Measures To Curb PIC Abuses
IRAS takes a serious view of any non-compliance or abuse of the scheme. 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 assists another person to obtain a cash payout or PIC bonus which he is not entitled to.
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:
|Description of Abusive Arrangement || Amount of PIC Benefits Disallowed|
| It consists of or uses artificial, contrived or fraudulent means.|| That part of PIC benefits arising from the use of the artificial, contrived or fraudulent means.|
| 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 intermediaries (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 face imprisonment of up to three years.
A promoter of a PIC arrangement is a person who:
- Designs, facilitates, organises or manages that arrangement; or
- Publishes, disseminates or communicates any information for the purpose of inducing or encouraging any other person to enter into the arrangement.
‘Abusive’ PIC Arrangement
IRAS adopts a commonsensical approach towards interpreting the law on the anti-abuse measures. When ascertaining whether an arrangement is abusive and/ or an offence has been committed, we will consider all relevant facts and circumstances and conduct in-depth investigations where necessary. Please refer to the following scenarios which, in our view, contain abusive features:
An individual who is not carrying out an active business takes the following action(s) 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.
In some abusive PIC arrangements, a group of individual sets up multiple businesses and sells 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, Company A and Company B. Both companies provide identical services (e.g. training).
- Company A engages Company B to conduct training to Company A's employees for $15,000; while Company B also engages Company A to conduct similar training to their 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.
Companies A and B both seek 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.
An individual sets up many companies. These companies derive minimal revenues, but would each incur PIC qualifying expenditure that is disproportionate to their revenue (e.g. ten 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 - Company X sells clothes, Company Y sells toys and Company 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 Companies 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 three 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.
For more examples of abusive PIC arrangements, please refer to Annex H of the e-Tax Guide "Productivity and Innovation Credit" (1.02MB) Revised!.
If you wish to report potential abuse of the PIC scheme, you can email IRAS at firstname.lastname@example.org.
Alternatively, you can write in to:
Inland Revenue Authority of Sinapore
Investigation & Forensics Division
55 Newton Road
Promoters of Abusive PIC Arrangements
Many of the above abusive PIC arrangements are facilitated by promoters. In return for a share of the PIC cash payout, the promoter will typically provide the claimants with step-by-step guides on how to substantiate their PIC cash payout claims when queried or audited by IRAS.
Along with such guides, the promoter may also provide the claimant with documentation or templates for the purposes of providing false evidence to IRAS. Such documentation/ templates 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, etc.
If the claimant is unable to find sufficient individuals to be “employed” for the purpose of meeting the three-local-employee condition, the promoter may also provide names and particulars of individuals for the claimants to contribute to their CPF accounts.
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.
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 mindful of those who misrepresent the intention of the PIC scheme. If you make incorrect PIC cash payout claims based on wrong advice by vendors, salespersons and consultants, you will have to pay a penalty and/or face imprisonment as you are ultimately responsible for the accuracy of your PIC application.As a general guide, you should be wary of vendors, salespersons and consultants who promise one or more of the following:
|What vendors, salespersons and consultants promise || Implications to claimants|
| “No need to pay if PIC cash payout is not approved by IRAS”|
This implies that there is no genuine business need for the expenditure and that it was made merely to obtain the PIC cash payout. This is not acceptable. Please note that, even if the claim is approved, IRAS may, within the next 5 years, check and ask for records to prove that the expenditure was genuine and payment was made.
You will have to refund the PIC cash payout if you are not able to produce sufficient records to prove the above. Penalties may apply.
“I can help you set up the business and find three employees for you”
- Vendor, for a fee, helped a start-up to register a business with ACRA and contribute CPF for three persons. The business owner did not know who his “employees” were and merely signed on the PIC cash payout claim form. The claim was rejected after IRAS interviewed the claimant and uncovered the arrangement.
- Vendor persuaded a real estate agent to set up a company and contribute CPF for three persons even though there was no genuine commercial reason for setting up a company and employing three persons. The claim was rejected after IRAS uncovered the arrangement.
You should not set up a business or hire three employees merely for the purpose of making a PIC cash payout claim. You are ultimately responsible for the accuracy of your claims even if the vendor had helped you submit the claim.
You will bear the penalties if the PIC claim is found to be incorrect.
“To meet the PIC condition, you just need to find any three persons and pay them CPF in that month”
- Vendor persuaded a tuition business to claim PIC cash payout on $25,000 of external training. The business owner, who did not previously hire any employee, found three family members to send for training and contributed CPF on them to create the impression that they were employees. The claim was rejected after IRAS found that the three employees were not genuine employees and the training attended was not for business purposes.
Hiring three employees purely for the purpose of meeting the PIC condition is not acceptable. It must be to meet genuine business needs.
You will bear the penalties if IRAS subsequently finds that the three employees were not hired for genuine business purposes.
| “The three local employees can include part-timers”|
While a part-timer can be considered as one of the three local employees, it is not acceptable to hire part-timers for the purpose of meeting the PIC conditions and not for meeting any genuine business need.
You will bear the penalties if IRAS subsequently finds that the part-timers were not hired for genuine business purposes.
"I can help you set up a business and after claiming PIC cash payout, you just need to close off the business.”
- Vendor helped a claimant register a business with ACRA and contribute CPF for three persons. After the business received the PIC cash payout successfully, it applied to ACRA to terminate the business. The claim was recovered by IRAS when it discovered that the business was a shell company and the three employees were not hired for genuine business purposes.
You should not set up a business or hire three employees merely for the purpose of making PIC claims.
You will bear the penalties if IRAS finds that you are abusing the PIC scheme by making use of fraudulent arrangements to obtain PIC benefits.
Common Mistakes To Avoid when Claiming PIC
The most common mistakes businesses should avoid are explained below.
Claiming PIC on Overpriced Expenditure
Businesses can claim PIC only on the market value of qualifying PIC expenditure. IRAS notes that some businesses have claimed PIC on inflated values, particularly in the area of training costs, mobile application and website development. Businesses found to have over claimed PIC benefits may face a penalty for the cash payout overpaid or would have been overpaid, or tax undercharged.
Company A developed a website which was developed based on a standard template that is widely available and free of charge on the Internet. Company A purportedly paid $25,000 to develop it. Company A will not be allowed to claim PIC on the website as the market value of an equivalent website is nil.
Claiming 400% Tax Allowance for Expenditure on Equipment Not Under the PIC IT and Automation Equipment List
Businesses can only claim expenditure on prescribed IT and Automation Equipment i.e. equipment listed in the PIC IT and Automation Equipment List (232KB).
The following items are not prescribed IT and Automation Equipment and cannot be claimed :
- Air-conditioning unit purchased from retail store
- Closed circuit TV (CCTV)
- Digital camera
- Furniture and fittings
- Motor vehicle
- Refrigerated display
- Renovation and refurbishment cost (e.g. cost paid to install office workstation)
- Uninterrupted power supply (UPS)
- Audio Equipment
Businesses that invest in equipment not in the prescribed list but that automate or mechanise their business processes and enhance productivity may apply to IRAS to have their equipment approved for PIC benefits on a case-by-case basis.
Claiming both PIC Cash Payout and 400% Tax Deductions/ Allowances on the Same Expenditure
Businesses can either convert their qualifying expenditure into a cash payout or claim the 400% tax deductions/ allowances against their income. They are not allowed to claim both the cash payout and 400% tax deductions/ allowances on the same dollar of expenditure.
Company A claimed PIC cash payout on the training cost of $1,000. It cannot claim a 400% tax deduction on the same training expense against its income in its tax return.
Please note that the training cost of $1,000 is no longer available as a tax deduction and the business has to add back the amount to its tax computation. Please refer to our Worked Examples (Scenario B) (56.2KB) for more details.
Claiming 500% instead of 400% Tax Deductions/Allowances
Businesses can receive a total of 400% tax deductions/allowances (comprising 100% normal deduction and 300% additional tax deduction) on their qualifying expenditure.
You are not allowed to claim 400% additional tax deduction on expenditure that has already been deducted as an expense (100% normal deduction) against the income; the additional tax deduction is restricted to 300%.
Claiming PIC on Non-Qualifying Expenditure
Businesses should check that an expense qualifies for PIC before making a claim.
Non-qualifying expenditure includes the following:
- Course fees on training attended by the business owners;
- Consultancy fees and PIC audit fee claimed as training expenditure;
- GST paid by a GST-registered business on an item qualifying for PIC (GST component is not claimable for income tax purpose as the GST-registered business can claim input tax in its GST return);
- Cost of PIC IT and Automation Equipment not incurred during the relevant accounting period of the Year of Assessment (YA) of claim;
- Cost of PIC IT and Automation Equipment (i.e. principal repayments for equipment acquired on hire-purchase terms) not incurred during the relevant accounting period of the YA of claim;
- Cost that is not applicable to the PIC IT and Automation Equipment such as warranty fee, service maintenance fee or consumable;
- Consulting fees unrelated to the development of the PIC IT and Automation Equipment; or
- Expenses that have been defrayed by a grant or subsidy received from the Government or any statutory board. Qualifying expenditure for PIC Benefits is the expenditure amount minus the grant or subsidy.
Insufficient Records to Substantiate Claims
Businesses are required to maintain all supporting documents for a period of 5 years. These should be submitted to IRAS upon request.
Some businesses have not been able to furnish supporting documents, when requested, such as:
- Evidence of payment, e.g. bank statement
- CPF payment records
What to Look Out for When Engaging Consultants
A PIC consultant is a person or a business entity that provides advice or assistance to businesses on PIC matters for a fee (flat fee and/ or a percentage of the PIC cash payout received). IRAS has not appointed or endorsed any private consultant to provide advice or assistance to businesses on PIC matters.
As the PIC application process is simple, most businesses can complete the application in 10 minutes, without aid. Nonetheless, if you need assistance from PIC consultants when submitting your PIC cash payout claims, please consider the background of these consultants and engage only those who are competent to provide factual advices.
We recommend you:
- Obtain the consultant's advice in writing and verify the accuracy of the information in the application form (e.g. check that the description of the PIC item and the amount incurred stated in the form match the invoices) before signing the applicatio
- Be mindful of advertisements that misrepresent the intention of the scheme. Examples of misrepresentation include those that grossly over-exaggerate the benefits of the scheme, promise that businesses can “profit” from PIC, or suggest that the government will “pay” the business.
Whether businesses file the PIC cash payout claims on their own or with the help of consultants, businesses remain responsible for the accuracy of the claims.
Getting Help from IRAS
Register for PIC Seminars
IRAS holds regular PIC seminars to help businesses understand how they may benefit from the PIC scheme. The specially designed seminars include the following topics:
- Benefits of PIC Scheme
- Six Qualifying Activities under the Scheme
- Computation of Tax Deduction and Cash Payout Option
- PIC+ scheme for SMEs
- Application Details
For more details, please refer to the Seminars and Events page.
Please contact us for assistance or clarification on PIC.
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|Self-employed (e.g. sole proprietorship)/ Partnership || +65 6351 3534||For non-confidential enquiries, please click here to submit your email enquiries.|
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