New PIC Cash Payout e-Services are now available! Submit your PIC cash payout application and view your application status via myTax Portal now! More details below.
Under the Productivity and Innovation Credit (PIC) scheme, your business can enjoy:
The tax benefits are available from the Years of Assessment (YAs) 2011 to 2018, for investments in any of the six qualifying activities relating to innovation and productivity improvements.
From YAs 2013 to 2015, your business can also enjoy the PIC Bonus, which is a dollar-for-dollar matching cash bonus given on top of the existing 400% tax deductions/ allowances and/or 60% cash payout. As announced in Budget 2015, PIC Bonus will expire in YA 2015. Revised!
Find out more about the PIC scheme in the table below.
Things to Look Out for If Engaging Consultants to File PIC Claims
The PIC application process is simple and straightforward. To guide businesses in filing PIC cash payout claims, IRAS has published on its website a list of common mistakes to avoid when claiming PIC. Most businesses file their PIC cash payout claims themselves, but there may be businesses that prefer to engage PIC Consultants to assist them in claiming PIC benefits. Find out what you need to look out for if you are engaging consultants to file PIC claims.
Signs that you could be asked to participate in an unacceptable PIC arrangement
Vendors, salespersons and consultants may approach you and offer to help you claim PIC cash payout if you buy their products/ engage their services. Please be especially mindful of those who misrepresent the intention of the PIC scheme. Here are some signs that you could be asked to participate in an unacceptable PIC arrangement.
If you make incorrect PIC cash payout claims based on wrong advice by vendors, salespersons and consultants, you will face penalties as you are ultimately responsible for the accuracy of your PIC application. Please refer to the IRAS website or contact IRAS for assistance if you are unclear about the PIC scheme or wish to verify if the advice given to you by vendors, salespersons or consultants is accurate.
For PIC Consultants and Vendors
Find out what you need to know if you are a PIC Consultant or Vendor.
IRAS takes a serious view of any abuse of PIC scheme
IRAS takes a serious view of taxpayers who defraud the government. Offenders convicted of PIC fraud will have to pay a penalty of up to four times the amount of cash payout fraudulently obtained, and a fine of up to $50,000 and/or imprisonment of up to five years. This includes any person who wilfully assist another person to obtain a cash payout or PIC bonus which he is not entitled to.
List of offenders convicted of PIC abuse:
Measures to curb PIC abuses Revised!
IRAS has come across business arrangements aimed at artificially creating or inflating PIC claims. While such cases make up a minority of PIC claims, the following anti-abuse measures have been introduced to target abusive arrangements and intermediaries that promote or facilitate such arrangements:
- Deny PIC benefits arising from abusive arrangements as follows:
|Where the arrangement is abusive because
||Amount of PIC benefits disallowed
|It consists or makes use of artificial, contrived or fraudulent step(s)
||That part of PIC benefits that arises from the use of the artificial, contrived or fraudulent step(s)
|The amount paid for the goods/ services exceeds their open market value for no bona fide commercial reason
||PIC benefits computed based on the difference between the amount paid by the business and the open market value
|There is no bona fide commercial reason for entering into the arrangement
||Full amount of PIC benefits
- Impose penalties on promoters of PIC arrangements (including vendors and consultants) who know, or have reasonable grounds to believe that the arrangements they are promoting are abusive PIC arrangements. Convicted offenders will have to pay a fine of up to $10,000 and/ or imprisonment of up to three years.
A promoter of PIC arrangement is a person who:
a) Designs, facilitates, organises or manages that arrangement; or
b) Publishes, disseminates or communicates any information for the purpose of inducing or encouraging any other person to enter into the arrangement.
Abusive PIC Arrangement
A PIC arrangement is abusive if:
- it makes use of artificial, contrived or fraudulent step(s) to obtain PIC benefits;
- the arrangement results in the payment of goods/ services for an amount that exceeds the open market value without a bona fide commercial reason; or
- there is no bona fide commercial reason for entering into the arrangement, apart from getting the PIC benefits.
Examples of Abusive PIC Arrangements Revised!
IRAS adopts a commonsensical approach towards interpreting the law on the above anti-abuse measures and will consider all relevant facts and circumstances. An in-depth investigation may be conducted, depending on the facts and circumstances, to ascertain whether an offence has been committed. The following are examples of scenarios that we are of the view contain abusive features:
Shell businesses and artificial transactions
An individual who is not carrying out an active business takes the following action so as to make PIC cash payout claims with IRAS:
- Incorporate sole-proprietorships or companies with ACRA;
- Make minimum/low CPF contributions for persons who are not employees, such as parents, siblings, friends or other persons. This is done so that they appear to be employees of the claimants for PIC claims when in fact no work was done or that the works which were purportedly done were not for bona fide commercial reason; and/or
- Sign agreements with related/friendly parties to purchase items or services such as mobile apps or websites at inflated prices.
The claims will be disallowed as the PIC arrangements are abusive. The actions are contrived, overvalued and put in place so as to make PIC cash payout claims without bona fide commercial reason. IRAS will consider whether these claims should be subject to criminal investigations.
Transactions with no bona fide commercial reason
In some abusive PIC arrangements, a group of individuals sets up multiple businesses and sell PIC-qualifying products or services among them, typically at inflated prices. There is no bona fide commercial reason for such sales aside from obtaining a PIC cash payout.
Such an arrangement may include the following:
- Two individuals arrange to set up a company each, A and B. Both companies provide identical services (such as training).
- A engages B to conduct training to A’s employees for $15,000; while B also engages A to conduct similar training to B’s employees for $15,000.
- The cost for delivering both sets of training is negligible since the companies could have provided the training services to their own employees.
A and B are both seeking to benefit from PIC cash payouts and bonus of $24,000 each. The claims will be disallowed as the PIC arrangements are abusive. Aside from deriving PIC cash payouts, there is no bona fide commercial reason for the arrangements. IRAS will consider whether these claims should be subject to criminal investigations.
Expenditure disproportionate to revenue generated
An individual sets up many companies. These companies derive minimal revenues, but would each incur PIC qualifying expenditure that is disproportionate to their revenue (for example, 10 times the revenue) and claim PIC cash payouts and bonus. For example:
- A director sets up companies X, Y, and Z to sell baby products through mail order – X sells clothes, Y sells toys and Z sells diapers.
- All companies derived $1,000 in sales in the relevant period.
- All companies engaged an e-commerce vendor to develop a website and inventory management system for each of the companies. Each company incurred $15,000 on the software.
- All companies would claim PIC cash payouts and bonus of $24,000 each. The net receipt of the companies would be $9,000 each after subtracting $15,000 paid to the software vendor.
- In participating in this arrangement, the director of X, Y, and Z would benefit $27,000 in total.
The claims will be disallowed as the PIC arrangements are abusive. Apart from the purpose of obtaining PIC cash payouts, there is no bona fide commercial reason to incur such disproportionate expenditure and to duplicate 3 sets of website and inventory management software for this scale of business activity. IRAS will also consider whether these claims should be subject to criminal investigations.
Promoters of abusive PIC arrangements
Many of the above abusive PIC arrangements are facilitated by a promoter. Typically the promoter will, for a share of the PIC cash payout, provide step-by-step guides and documentation for the purpose of providing substantiating evidence for PIC cash payout audits by IRAS.
The documentation provided would be for the purpose of providing false evidence to IRAS and may include employment contracts for part-timers, working timesheets, payment vouchers for part-timer salaries, guides to contributing CPF, product flyers or brochures (for the part-timer to hand out, e.g. as flyers), application forms for grants or loans, quotations, invoices, User Acceptance Test Checklists and Systems Acceptance Forms. If the claimant is unable to find sufficient names of their own, the promoter may also provide names and particulars of individuals for the claimants to contribute to their CPF accounts, so as to meet the three-local-employee requirement.
IRAS keeps a close watch on claims linked to promoters of abusive PIC arrangements. Once detected, IRAS will subject these claims to close scrutiny and may disallow claims linked to promoters of abusive PIC arrangements. With enhanced enforcement powers, IRAS will also subject these promoters of abusive PIC schemes to criminal investigations.
Please refer to Annex H of the e-Tax Guide "Productivity and Innovation Credit (736KB)” for more examples of abusive PIC arrangements.
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