• Tony was the only medical practitioner in his clinic and considered himself working full-time for all three companies concurrently. Besides Tony, APL hired a nurse and a receptionist, whose services were shared by BPL and CPL.

Question 2

F Pte Ltd (“FPL”) is incorporated and tax resident in Singapore. It is a health supplement manufacturer and owns a manufacturing plant in Jurong, Singapore.

Recently, FPL has successfully negotiated a contract (“Contract”) with G Ltd (“GL”), a company that manufactures “Wake Up,” an energy booster drink. GL is incorporated and resident in Country A, with no double tax agreement with Singapore. Further, GL does not
have any business operations in Singapore.

Under the Contract, GL will provide FPL with the following:

• The know-how and recipe of “Wake Up” to FPL.
• The drawing of the blueprints for the bottling equipment of “Wake Up.”
• Bottling equipment for bottling of “Wake Up.”
• Two engineers for ten weeks for the installation of the bottling equipment.
• Two engineers for three months to train FPL’s staff on the operation and
  maintenance of the bottling equipment.

In return, FPL agrees to pay GL a sum of S$500,000. The payment is made on a net-of-tax basis and shall be credited to a bank account designated by GL.