ATX – SGP Variant – June 2019 paper

I wanted to raise some concerns regarding the suggested model answers to the ATX – SGP June 2019 paper, which is causing anxiety.

Zoro Garments China Ltd (ZGCL)

(a) Singapore corporate income tax liability for ZGCL

The model answer appears to suggest that there ZGCL would not have any physical presence in Singapore other than training provided by its employees from its subsidiary, ZGHK.

The suggested answer appears to entirely ignore the fact that the mystery shoppers have to be in Singapore to conduct their spot checks vis the quality of service provided on ZGCL’s clients, who all have premises physically located in Singapore.

I would have been prepared to argue that there is in fact a serious risk of a permanent establishment (PE) being created by ZGCL, if these mystery shoppers are e.g. physically present in Singapore for more than 183 days a year performing their services for ZGCL’s clients. (This would be under the “service” method of PE creation). But this is nowhere in the model answer

(b) Withholding tax (WHT) and goods and services tax (GST) implications for ZGCL arising from the payment of service fees

I don’t think there is anything inside the Singapore Income Tax Act 1947 (ITA) that would suggest that ZGCL is not caught by the legislation.

Section 12(1) of the ITA clearly provides that in relation to trading operations carried on partly in Singapore

++Where a non?resident person carries on a trade or business of which only part of the operations is carried on in Singapore, the gains or profits of the trade or business are deemed to be derived from Singapore to the extent to which such gains or profits are not directly attributable to that part of the operations carried on outside Singapore.++

If ZGCL is not caught by the with-holding tax regime, it is more of a matter of practicality – it is more difficult for IRAS to enforce the rules if ZGCL does not have a permanent establishment, not because it is not in principle required to withhold tax.

Another concern I had was how the model answer completely ignored the possibility that the services provided by the mystery shoppers could be zero rated for GST purposes. From the perspective of the mystery shoppers, the client that they are providing services to is ZGCL, not any Singapore customers. If ZGCL belongs entirely outside Singapore, that would arguably be zero rated international services.

Green Earth Movement Singapore (GEMS)

The scenario strongly suggest that RPI is a tax resident of Singapore, despite being a BVI incorporated company. What I then found to be confusing was the assertion that “this by itself does not create a tax exposure as long as no trading activities are carried out in Singapore.” This cannot be correct in a scenario where RPI is holding an asset and earning a passive source of income, in this case a dividend, from DPI. The tax treatment to be applied to a company like RPI, should be that of investment holding. It really should not matter whether or not the services being carried out are of a “routine and administrative nature”, I would have thought.

Appreciate any useful technical feedback.