Lawlines Volume 9 Issue 4 - eOASIS

LawLinesVol 9 . Issue 4 • December 2007Around Rajah & TannRound Up – 2007 InPerspectiveFeature ArticlesTo Withhold Or Not ToWithhold – That Is TheQuestionAll Abuzz About GamesCorporate SocialResponsibility UnderThe New IndonesianCompany LawCase BitesLegislation Bites‘(b) interest shall be deemed to have been paid bya person to another person although it is notactually paid over to the other person but isreinvested, accumulated, capitalized, carried toany reserve or credited to any account howeverdesignated, or otherwise dealt with on behalfof the other person.’The main charging section under the Act issection 10(1)(d), which provides that income taxshall be payable at a specifi ed rate for each yearof assessment upon the income of any personaccruing in or derived from Singapore or receivedin Singapore from outside Singapore in respect ofdividends, interest or discounts. If an amount doesnot amount to income of a taxpayer it is not liableto tax under the Act. This qualifi cation determineswhether the interest in any given case is subject totax under this Act and therefore collectible by wayof withholding tax. To be chargeable under the Act,an amount that is income must have accrued in orderived from Singapore or be received in Singaporefrom outside Singapore. Section 12(6) of the Actdeems to be derived from Singapore any interestwhich is borne, directly or indirectly, by a personresident in Singapore or any income derived fromloans where the funds provided by such loans arebrought into or used in Singapore.The question then arises as to whether interest inany given case amounts to ‘income’ of the taxpayer.We consider the case of a company which makesloans to its subsidiaries. As the controlling or majorshareholder, it is landed with the responsibility ofproviding funds to its subsidiaries. The cases makea clear distinction between interest outstanding inthe context of a business and interest that is owedoutside of a trading or business context.The CasesThe principle enunciated by the Privy Councildecision of St Lucia Usines and Estates Companyv Colonial Treasurer of St Lucia [1924] AC 508 wasapproved of and applied in Singapore by the Courtof Appeal in 1960 in the case of The Comptroller OfIncome Tax v A B [1960] MLJ 55 and is thereforelaw in Singapore and binding on the Comptroller.In addition, readers will note from the summaryprovided below that in the case of AB, it was theComptroller who took the benefi t of St. Lucia’scase. The Comptroller should therefore apply aconsistent position as it had itself sought to applypage 15 of 44 pages | print | comments | close