About Income Tax Advance Ruling

An advance ruling is a written interpretation of the Income Tax Act on how certain issues that arise from a proposed arrangement are to be treated for tax purposes. A ruling request has to be one where there are issues that require interpretation of the law and not one seeking to know what the law clearly provides, e.g. what is the basis period for trade income.

Under the advance ruling system, taxpayers, including companies, individuals, sole-proprietorships, partnerships etc can make an application for the Comptroller of Income Tax to issue an advance ruling.

Scope of Advance Ruling

An advance ruling will only apply to the applicant and the particular arrangement that was the subject of the ruling request and, where applicable, to the year(s) or period(s), and provisions of the Income Tax Act stated in the ruling. It binds the Comptroller of Income Tax to apply the relevant provisions of the Income Tax Act in the manner that was set out in the ruling.

Declining a Request/Application for Advance Ruling

Under certain circumstances, IRAS will not or may decline to rule. 

Examples of Circumstances IRAS will not or may decline to rule

  1. The matter on which the ruling is sought:
    1. Involves the interpretation of a foreign law or the application of an Agreement for the Avoidance of Double Taxation;
    2. Requires IRAS to determine a question of fact;
    3. Requires IRAS to form an opinion as to a generally accepted accounting principle or a commercial practice; or
    4. Is subject to an objection or appeal, whether in relation to the company or any other person.
  2. The correctness of the ruling depends on the making of assumptions, whether in respect of a future event or any other matter;
  3. IRAS has already raised an assessment (other than an assessment of any estimated tax) for the relevant Year(s) of Assessment in relation to the arrangement;
  4. IRAS has embarked on an audit or investigation on how any provision of the Income Tax Act applies to the company or to other similar arrangements; and
  5. In IRAS' opinion, the application is frivolous or vexatious, or the company is not seriously contemplating the arrangement for which the ruling is sought; or
  6. The company has not provided, within the specified timeframe, sufficient information despite IRAS' request for additional information.

For a full list of the circumstances, please refer to the "Important Notes to Application for Advance Ruling" in the Application form for income tax advance ruling (152KB)Updated.

  • What are some examples of advance ruling applications that may require IRAS to determine a question of fact?

    Examples of such applications include those seeking IRAS' confirmation on

    - The nature and taxability of the gains to be derived from the sale of properties or shares.

    - Whether or not there was a change of intention with respect to the holding of a property (e.g. from investment holding to property trading or vice versa).

    - Tax residency status of a company.

    IRAS would consider the merits of the application on a case-by-case basis and can, at our discretion, decline to make a ruling.

  • What are the applications that IRAS may consider as frivolous or vexatious?

    IRAS would take into account all surrounding circumstances in considering whether an application is frivolous or vexatious. One instance of a vexatious application is one where IRAS views that the proposed arrangement is not carried out for bona fide commercial reasons or involves a scheme which has, as one of its main purposes, the avoidance or reduction of tax.

    Example of Vexatious Application 1

    Company A, a Singapore incorporated company, is the registered owner of a number of trademarks and received royalty income from its trademarks.  Company A plans to set up a wholly owned subsidiary in a low tax jurisdiction to which it would sell all its trademarks. The transfer price is to be paid by the subsidiary from cash flows generated from the operations as and when available. The subsidiary will then receive royalties from the users of the trademarks and will pay dividends from its profits to Company A. Company A claims that the proposed transfer of trademarks is an outright sale for the subsidiary to exclusively focus on owning and managing the trademarks. However, the subsidiary has no employees and uses the services of an agent in that jurisdiction to handle its incorporation matters. 

    Ruling request:  Confirmation that the gains from sale of trademarks derived by Company A would not be taxed and that future dividends received from the subsidiary would not be taxable in Singapore.

    In IRAS' opinion, the proposed transaction is artificial as the transfer price is payable only as and when cash flows generated from the subsidiary's operations is available. The subsidiary appears to be just a shell company with no employees to manage the trademarks. The main purpose of transferring the trademarks to the subsidiary is to avoid or reduce tax payable and not for bona fide commercial reasons.

    Example of Vexatious Application 2

    Companies X and B are incorporated in Singapore. Company X plans to enter into a distribution agreement with Company B. Company X claims that Company B stipulates that the contracting party of the distribution agreement must be a Singapore incorporated company. Company X does not have employees or operations in Singapore. All of Company X's operations (including the negotiation and signing of the distribution agreement) will be managed and performed by Company Y's employees (on behalf of Company X) in Country Y. Company Y is incorporated in Country Y and is a related party of Company X. The income from reselling the products (arising from the distributing agreement) will be booked in Company X's books. Company X was not able to substantiate why its operations could not be performed in Singapore.

    Ruling request: Confirmation that Company X's income arising from the distribution agreement is sourced outside Singapore and the income should not be subject to tax in Singapore.

    In IRAS' opinion, there are no bona fide commercial reasons for having the agreement signed in Country Y and Company Y undertaking the business operations on behalf of Company X, other than for the avoidance or reduction of tax.

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