ICPAS PROFESSIONAL EXAMINATION

NOVEMBER 2010

ADVANCED TAXATION (ATX)

INSTRUCTIONS TO CANDIDATES

1. The time allowed for this examination paper is Three (3) hours.

2. This is an open-book examination.

3. This paper comprises three (3) SECTIONS: A, B and C.

• Section A: Ten (10) compulsory multiple choice questions of 2 marks

each to be answered on the answer booklet provided. No
marks will be deducted for wrong answers.
• Section B: Two (2) compulsory questions, total 50 marks
• Section C: Answer any two (2) questions of 15 marks each

4. This paper consists of a total of ten (10) pages, including this instruction sheet.

5. The marks allocated are shown at the end of each question/sub-question. The
total marks of all questions are 100 marks.

6. Marks will be deducted where

• deductible expenses are treated as non-deductible expenses,

• non-taxable income are treated as taxable and
• necessary supporting workings are not shown.

7. All answers must be written in the answer booklet. Begin your answer to each
question on a separate page of the answer booklet.

8. Answers will be graded for content and appropriate presentation.

9. Write legibly in ink.

ICPAS PROFESSIONAL EXAMINATION 2010 Term 2
Advanced Taxation – November 2010 Module Examination
________________________________________________________________________
SECTION A: Multiple Choice Questions
For the Multiple Choice Questions (MCQ), choose the MOST APPROPRIATE answer
from the alternatives given and write the MOST APPROPRIATE answer (A), (B), (C),
(D) or (E) in the answer booklet. Each correct answer for the MCQ is awarded 2 marks.
There will be no deduction for wrong answers.

1. Which of the following statements on the advance ruling system in Singapore

IS/ARE FALSE?

i There is a minimum application fee of $525 for ruling requests made in

December 2009.
ii An application for ruling involving the interpretation of foreign law can be
considered if the law is somewhat similar to Singapore’s.
iii A person who puts in a request for ruling would have to follow the ruling,
regardless of the outcome, and even if he disagrees with it.

A i and ii only
B i and iii only
C ii and iii only
D All of the above
E None of the above
(2 marks)

2. Which of the following income(s) derived by a resident individual IS/ARE

FULLY EXEMPTED from tax in the Year of Assessment 2010?

i Interest income derived from placing a deposit in a licensed pawnshop.

ii Annuity income derived from a supplementary retirement scheme.
iii Royalty income derived by an author or inventor.

A i and ii only
B i and iii only
C ii and iii only
D All of the above
E None of the above
(2 marks)

3. Which of the following capital expenditure is NOT DEDUCTIBLE under Section

14 of the Income Tax Act?

A Assets with short lives which are renewals without improvement elements.
B Renovation works which require prior approvals from the Commissioner of
Building Control
C Building modifications to facilitate mobility of disabled employees
D Research and development expenditure incurred prior to start of a trade.
E None of the above
(2 marks)

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ICPAS PROFESSIONAL EXAMINATION 2010 Term 2
Advanced Taxation – November 2010 Module Examination
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4. Ignoring the normal capital allowance claims under Section 19 which are based
on prescribed useful lives of qualifying assets, which of the following options for
claiming accelerated plant and machinery allowances on qualifying assets for the
Year of Assessment 2010 IS/ARE NOT available to a trading company?

A Claiming over 1 year

B Claiming over 2 years
C Claiming over 3 years
D All of the above
E None of the above
(2 marks)

5. Which of the following schemes would NOT benefit Company Y’s cashflow
position if it is not in a taxpaying position for the Year of Assessment 2010?

A Transferring the tax loss to a related profitable Company Z. Both

companies Y and Z are 100% subsidiaries of another Singapore
incorporated holding company.
B Carrying back the loss to set off against the positive assessable income of
Company Y for the Year of Assessment 2007, assuming all tax arrears
including those for the Year of Assessment 2007 have already been fully
settled
C Carrying forward the loss to set off against the positive statutory income of
Company Y for the Year of Assessment 2011.
D All of the above
E None of the above
(2 marks)

6. Which of the following benefits-in-kind IS/ARE NOT granted administrative

concessions or exempted from tax for the Year of Assessment 2010?

A Corporate passes to the Singapore Zoo and Night Safari

B Chinese New Year “angpows” or red packets of $300 per employee
C Bereavement of $1,000 provided to a junior clerk staff on the demise of
his father. The amount is equivalent to her one month salary.
D All of the above
E None of the above
(2 marks)

7 The tax transparency treatment APPLIES to which of the following partnerships?

A General partnerships
B Limited liability partnerships
C Limited partnerships
D All of the above
E None of the above
(2 marks)
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ICPAS PROFESSIONAL EXAMINATION 2010 Term 2
Advanced Taxation – November 2010 Module Examination
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8. In the absence of special exemptions and waivers, which of the following

conditions MUST be present before withholding tax is applicable in Singapore?

i The payer is tax resident and has a permanent establishment in Singapore.

ii The payee, an individual or a company, is not tax resident in Singapore.
iii The income is sourced or deemed sourced in Singapore.

A i and ii only
B i and iii only
C ii and iii only
D All of the above
E None of the above
(2 marks)

9. Which of the following foreign-sourced income derived by a Singapore resident

company MAY qualify for full tax exemption for the Year of Assessment 2010?

i Consultancy fees derived through a permanent fixed place of operation in

a foreign jurisdiction, where there is a sizable office space with a core
team of local employees.
ii Dividend income paid by a China subsidiary which carries out substantive
activities in China, even though no tax is paid or payable due to the
granting of a tax holiday.
iii Branch profits remitted from Labuan (tax rate based on 3% of net profit),
which is part of Malaysia (corporate tax rate of 25%)

A i and ii only
B i and iii only
C ii and iii only
D All of the above
E None of the above
(2 marks)

10. Which of the following statements on goods and services tax IS/ARE TRUE?
i Sales of a condominium by a GST-registered company is treated as an
exempt supply.
ii Business gifts to the same client need not be treated as deemed supplies so
long as the total value for any calendar year does not exceed $200.
iii Repairs of ships qualify to be treated as zero-rated supplies, even if the
services directly benefit a Singapore entity.

A i and ii only
B i and iii only
C ii and iii only
D All of the above
E None of the above
(2 marks)
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ICPAS PROFESSIONAL EXAMINATION 2010 Term 2
Advanced Taxation – November 2010 Module Examination
________________________________________________________________________
Section B: Structured Questions (Compulsory)

Question B1

Above Consultancy Services Pte Ltd (ACSPL) is a company which was incorporated and
commenced operations in Singapore since January 2006. Its profit and loss account for
the year ended 30 September 2009 is as follows:-

Notes $
Revenues

Service fee 1 32,963,420

Other income 2 526,050

33,489,470
Less: Expenses
Advertising 4,059,939
Audit fee 47,921
Bad debts 2,860 3
Bank charges 327,851
Cafeteria expenses 49,958
Consultancy fees 199,236 4
Depreciation 305,396
Directors' fees 105,396
Donations 60,000 5
Entertainment and gifts 530,659
Fines and penalties 9,575
Foreign exchange loss 982 6
Interest 125,873 7
Loss on disposal of fixed assets 166,115
Management fees 120,000 8
Medical expenses 91,320
Miscellaneous expenses 218,324 9
Motorcar expenses (company car) 12,298
Power and water 682,494
Printing and stationary 76,949
Rental of office premises 760,240
Salaries, bonuses and allowances, CPF 10,008,909
Secretarial services 3,568
Staff training and recruiting 18,884
Stamp duty 14,100
Telephones 16,413
Transport expenses 2,065
Travelling expenses 4,341
Utilities expenses 122,320

18,143,986

Net Profit before income tax 15,345,484

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ICPAS PROFESSIONAL EXAMINATION 2010 Term 2
Advanced Taxation – November 2010 Module Examination
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Notes:

1 Included in the service income is gross foreign income of $50,000 earned from the
rendering of consultancy services to a company resident in Thailand. Under
Thailand domestic rules, a 15% withholding tax was suffered. ACSPL has no
permanent establishment or fixed place of operation in Thailand.

2 Included in other income are:

Gain from sale of capital assets 10,000

Dividend income
- 1-tier dividend received from Singapore resident company 8,300
- Received from its subsidiary in UK (net of 30% tax) 7,000

3 Bad debts comprise:

Specific provision for doubtful trade debts 3,700

Write-off of trade debt taken over from another company 3,000
6,700
Less: Write-back of specific provision for doubtful trade debts 3,840
2,860
4 Consultancy fees were paid to

Legal firm to draft new agency agreement 8,000

Legal firm to recover debt owing by ex-director 12,000
Tax consultancy firm in Korea to undertake feasibility studies 160,000
Local tax agent to object against an error in assessment by the Comptroller 19,236

5 Donations were made to the following approved institutions of public characters:

Cash donations to Society for Continence on 2 November 2008 10,000

Dialysis machines to National Kidney Foundation on 8 March 2009 46,000
Donations (with lucky draws) to Singapore Sports Council on 28 July 2009 4,000

6 Unrealised exchange loss comprise:

Realised exchange gain on translation of foreign currency trade debtor (1,000)

Realised exchange loss on repayment of foreign currency loan 1,982

7 Interest expenses include the following:

Hire purchase interest for company car SJC 7404K 18,000

Interest on late payment of CPF contributions 800
Interest on late payment of non-trade, non-income producing debt 1,200
Interest on overdraft and trade financing 105,873

8 Management fees were paid to Ultimate Consultancy Ltd (UCL), ACSPL’s parent
company in UK, in return for management services which were provided entirely
from UK based on pure reimbursement (i.e. no mark-up) of payroll costs
($100,000) and depreciation ($20,000).
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ICPAS PROFESSIONAL EXAMINATION 2010 Term 2
Advanced Taxation – November 2010 Module Examination
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9 Miscellaneous expenses include:

Praying expenses incurred in the lunar seventh month 1,200

Input GST on corporate golf club membership subscription fees 2,700
Output GST borne by the company on behalf of customers 2,600
Entrance fees paid to join a business association 1,000
Replacement of keys, toilet rolls, etc 800

Other Information:

1 Additions to fixed assets for the year ended 30 September 2009:

Date of Purchase Description $’000

12 Nov 2008 iPhones for management staff ($1,500 x 8) 12
29 Apr 2009 Office equipment – transferred (see Note 2) 15
11 Aug 2009 Company car SJC 7404K 93
Total 120

Depreciation for new and existing assets totalled $305,396.

2 ACSPL acquired 75% of Supreme Justice International Pte Ltd (SJIPL) on 1 July
2009. SJIPL has the same year end as ACSPL. The following are details of
SJIPL’s tax loss items:

Unabsorbed tax losses for the Year of Assessment 2008 $300,000

Unabsorbed capital allowances for the Year of assessment 2009 $200,000
Unabsorbed capital allowances for the Year of assessment 2010 $100,000

Concurrently on 1 July 2009, SJIPL also transferred office equipment (original

cost $30,000, date of purchase was 1 November 2007). ACSPL took over the
office equipment at $15,000 which is comparable with the open market values.
Both entities did not jointly opt for Section 24 election.

Required:

(a) Calculate the minimum tax liability of ACSPL for the Year of Assessment 2010.
In your calculations, assume that both ACSPL and SJIPL have always claimed
and will continue to claim maximum capital allowances wherever possible
(including taking advantage of any applicable administrative concessions). All
capital allowances for assets acquired in prior years had been fully claimed.
ACSPL did not opt out of the concessionary tax treatment for foreign exchange
gains and losses. For all expense and income items, even if no tax adjustments
are required, the workings must indicate so.
(22 marks)

(b) Comment on whether both entities should have opted for Section 24 election
(4 marks)

(c) Discuss whether ACSPL is entitled to claim group relief for SJIPL’s loss items.
. (4 marks)
(Total: 30 marks)
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ICPAS PROFESSIONAL EXAMINATION 2010 Term 2
Advanced Taxation – November 2010 Module Examination
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Question B2

Mr. Darren Ng is a Hong Kong resident who works in a Singapore representative office
since 1 May 2008. He is 48 years old and married with 2 children (twins) born in Hong
Kong in 2007. Whilst in Singapore, his wife derived part-time income of $3,600 for the
whole year of 2009. Every month, Darren remitted $2,000 to Hong Kong to support his
aging father there. Darren applied for and was granted area representative status since the
Year of Assessment 2009. The following are details of his employment:

Income details
• Gross basic salary of: $108,000 ($9,000 per month)
• Bonuses of $57,000 received in 2009, comprising the following:
- a contractual bonus of $12,000 for services rendered in 2008;
- a non-contractual bonus of $36,000 declared payable on 31 January 2009
and relating to services rendered in 2008; and
- a pro-rated contractual bonus of S$9,000 for services rendered in 2009.
• Employer’s contributions to Darren’s overseas pension fund - $11,500.
• Use of a company car, details of which are as follows:
- Vehicle SJR 1513T; capital cost: $190,000; residual value: $50,000
- Darren’s use of the car in the year 2009 was: for travel between his home
and the office: 4,000 km; and for travel to attend to business: 2,000 km
- All maintenance expenses relating to the car were borne by the company but
all costs relating to petrol were borne by Darren.
• Monthly cash allowance of S$1,500, i.e. $18,000 for the year 2009. Darren
expended S$12,000 of this allowance for petrol to operate the car (SJR 1513T)
and retained the remaining S$6,000 of the allowance.

Travel schedule

Travelling Dates Places visited

• 12.01.09 - 23.01.09 Mumbai, India
• 02.05.09 - 25.05.09 Jakarta, Indonesia
• 21.07.09 - 04.09.09 Bangkok, Thailand

Benefits-in-kind
His employer paid $60,000 for the rental of his apartment in the whole year of 2009,
while Mr. Darren co-payed 20%. The apartment was partially furnished as follows:

Monthly taxable rates as prescribed by IRAS:

- 1 refrigerator $10 per unit
- 3 air conditioners $10 per unit
- 1 washing machine $15 per unit

Required:

Calculate Darren’s minimum tax payable for the Year of Assessment 2010.

(Total: 20 marks)

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ICPAS PROFESSIONAL EXAMINATION 2010 Term 2
Advanced Taxation – November 2010 Module Examination
________________________________________________________________________
Section C: Structured Questions (Selective)

Question C1

Wesley Sneijder is a Dutch who invested in a number of shipping companies in Holland.

He was told that the income tax rates are very much lower in Singapore compared to his
home country. He is therefore contemplating to start a business in Singapore. In the year
2011, the Singapore business will enter into ship management contracts and crew
management contracts with customers in Asia. The business will also have service
agreements with companies from India whereby the services under the aforesaid ship
management contracts and crew management contracts would be subcontracted to these
companies in India for a fee. Both the ship management services and crew management
services would be rendered outside Singapore, specifically in India. The ships that were
managed would be sailing in international waters, although they may sometimes visit
Singapore for a variety of reasons like the replenishment fuel and stores, or for repairs.

Required

(a) Advise Wesley on the tax factors to consider in deciding whether he should
register a sole proprietorship business or incorporate a company to carry on his
new business. Assume that the business will be paying normal tax rates in
Singapore, i.e. it is not entitled to any special concessionary rates
(6 marks)

(b) Advise Wesley on the pertinent corporate tax implications on his new business,
apart from those discussed in (a).
(9 marks)

(Total: 15 marks)

Question C2

Sandicraft Pte Ltd (SPL), a company incorporated and tax resident in Singapore, has a
20% stake in the share capital of Wallpower Co Ltd (WCL), a company incorporated and
tax resident in Country A, a country that does not have a tax treaty with Singapore.
Country A adopts a one-tier corporate tax system similar to Singapore. Corporate tax in
Country A is levied in 2 tiers: 10% for small companies and 20% for other companies.
During the year ended 30 June 2009, WCL made a net profit of $500,000 and decided to
pay SPL a gross dividend of $200,000 on 20 December 2009 which was credited into the
bank account of SPL on the same day.

Required

(a) Discuss the income tax implications arising from the remittance of the dividend
income in both Country A and Singapore
(8 marks)

(b) How would your answers to (a) differ if Country A levies only a standard
corporate tax rate of 10%, all other facts remaining the same?
(5 marks)
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ICPAS PROFESSIONAL EXAMINATION 2010 Term 2
Advanced Taxation – November 2010 Module Examination
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(c) How would your answers to (a) differ if Country A levies only a standard
corporate tax rate of 10% and SPL maintains a 30% stake in the share capital of
WCL, all other facts remaining the same?
(2 marks)

(Total: 15 marks)
Question C3

Dipsy Winky Pte Ltd (DWPL) is a Singapore incorporated company which registered for
GST with effect from 1 July 2009. The following independent transactions took place
during the year ended 31 December 2010:

(a) DWPL has contracted with Fun Engineering Pte Ltd (FEPL), another Singapore
GST-registered company to provide the latter with engineering services to be
performed in Malaysia. The work will however be undertaken by staff from
DWPL’s branch office in Malaysia.

(b) DWPL deposited some funds $100,000 from its surplus cash position into a fixed
deposit account with DBS Bank in November 2009. The fixed deposit matured in
May 2010 with an interest earned of $2,000.

(c) On 27 March 2010, DWPL entered into a contract with a Singapore GST-
registered trader to provide services in the management of properties located in
Johore Bahru.

(d) In January 2010, DWPL hired a motorcar (registration plate: SZA3333Y) for
S$10,700 (including 7% GST) for six months till 30 June 2010. For the GST
reporting quarter ended 31 March 2010, the car was used by DWPL’s Marketing
Manager solely for the company’s business. For the GST reporting quarter ended
30 June 2010, the car was then used by DWPL’s Tax Manager wholly for private
purposes.

(e) On 1 July 2010, DWPL set up a wholly-owned subsidiary, Tinky Po Pte Ltd
(TPPL). Over the next twelve months from 1 July 2010, TPPL expects to make
sales of goods amounting to S$1.1 million. These sales involve the direct
shipment of goods from India to China. No other significant transactions are
expected in the next twelve months, except that TPPL will dispose of its small
office unit in Singapore for about $950,000 and start renting from external offices.

Required

Explain the GST implications of each of the above 5 independent transactions, together
with the treatment (if any) to be accounted for in the relevant GST reporting quarter.

(Total: 5x3 marks each = 15 marks)

- End of Paper -

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