Revenue and Tax Law

• Author: TAN Kay Kheng LLB (Hons) (National University of Singapore), CDipAF (Association of Chartered Certified Accountants), MAcc (Charles Sturt University), MTax (University of New South Wales); FCPA (Australia), FTIA, FSIArb; Advocate and Solicitor (Singapore). Leonard GOH MA (Cambridge); Advocate and Solicitor (Singapore); Legal Officer, Accounting and Corporate Regulatory Authority.
• Citation: (2010) 11 SAL Ann Rev 534
• Date: 01 December 2010
• Published date: 01 December 2010

Introduction

22.1 The Supreme Court delivered decisions for five tax cases in 2010 and there is also one decision of the High Court which discusses stamp duty in passing. The significance of the tax case load in 2010 is that, unlike prior years, there were four income tax cases giving rise to six written judgments by the Supreme Court, a record for revenue cases which has not been attained for a long time. This augurs well for the development of the jurisprudence on revenue and tax law in Singapore. It does not necessarily signal that taxpayers are becoming more contentious, considering that the number of court decisions in this area of law may still be regarded as low, compared to those in other branches of law.

22.2 One of the income tax cases, Comptroller of Income Tax v ACC [2010] 2 SLR 1189, involved judicial review proceedings from which, after leave was affirmed by the Court of Appeal, the matter proceeded to a substantive hearing before the High Court (ACC v Comptroller of Income Tax [2011] 1 SLR 1217). This case dealt extensively with the question of withholding tax in relation to certain interest rate swap transactions. Three other income tax cases dealt with the taxation of stock options, proprietary clubs and the meaning of ‘plant’ for the purpose of claiming capital allowances. The case on ‘plant’ went through both the High Court and Court of Appeal within 2010 itself, indicating the expeditious process tax appeals (like other civil proceedings) would undergo in our court system.

22.3 The two remaining decisions related to a claim for refund of stamp duty where a real property transaction was aborted, and another discussing stamp duty only in passing.

22.4 There are therefore, in our view, six cases in 2010 which had relevance to revenue law:

Tax Type	High Court	Court of Appeal
Income tax	4	2
Stamp duty	2	0

Income tax

Withholding tax impact on payments under interest rate swap agreements

Judicial review proceedings

22.5 In the previous issue, Singapore Academy of Law Annual Review of Singapore Cases 2009, we discussed the High Court decision in ACC v Comptroller of Income Tax [2010] 1 SLR 273: see (2009) 10 SAL Ann Rev 455 at 456-458, paras 22.3-22.13. To recapitulate, there was a dispute on withholding tax but the case did not traverse the usual route for tax appeals, ie, via an appeal to the Income Tax Board of Review. Instead, it proceeded by way of an application for leave for judicial review, pursuant to O 53 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed). The High Court (Andrew Ang J) granted leave to the applicant, despite objections by the Comptroller of Income Tax (‘Comptroller’).

22.6 The Comptroller“s appeal was dismissed by the Court of Appeal on 2 February 2010: Comptroller of Income Tax v ACC [2010] 2 SLR 1189. The case therefore proceeded with the substantive hearing in the High Court and a quashing order was granted in favour of the taxpayer: ACC v Comptroller of Income Tax [2011]1 SLR 1217. We will discuss the Court of Appeal decision agreeing that leave for judicial review was to be given, before discussing the High Court decision on the substantive issue.

22.7 For context, it should be noted that the substantive issue of this case relates to withholding tax under s 12(6)(a) of the Income Tax Act (Cap 134, 2008 Rev Ed) (‘ITA 2008’), read with s 45A. Section 12(6)(a) provides as follows:

(6) There shall be deemed to be derived from Singapore -

(a) any interest, commission, fee or any other payment in connection with any loan or indebtedness or with any arrangement, management, guarantee, or service relating to any loan or indebtedness which is -

(i) borne, directly or indirectly, by a person resident in Singapore or a permanent establishment in Singapore except in respect of any business carried on outside Singapore through a permanent establishment outside Singapore or any immovable property situated outside Singapore; or

(ii) deductible against any income accruing in or derived from Singapore; or

[emphasis added]

22.8 The facts of this case have been set out in the previous issue, Singapore Academy of Law Annual Review of Singapore Cases 2009. Briefly, the applicant for judicial review, ACC, had subsidiaries which were special purpose companies (‘SPCs’) incorporated in the Cayman Islands. As the group was in the business of leasing certain machinery, each piece of machinery was owned by a SPC. To purchase the machinery, the SPCs took loans from foreign banks at floating interest rates. However, some SPCs leased out their machines at fixed rates. These SPCs were thus exposed to interest rate fluctuations, ie, the difference arising from the prevailing floating interest rate and the fixed rate rent. To minimise this risk, and for reasons of commercial efficiency, the SPCs hedged the exposure whereby:

(a) ACC entered into interest rate swap agreements (‘onshore swaps’) with Singapore banks or Singapore branches of foreign banks, using agreements based on the International Swaps and Derivatives Association“s (‘ISDA’) documentation; and

(b) ACC in turn entered into individual swap agreements (‘offshore swaps’) with the relevant SPCs which mirrored those which ACC had entered into with the banks.

22.9 Briefly, the combined effect of the onshore swaps and the offshore swaps was that the SPCs (through ACC) made periodic fixed rate payments to the banks in Singapore. In return, the banks made floating rate payments to the SPCs (again through ACC). In this way, the banks assumed the risks of fluctuating interest rates. In relation to the offshore swaps, the Comptroller took the position via a letter dated 6 February 2009 (‘Comptroller“s letter’) that payments by ACC to the SPCs (which were non-residents) were subject to withholding tax, as they were payments within the meaning of s 12(6) and withholding tax would therefore arise under s 45A. The applicant disagreed with the Comptroller“s interpretation of these provisions in the ITA 2008.

22.10 The applicant treated the Comptroller“s letter as containing an administrative decision or a determination, and proceeded to apply for leave for judicial review and to seek a quashing order (a point noted by the Court of Appeal: see Comptroller of Income Tax v ACC [2010] 2 SLR 1189 at [7]). It is important to note that this course was taken as there was no tax assessment in withholding tax situations and in the absence of an assessment, the appeal process to the Income Tax Board of Review could not be invoked.

22.11 The Court of Appeal (in a judgment delivered by Chan Sek Keong CJ) first noted that both parties had treated the Comptroller“s determination in the Comptroller“s letter as a decision capable of being quashed, and the Comptroller did not challenge the High Court“s ruling that the determination was susceptible to judicial review: Comptroller of Income Tax v ACC [2010] 2 SLR 1189 at [9].

22.12 The Court then addressed the issue of locus standi. To recapitulate, in the High Court (ACC v Comptroller of Income Tax [2010] 1 SLR 273), Andrew Ang J had set out the requirements to be satisfied before leave would be granted, which are as follows, as extracted from the Singapore Civil Procedure 2007 (Sweet & Maxwell Asia, 2007) at para 53/8/22:

(a) The matter complained of is susceptible to judicial review.

(b) The applicant has sufficient interest in the matter.

(c) The material before the court discloses an arguable case or prima facie case of reasonable suspicion in favour of granting the public law remedies sought by the applicant.

22.13 The Comptroller“s position was that ACC was ‘personally liable’ under s 45(3) [it should actually be s 45A(3)] to pay the amount of withholding tax on the swap agreements as material payments under them fell within the ambit of s 12(6) of the ITA 2008, along with any prescribed penalties. Consequently, the court opined that ‘in these circumstances, if the respondent [ACC] did not have locus standi to commence proceedings for a review of the Comptroller“s determination, we were unable to see who else would have locus standi to do so’: Comptroller of Income Tax v ACC [2010] 2 SLR 1189 at [12].

22.14 The Comptroller also argued that the application was an abuse of process as ACC ought to have applied for either ministerial exemption or remission of tax under ss 13(4) and 92(2) of the ITA 2008 respectively. The court rejected this argument as neither ministerial exemption nor ministerial remission was an alternative remedy that ACC as an applicant ought to have exhausted before invoking the jurisdiction of the court. The court explained that the Minister“s decision would be based on policy considerations and this ‘can hardly be considered as a remedy for an aggrieved person who disputes his liability to pay tax in the first place’: Comptroller of Income Tax v ACC [2010] 2 SLR 1189 at [13] and [14].

22.15 The court considered that the real question to be decided was whether the Comptroller“s determination in the Comptroller“s letter could be quashed. It was noted that ‘a quashing order will not lie unless a public authority has done something that a court can quash or, in other words, deprive of legal effect’: Comptroller of Income Tax v ACC

[2010] 2 SLR 1189 at [16]. There must first be a decision ‘which [has] some form of actual or ostensible legal effect, whether direct or indirect. A mere opinion clearly does not fall within this category’: Comptroller of Income Tax v ACC [2010] 2 SLR 1189 at [21]. The court doubted that the Comptroller“s determination in his letter had any actual or ostensible legal effect (whether direct or indirect) on ACC“s liability to pay the amount claimed by the Comptroller, as nothing in the ITA 2008 appears to give the Comptroller the power to unilaterally determine a person“s liability for withholding tax under s 45: Comptroller of Income Tax v ACC [2010] 2 SLR 1189 at [26].

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