Lawlines Volume 9 Issue 4 - eOASIS

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LawLinesVol 9 . <strong>Issue</strong> 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 Bitesin AB’s case.In AB’s case, the shareholders of XYZ had at ageneral meeting held on 23 December 1954,passed a resolution to declare a certain dividendless income tax at 30%. Accordingly, on 31December 1954, AB’s account was credited witha dividend of S$20,000 less S$6,000 being incometax at 30%. The Comptroller of Income Tax decidedthat the dividend of S$20,000 was not part of theassessable income of the respondent for 1955.If it had been part of his assessable income, ABwould have been entitled to be credited by theComptroller of Income Tax with the sum of S$6,000which was deducted from it by the company andpaid as income tax.The Court of Appeal assessed the contentionof AB that upon the declaration of the dividendit accrued as income under section 10 of theIncome Tax Ordinance. In the case of St LuciaUsines and Estates Co Ltd v Colonial Treasurer ofSt Lucia [1924] AC 508, it was held by the JudicialCommittee that though the interest in question wasa debt accruing in 1921, it was not income arisingor accruing in 1921, and that the appellants werenot liable under the Ordinance to pay tax for thatyear. In St Lucia, the respondent contended thatthe above interest ‘accrued’ to the company in theyear 1921, because it was payable in that year andnone the less because it was not paid in that year.The Court held that the words ‘income arising oraccruing’ are not equivalent to the words ‘debtsarising or accruing’.The Court of Appeal held that it followed from StLucia that a dividend is not to be treated as incomeaccruing in the Colony merely because it hasaccrued as a dividend. The money must accrue asincome. In our view, therefore, the interest owingbut unpaid by a subsidiary to its holding companywould not be ‘income’ in the hands of a holdingcompany within the meaning of Section 10(1) readwith Sections 12(6) and Section 45(1) of the Act,until actually paid.ConclusionThis decision and subsequent cases decided inother jurisdictions have considered the issue andsupport the conclusion that a holding companywhich is not in the business of making loans andwhich makes loans to its subsidiaries earns noincome both in law and under the position of thepage 16 of 44 pages | print | comments | close
LawLinesVol 9 . <strong>Issue</strong> 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 BitesComptroller in AB’s case. No withholding tax,therefore, applies unless interest is actually paid onthose loans. Of course, the corollary applies that nodeduction can be sought by the borrower. However,this in practice is not an issue as accountingdiscipline means borrowers are less likely to forgetand claim deductions where no interest is paid, thanthey are to forget that withholding tax is regardedas payable by the Comptroller even if interest isnot paid.While the author of this article believe their statingof the position in law is correct, this position runsagainst an entrenched practice of the Comptrollerand clients are advised against taking a positioncontrary to the practice of the Comptroller withoutspecifi c legal advice and the gumption to seetheir position through to the courts. Readers mayhowever be heartened to note that in Septemberof this year, Rajah & Tann successfully obtaineda ruling from the Comptroller impliedly acceptingthis position, resulting in the non-imposition ofwithholding tax and penalties on some US$30million in interest accrued and unpaid over theyears. Although the ruling was not issued pursuantto Section 108 of the Act (having been begunprior to the introduction of Section 108) and isstated as a ‘waiver’ of withholding tax issued ona non-precedent setting basis, an admission canbe implied as there is no provision under whichthe Comptroller can ‘waive’ withholding tax that isotherwise payable except under Section 13(4) orSection 92 of the Act, neither of which were reliedupon in the ruling.For more information, contact:Christina NgPartner, Corporate & CapitalMarkets Practice GroupDID: 6232 2262christina.ng@rajahtann.compage 17 of 44 pages | print | comments | close
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Lawlines Volume 9 Issue 4 - eOASIS

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