BF2301/02:INTERNATIONAL TAX AND

TRADING LAW
2020/21 SEMESTER 1
• Introductions
• Expectations
• Assessment
• Contacts
COURSE OUTLINE
Components Weightage Individual / Group
Class Participation 10% Individual
Presentation (Tax Segment) 15% Group (5%)
Individual (10%)
Quiz (Tax Segment) 35% Individual
Written Assignment (Tax Segment) 20% Individual
Written Assignment (Law Segment) 20% Individual
Total 100%

COURSE OUTLINE – BF2301

4
Components Weightage Individual / Group

Class Participation 10% Individual

Presentation (Tax Segment) 15% Group (5%) Individual

(10%)

Quiz (Tax Segment) 45% Individual

Written Assignment (Law Segment) 30% Individual

Total 100%

COURSE OUTLINE – BF2302

5
CONTACT DETAILS

usha.chandradas@ntu.edu.sg
Sg
tax

THE
International Tax COURSE AS
A WHOLE…

International
Trade & Treaties

7
INTRODUCTION TO
INCOME TAXES
UNDERSTANDING
INCOME TAXES
WHAT ARE
TAXES AND
WHY DO WE
PAY THEM ?
 • Taxation as a means of channeling resources from
the private sector to the public sector
• To provide public services

• To ‘redistribute’ wealth
• To manage economic cycles

WHY • For example, through fiscal policy

TAX?

• Besides tax, what are the other ways for the

government to raise funds?
 • What is a “good tax system”?

• Equity

• Ability-to-pay principle

§ Horizontal equity -persons with same ability to

pay should pay same amount of tax

§ Vertical equity -person with greater ability to

pay should be imposed more tax

WHY • Transparency

TAX? • Time of payment, manner of payment, quantity to

be paid

• Convenience

• Tax levied at time / way most convenient for

taxpayer to pay

• Efficiency

• Tax collected efficiently – keep administrative

costs low
 OUTLINE

• Why tax?
• Conceptual framework to tax

• Jurisdiction
• Base
• Allocation (of the base over time)
• Person
• Cross-jurisdictional linkages
• Tax expenditures
• Tax administration

13
 CONCEPTUAL FRAMEWORK

• 7 tax concepts
• Fundamental issues that need to Jurisdiction

be addressed in any tax system

• Understanding of the concepts Tax
administration Base
important throughout the course
and beyond (even as rules
change)
• As we go through each concept,
we shall discuss how it is applied Tax
Allocation (of
the base over
in Singapore’s context expenditures time)

Cross-
jurisdictional Person
linkages

14
 B A S I C TA X
CONCEPTS – THE
SINGAPORE
EXAMPLE: THE
I N C O M E TA X AC T
OF SINGAPORE
C A P 1 3 4 ( T H E ” I TA ” )

• Income
• What is taxable and what is
non-taxable

• Deductions
• Expenses incurred in the
production of income
• Capital allowances
• Donations

• Personal deductions (for

individuals)
 SINGAPORE’S
I N C O M E TA X
JURISDICTION

• “…accruing in or
derived from
Singapore…”
à Income is sourced
in Singapore (SSI)

• “…received in
Singapore from outside
Singapore…”
à Income is sourced
outside Singapore
(FSI) but received
in Singapore

16
” D E E M E D S O U R C E ” – S U M S T H AT WO U L D N OT
O R D I N A R I LY B E TA X A B L E B U T F O R S P E C I A L
D E E M I N G RU L E S – E G S . S E C T I O N 1 2 ( 6 ) , ( 7 )
 A SIMPLE WAY TO
THINK ABOUT TAXES
AND TAX OUTCOMES
- PAYMENT FLOWS

• Where does money

come in (potential
income) ?
• And where does money
go out (potential
expenses)?
• And who receives /
earns / derives this
money, or pays these
expenses – is it a
company, or a person,
or some other kind of
legal entity
JURISDICTION

19
 How a State defines the scope of its
taxing rights in relation to:
The base, i.e. the subject matter The person (e.g. individual,
to be taxed (e.g. income, company) on whom the tax is
consumption) and imposed

JURISDICTION

To tax, the State must establish a

connection/nexus:
Between the State and the Base; Between the State and the
• à Source of the income Person
• and/or • à Tax residence of the person

20
 TAX RESIDENCE OF THE
PERSON

• Each State has its own rules for determining who is and
who is not its tax resident
• Many States will tax its tax residents and non-tax residents
differently

Discussion
• For companies, what are the possible tests for tax
residency? What are the pros and cons of each test?

21
 TAX
RESIDENCE
OF THE
PERSON

What does it mean in a Singapore

context?

For example, for tax-resident

companies :

- Foreign- sourced income

exemptions

- Ability to rely on Agreements for

the Avoidance of Double Taxation
(DTAs)

- Payment of one –tier dividends

- Withholding tax on certain types

of income paid to non-residents,
does not affect residents

- Start-up tax exemption on first

$200K of income

22
 The income is sourced in the
State where the originating cause,
activity or event that gives rise to
the income takes place

SOURCE OF THE
INCOME
( C O N C E P T U A L LY )

Locate the geographical source,

i.e. where is the income sourced?
What was done Where was this
to earn the activity done to
income? earn the income?

23
 SO UR CE :
E MP LOY M EN T
INCO ME

• Place of performance
i.e. where the duties of the employment
are performed

• e.g. Singapore:
s12(4) ITA – “The gains or profits from any
employment exercised in Singapore shall
be deemed to be derived from Singapore
whether the gains or profits from such
employment are received in Singapore or
not.”

24
 SOURCE: TRADE/BUSINESS
INCOME (TRADE INCOME IN
S H O RT )

• For a trade to have a trading source in a country, the

person must have a minimum level of presence in that
country

à How to determine this “minimum level of presence”?

i.e. How to determine if the person’s presence in the
country is substantive enough?
• Notion of “permanent establishment” (PE) used to define
minimum level of presence

• Only profits attributable to the PE is regarded as sourced in

that country

25
 PERMANENT
ESTABLISHMENT (PE)

• PE is a definition that lays down the minimum level of

assets owned, activities undertaken and agency
relationships in a State that gives rise to a trading source in
that State

• PE is defined in:
• Domestic laws – Section 2(1) of the ITA
• Bilateral tax treaties (DTAs) (details in later lesson)

• Which definition to apply to each case?

26
 PERMANENT ESTABLISHMENT
(PE)

• Section 2(1)

• Section 12(1)

27
 PERMANENT ESTABLISHMENT
(PE)

• Basic concept – fixed place of business through which the business of an enterprise is carried on

• Place of business
• Fixed
• Business has to be carried on through the place (can’t be vacant premises)
• Dependent agents

• Contracting on behalf of principal

• Exclusion for independent agents

28
 Dividends
• Residence of the payer
company
Interest
SO UR CE :
DI V I DEN DS,
• Residence of the payer (unless
I N T E R E ST, paid by foreign permanent
ROYA LT I E S establishment)
Royalties
• Residence of the payer (unless
paid by foreign permanent
establishment)
• Place of use

29
 SOURCE: IMMOVABLE
PROPERTY

• Rental from immovable property (e.g. land, building)

• Where the immovable property is located

• Permanent establishment assets – location of

permanent establishment

30
 DEFINING THE INCOME TAX
JURISDICTION

• A State applies the notions of ‘source of the income’ and ‘tax residence of the
person’ to define its income tax jurisdiction
• States differ on how narrowly or widely they define their income tax jurisdiction

Narrow definition Wide definition

e.g. tax only income e.g. tax residents on all their
sourced in the State income wherever sourced,
(purely territorial system) & tax non-residents on
income sourced within the
State (worldwide system)
31
 PURELY TERRITORIAL SYSTEM
(SOURCED-BASED TAXATION)

Residence Resident Non-Resident

Source
Domestic sourced T T

Foreign sourced NT NT

32
 WORLDWIDE SYSTEM
(RESIDENCE-BASED TAXATION)

Residence Resident Non-Resident

Source
Domestic sourced T T

Foreign sourced T NT

33
 SI N GA P O R E ’ S
I NCO M E TA X
J UR ISDICT IO N

• Section 10(1), Income Tax Act:

“Income tax shall, subject to the provisions

of this Act, be payable at the rate or rates
specified hereinafter for each year of
assessment upon the income of any person
accruing or derived from Singapore or
received in Singapore from outside
Singapore in respect of -…”

34
 SI N GA P O R E ’ S
I NCO M E TA X
J UR ISDICT IO N

• “…accruing in or derived from Singapore…”

à Income is sourced in Singapore (SSI)

• “…received in Singapore from outside

Singapore…”

à Income is sourced outside Singapore

(FSI) but received in Singapore

35
W IT H H O LDING TA X – A SP ECIA L C A SE
O F TA XE S, 2 WAYS, W IT H O BLI GAT I O NS
O N T H E PAY ER A ND PAY E E
 WITHHOLDING TAX
(CONCEPTUALLY)

Non-resident income recipient

Interest

• Is the income sourced in Singapore?

• If so, how does IRAS collect the tax? Singapore payer

37
BASE

38
 What is to be
taxed?
• For income tax,
base = income

BASE (TO BE
How to define
COVERED IN it?
LESSON 2)

How to measure
it?

39
ALLOCATION

40
 A LLO C AT IO N
( O F T H E B A SE
OV E R T IME )

• How to allocate the base

over reasonably short
periods of time to ensure
timely computation and
collection of the tax?

41
 ALLOC ATION ISSUES

• Basis of assessment
• Income assessed on a current year basis or preceding year basis?
• E.g. For Singapore, income is taxed on a preceding year basis

• Timing of tax imposition

• Eg. For Singapore, when is SSI brought to tax? How about FSI received in
Singapore?

• Carry back/forward of capital allowances, trade losses, approved donations

42
 TERMINOLOGY: YA VS BP

• Year of Assessment (YA = tax year)

• 1 January to 31 December every year

• YA 2018 = 1.1.2018 to 31.12.2018
• Process of income assessment and tax collection occurs every YA

• Basis Period (BP)

• E.g. for Singapore, income assessed to tax in a YA is the income:

• Accruing in or derived from Singapore (SSI) and
• Received in Singapore from outside Singapore (FSI received in Sg)
in the basis period

43
 SI N GA P O R E I N CO M E TA X
– T I M I N G O F TA X I M P O SI T I O N

• SSI
• When it accrues to or is derived by the person in the BP to
the YA

• Income accrues for tax purposes when the person has

performed all the obligations/work to earn the income and
there is a legal entitlement to receive the income, i.e.
when there is a legally enforceable debt owing to the
taxpayer

• When actual payment is made is not important

• Do not confuse this with accounting accrual of income

44
 SINGAPORE INCOME TAX
– TIMING OF TAX IMPOSITION

• FSI

• When it is received in Singapore

(within the meaning of s10(25)) in the
BP to the YA
• S10(25) will be discussed in a later
session
• Timing of accrual of the FSI not
important

45
PERSON

46
 PERSON

• Person: the taxable entity

E.g for Singapore,

• Section 10(1), ITA:

“Income tax shall, subject to the provisions of this Act, be payable at the rate or
rates specified hereinafter for each year of assessment upon the income of any
person accruing or derived from Singapore or received in Singapore from outside
Singapore in respect of -…”

47
 PERSON

• Who is a person? s2(1) ITA:

• “person” includes a company, body of persons and a Hindu

joint family

• “company” means any company incorporated or registered

under any law in force in Singapore or elsewhere

• “body of persons” means any body politic, corporate or

collegiate, any corporation sale and any fraternity, fellowship
or society of persons whether corporate or not corporate but
does not include a company or partnership

48
• In other words, in Singapore a “person”
may be:
• An individual

• A company
• A body of persons (e.g. club, society,
association, management corporation)
• A Hindu joint family
• BUT NOT a partnership PERSON
à Income of partnership (including
LLP) allocated to
respective partners for taxation

• However, internationally some

countries may recognize a
partnership, or specific type(s) of
partnerships, as a “person” for tax
purposes.

49
 OTHER CONCEPTS
(NOT COVERED IN DETAIL TODAY)

- Cross-jurisdictional linkages
- Tax expenditures
- Tax administration

50
 CRO SS-
J UR ISDICT IO NA L
LI N K AGE S

• Cross-border linkages
à How does the domestic tax laws of a
State link up with the tax laws of other
States that impose the same tax or a
similar tax?

51
 TAX
EXPENDITURES

• Tax preferences / tax incentives:

à What economic, social or other
objectives are pursued through
favourable tax treatment for
certain items of the tax base or
for certain groups of taxpayers?

52
 TAX
ADMINISTRATION

• What detailed administrative provisions are required to:

• Structure the tax imposition and collection process; and

• Define the rights and obligations of the taxpayer and the

tax authority

• Detailed rules on:

Filing tax returns

Providing of information

Tax assessments

Payments and refunds

Penalties and enforcement

Objections and appeals

53