Lawlines Volume 9 Issue 4 - eOASIS

LawLinesVol 9 . Issue 4 • December 2007Around Rajah & TannRound Up – 2007 InPerspectiveFEATURESTo Withhold Or Not To Withhold – That Is The QuestionFeature ArticlesTo Withhold Or Not ToWithhold – That Is TheQuestionAll Abuzz About GamesCorporate SocialResponsibility UnderThe New IndonesianCompany LawCase BitesLegislation BitesOverviewThe obligation to withhold tax on interest wherepayable to a non-resident lender is a familiar one.Where interest is paid, there is little hardship in havingto concurrently withhold tax. The problem ariseswhen the borrower has no funds to pay the interestwhich then accrues unpaid. Here fewer people areaware of, and are therefore often caught by, theComptroller’s practice of requiring withholding tax tobe payable once interest accrues, whether or not itis paid over to the non-resident lender.This article questions the legitimacy of theComptroller’s practice on section 45(1) and (8)of the Income Tax Act (‘Act’) when applied tointer-company loans, particularly loans granted byinvestment holding companies to their subsidiariesor associates other than in the ordinary course ofbusiness.Section 45(1)The obligation to withhold tax is imposed by section45(1), which stipulates that where a person isliable to pay to another person not known to himto be resident in Singapore any interest which ischargeable to tax under the Act, the person payingthe interest shall deduct therefrom tax at a certainrate on every dollar of the interest. Accordingly, thetwo requirements for a withholding obligation arethat the payment be ‘interest’ and that it be interestthat is ‘chargeable to tax’ under the Act.Whether Interest Amounts ToIncomeSection 45(8) which is merely a defi nition sectionthen defi nes in subsection (b) when interest isdeemed to have been paid by a person to anotherperson:page 14 of 44 pages | print | comments | close