BDO International NEWS & EVENTS - bdo singapore

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BDO CONNECTIn addition, the implementation of IFRS marks a need forensuring consistency amongst the firms. As Samyn says,“You have, on one hand, the market. (With) your clients,there will be a need for consistent interpretation. On theother hand, (there is a need for consistency) within formsas well and then not only within your own firm, but withinthe other (member) firms.”Samyn also noted that there are times when two differentmember firms can have two different opinions. Hence,there are working parties within BDO International thatoperate as arbitrators whom also partake in IFRS debatesat a global level to alleviate any consistency issues thatarise.“...apart from the Big Four, weare referring a lot more workthroughout the network”than allthe other networks do.Frans Samyn also sees a need for heightening BDO’stransparency in operations for both the network andits member firms. This is crucial, especially since theemergence of corporate scandals in 2002, and how it canLatest updateon taxation offoreign sourceincome inSingaporedrastically affect global networks with a naming structurelike BDO. Samyn adds that the focus is also due to agrowing demand from other key players for a higher degreeof best practice. To rectify, the development of a documentfrom BDO International that accompanies the network’sannual statement is able to give protection to othermembers within the BDO network from being engaged inany potential lawsuit due to management fraud.Nonetheless, a regulation implemented following the eventsof 2002 have also enabled BDO to capture traditional BigFour clients and help BDO close its gap between the networkand the Big Four, as the strict rules on independence andconflicts of interest highlight the need for a second servicesupplier to these firms whom are clients of the Big Four.Lastly, Samyn added that following the successful internalbranding amongst the member firms, BDO Internationalis now in the phase of brand expansion and businessdevelopment, making BDO International known to themarket.Reference: Catherine Woods, “Adapting to a changing environment”,International Accounting Bulletin, 24 May 2006:4-5UNDER the territorial basis of taxation in Singapore,foreign source income is subject to tax when remittedor deemed remitted in Singapore and relief isavailable to Singapore resident taxpayers for foreigntax suffered on the remitted foreign income.With effect from 1 June 2003, any foreign sourced income inthe form of dividends, branch profits and services incomereceived in Singapore on or after 1 June 2003 would beexempt from Singapore income tax provided the followingconditions are met: -1. In the year the foreign income is received in Singapore,the headline tax rate of the foreign country from whichthe income is remitted is at least 15%; and2. The foreign income has been subject to tax in theforeign country from which they were remitted; and3. The Comptroller is satisfied that the tax exemptionwould be beneficial to the person resident inSingapore.
BDO CONNECTFurther guidelines have now been issued by the InlandRevenue Authority of Singapore (IRAS) in a recentsupplementary circular dated 31 May 2006:Condition 1Previously, it was stated that the headline tax rate of aforeign jurisdiction refers to the highest corporate tax rateof the foreign jurisdiction and it need not be the actual rateof tax imposed by the foreign jurisdiction on the specifiedforeign income.It has now been clarified in the 31 May 2006 circular thatthe headline tax is the highest of the tax rate stipulated in aspecial tax legislation of the foreign tax jurisdiction (wherethis is independent of the main legislation which chargeson income) instead of the highest rate of tax specified inthe main legislation, provided the former is lower than thelatter and the lower rate of tax is not pursuant to a taxincentive granted for carrying out substantive activities inthat foreign jurisdiction.Condition 2Previously, this condition would not be considered as metif any of the following circumstances arose:-1. Under the law of the foreign country from which theforeign income is remitted, the income is taxable butan income tax exemption is granted by the foreigncountry. However, note that with effect from 30 July2004, by concession, the government is prepared toconsider this condition as met for the specified foreignincome which is exempt from tax (i.e. exemption fromtax on the specified foreign income itself, and in thecase of a foreign source dividend, exemption from taxon the income from which the dividend is paid as well)in the foreign jurisdiction from which the specifiedforeign income is received if the exemption is a directconsequence of that foreign jurisdiction granting atax incentive for carrying out substantive businessactivities in that jurisdiction; and2. After paying income tax on the foreign income in theforeign country where the income was sourced, theforeign income is moved to or invested in anotherforeign country that does not levy any income tax onsuch income before the income is remitted back toSingapore.country from which the dividend is paid covers only thefollowing:-a. The income tax on the dividend that the Singapore taxresident is subject to in that foreign country; orb. The income tax paid or payable in that foreign countryby the payer company (i.e. the underlying tax) on itsprofits out of which the dividend is paid.Due to feedback on the difficulties faced in proving this“subject to tax “ condition, particularly in the case ofportfolio investors receiving foreign-sourced dividends,pursuant to the 31 May 2006 circular, taxpayers can nowadopt any of the following 2 administrative methods:Method 1: Comparison of total dividends with total taxed profitsWhere the total amount of taxed income (including capitalgains which are subject to capital gains tax) of the payercompany is at least equal to the total amount of dividendsit paid, up to and including the year of payment of thedividend in question, this “subject to tax” condition will beconsidered met.Method 2: Use of audited accounts of payer companyThis “subject to tax” condition is again considered met solong as the audited accounts of the payer company forthe financial period ending in the year the dividend (whichis not subject to dividend withholding tax in the foreignjurisdiction) is received shows a positive current year(excluding deferred tax) tax expense.These 2 methods are non-prescriptive and taxpayers areat liberty to choose any of these 2 methods or any othermethods.Condition 3This condition essentially allows the taxpayer to opt outof the exemption if it is more beneficial to be treatedunder the existing foreign tax credit system, i.e. the foreignincome would be subject to tax in Singapore and a foreigntax credit is available for the tax paid on the incomeoutside Singapore.There is no change in this condition.Where foreign source dividend is concerned, tax paidor payable by the Singapore tax resident in the foreignArticle contributed by Simon Poh of our Tax Advisory Division
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BDO International NEWS & EVENTS - bdo singapore

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