Revenue and Tax Law

AuthorTAN Kay Kheng LLB (Hons) (National University of Singapore); CDipAF (Association of Chartered Certified Accountants); MAcc (Charles Sturt University); MTax (University of New South Wales); MTS (Trinity Theological College); CTA, FCPA (Australia), ATA (Income Tax), FSIArb; Advocate and Solicitor (Singapore). Leonard GOH MA (Cambridge); Advocate and Solicitor (Singapore); Deputy Senior State Counsel, Legislation Division, Attorney-General's Chambers.
Citation(2020) 21 SAL Ann Rev 786
Date01 December 2020
Published date01 December 2020
Publication year2020
I. Introduction

26.1 The Supreme Court delivered seven decisions in 2020 relating to various tax types. They covered a range of substantive issues of revenue law, such as deduction for research and development expenses, taxation of employment income, tax avoidance, judicial review in remission cases, determination of annual value, and offences relating to false entries in tax returns. There is also an eighth case that has some relevant dicta relating to expert evidence on foreign tax laws in court litigation.

26.2 There are therefore, in our view, eight cases for the year 2020 that had some relevance to revenue law:

Tax Type

High Court

Court of Appeal

Income tax



Stamp duty



Property tax



Goods and services tax





II. Income tax
A. Research and development expenses under cost-sharing agreement

26.3 In Intevac Asia Pte Ltd v Comptroller of Income Tax,1 the issue of the deductibility of research and development (“R&D”) expenses under a cost-sharing agreement (“CSA”) came up for consideration. The appellant's appeal was dismissed by the Income Tax Board of Review (“ITBR”), and the further appeal went before the High Court. Choo Han Teck J dismissed the appeal.

26.4 The relevant statutory provisions are found in ss 14D(1)(d) and 14D(3) of the Income Tax Act2 (“ITA”), which state:

14D.—(1) For the purpose of ascertaining the income of any person carrying on any trade or business and subject to subsection (4), the following expenditure incurred (other than any amount which is allowable as a deduction under section 14) by that person shall be allowed as a deduction:

(d) payments made by that person to a research and development organisation for undertaking on his behalf outside Singapore research and development related to that trade or business.

(3) For the purposes of subsection (1)(d), a claim for deduction shall be allowed to a person only if —

(a) there is an undertaking by the person that any benefit which may arise from the conduct of the research and development shall accrue to the person; and

(b) the claim is made by the person in such manner and subject to such conditions as the Comptroller may require.

[emphasis added]

26.5 The appellant was a subsidiary of Intevac, Inc (“Intevac US”) (US-listed company), and both companies were part of the Intevac group, which engaged in the business of manufacturing, repairing and trading in electromechanical systems and equipment. In 2009, the appellant and Intevac US entered into a CSA for the purpose of combining their R&D efforts and to share the costs and risks of their R&D activities. Each party to the CSA acquired the right to exploit any intellectual property (“IP”) and intangible property generated in the performance of the CSA within

their respective territories. Both parties therefore had a direct stake in any R&D developed for their joint benefit.3

26.6 Pursuant to the CSA, the appellant made payments totalling some US$4.85m and claimed deduction under s 14D(1)(d) read with s 14D(3) of the ITA. The Comptroller of Income Tax disallowed the claims.4

26.7 Taking a purposive interpretation of the statutory provisions, Choo J agreed with the ITBR that the prudent and common-sense approach was to adopt the year 2008 as the reference point for ascertaining the ordinary meaning and legislative purpose of the material phrase “for undertaking on his behalf” in s 14D(1)(d). 2008 was the year when the current provision was enacted, rather than 1980 when the material phrase was first introduced.5

26.8 Choo J proceeded to hold that the phrase “for undertaking on his behalf” referred to:6

… an arrangement where payments are made by the taxpayer to an organisation which has undertaken R&D outside Singapore for the exclusive benefit of the taxpayer only. This is the interpretation which best coheres with Parliament's intention. [emphasis added]

The reasons for this conclusion are as follows:

(a) Previously, s 19C of the ITA provided for writing down allowances in relation to approved CSAs and was operative in 2008 when s 14D(1)(d) was enacted. Parliament intended to create a differentiated scheme for CSAs and s 14D(1)(d) should not enable taxpayers to circumvent s 19C conditions via a backdoor route. There was a clear demarcation between CSAs covered by s 19C and the category of R&D arrangements that came under s 14D(1)(d).7

(b) Based on ministerial statements in Parliament when s 14D was introduced in 1980, they suggested that:8

… the purpose of s 14D was to benefit companies in Singapore and to promote local expertise and technology. The corollary is that s 14D was not intended to subsidise the costs of R&D efforts which would not benefit the local economy.

[Consequently,] s 14D had never been intended to allow relief for payments made under cost-sharing agreements in respect of R&D activities, and that s 19C was specifically enacted to create a new and distinct regime that provided allowances for such cost-sharing agreements.

26.9 On the approach to interpret the statutory provisions, Choo J also agreed with the High Court in BFC v Comptroller of Income Tax9 that legislative intent should not be inferred from amendments that took place later (in this case, after 2008).10 It bears reiterating this point by citing this dictum by Lai Siu Chiu J:11

… [L]egislative intent is to be determined at or around the time the law is passed. If Parliament enacts subsequent legislation having proceeded on a particular interpretation of earlier legislation, Parliament's interpretation … is of no relevance to the interpretation of the earlier legislation. Similarly, ministerial statements uttered years after legislation is passed are unhelpful as interpretive instruments.

26.10 For completeness, Choo J also held that the appellant's undertaking (as given to the Comptroller) was not the requisite undertaking mentioned in s 14D(3)(a) of the ITA. The undertaking had to be made on the basis that “all benefits” must accrue to the taxpayer. In other words, “any” in that provision meant “all”.12

26.11 This case is important, not just for the interpretation of the relevant statutory provisions relating to R&D expenses under cost-sharing agreements, but also as a useful illustration of how tax statutes ought to be interpreted. Where a category of expenses can be incurred in different scenarios, the relevant provisions need to be carefully reviewed to ascertain whether one or more of these provisions would apply to allow a deduction, or not apply at all if a particular scenario does not fall within the legislative intent of the tax statute.

B. Tax avoidance

26.12 Wee Teng Yau v Comptroller of Income Tax13 concerned a tax avoidance arrangement. The taxpayer, a dentist, was employed by Alfred Cheng Orthodontic Clinic Pte Ltd (“ACOC”). For year of assessment (“YA”) 2012, ACOC paid the taxpayer fees of nearly $280,000.

26.13 On 1 May 2012, the taxpayer incorporated a company known as Straighten Pte Ltd (“SPL”). The taxpayer was SPL's sole director and shareholder.14 For YAs 2013 to 2016, ACOC paid fees of around $1.47m to SPL instead of the taxpayer as in prior years. In turn, SPL paid the taxpayer annual remuneration of between $40,000 to $110,000 during this period. SPL further paid director's remuneration and tax-exempt dividends to the taxpayer.15

26.14 The Comptroller invoked the application of s 33 of the ITA and treated the fees of $1.47m, which ACOC had paid SPL as the taxpayer's income, and levied tax on the amount. The taxpayer argued that only the annual remuneration which SPL had paid him was taxable. The balance which ACOC had paid SPL should be taxed as SPL's corporate tax. The taxpayer's approach would have resulted in the taxpayer paying less tax than if ACOC's fees of $1.47m paid to SPL were treated as his income.16

26.15 Choo Han Teck J agreed with the Comptroller. The material portions of s 33 of the ITA provided as follows:

33.—(1) Where the Comptroller is satisfied that the purpose or effect of any arrangement is directly or indirectly —

(a) to alter the incidence of any tax which is payable by or which would otherwise have been payable by any person;

(b) …; or

(c) to reduce or avoid any liability imposed or which would otherwise have been imposed on any person by this Act,

the Comptroller may, without prejudice to such validity as it may have in any other respect or for any other purpose, disregard or vary the arrangement and make such adjustments as he considers appropriate, including the computation or recomputation of gains or profits, or the imposition of liability to tax, so as to counteract any tax advantage obtained or obtainable by that person from or under that arrangement.

(3) This section shall not apply to —

(b) any arrangement carried out for bona fide commercial reasons and had not as one of its main purposes the avoidance or reduction of tax.

[emphasis added]

26.16 Choo J found the facts fitted directly under ss 33(1)(a) and 33(1)(c). The “simple” arrangement was for ACOC to pay to SPL what ACOC had previously paid the taxpayer directly. SPL could then pay a lower salary to the taxpayer. This enabled the taxpayer to pay less personal income tax. At the same time, SPL paid a lower rate of corporate tax (compared with personal income tax rates). The result was that the taxpayer received the same amount of pay from ACOC but avoided paying the tax he used to pay, because he could use SPL to extract tax benefits which he could not himself obtain.17

26.17 Choo J further held that s 33(b) of the ITA did not come into play. He held that the provision has an extremely broad reach and was conjunctive, that is, the arrangement must be for bona fide commercial reasons and must not have as one of its main purposes the avoidance of tax.18 In this case, the...

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