Genuine incorporation or tax avoidance?

FOR the past few years, high-earning professionals such as doctors and dentists have been in the spotlight as the Inland Revenue Authority of Singapore (IRAS) intensified its investigations to uncover tax avoidance attempts.

In 2018, two articles in The Straits Times described how some professionals were incorporating one or more companies in an attempt to gain tax advantages. The issue was the difference between the highest personal income tax rate of 22 per cent and the corporate tax rate of 17 per cent, which provided an opportunity for tax arbitrage. The Start-Up Tax Exemption Scheme and Partial Tax Exemption and the availability of corporate tax rebates (typically announced during the Budget) also contributed to making incorporating one or more companies more attractive.

Since the articles were published, many professionals have attempted to justify their structures and arrangements to the IRAS, arguing that they were not engaged in tax avoidance. An article in BT ("Shining a light on tax avoidance," Nov 17, 2018) expressed our views on when an arrangement may be regarded as tax avoidance. While the IRAS has helpfully provided guidance to medical professionals on this, many questions regarding the law in this area remained. The line between permissible tax planning and tax avoidance was arguably unclear; and in many cases, it was no easy task to determine whether there had in fact been tax avoidance.