Common Mistakes to Avoid
When submitting PIC cash payout claims, PIC consultants are encouraged to take note of these common mistakes made and the correct procedures to submit the PIC claims, as shown below. This will minimise unnecessary delays in the processing of the PIC application and avoid IRAS' penalties for an incorrect PIC claim.
|Common Mistakes on PIC Cash Payout Claims||Correct Procedures|
Claiming both PIC cash payout and 400% tax deduction on the same dollar of PIC expenditure.
- Submitting a cash payout claim on training expenditure of $10,000 and making a separate claim for 400% tax deduction on the same training expenditure in the income tax return.
Please inform your clients that they can opt to either convert qualifying expenditure into cash payout or claim the 400% tax deductions against their income. They cannot claim both enhanced tax deductions and cash payouts on the same dollar of expenditure.
Claiming for expenditure on equipment that is not in the PIC IT and Automation Equipment List
- Submitting a PIC cash payout claim for basic telephones, furniture and audio equipment
Please advise your clients that they can only claim for expenditure on equipment in the PIC IT and Automation Equipment List (232KB).
If the equipment is not in the list, they can apply to IRAS for it to be approved on a case-by case basis, before making a claim for PIC on that equipment.
Please check that the equipment purchased by your client qualifies for PIC by checking the PIC IT and Automation Equipment List before you submit a claim. You can also refer to the list of examples of IT and Automation Equipment qualifying for PIC (by industry) and/or use the Equipment Search Function to find out whether your equipment qualifies for PIC.
The purchases must be for business use and help to improve the productivity and innovation efforts of the business. IRAS will reject claims for purchases that are not actively used by the business.
Claiming non-qualifying expenditure
Non-qualifying expenditure includes:
- GST paid by a GST-registered trader on an item that qualifies for PIC
- Expenditures that are not IT and automation equipment such as warranty fees and service maintenance fees
- Consultancy fees and PIC audit fee that are claimed as training expenditure
Please ensure that claims should only be made on qualifying expenditure.
Insufficient records to substantiate PIC claims
Some companies have not been able to furnish documents to support their claims, when requested by IRAS, such as:
- Evidence of payment e.g. bank statement and receipts
- CPF payment records
Please inform your clients that all PIC claims must be properly substantiated, otherwise the claim may be rejected.
Please ensure that you have either seen the supporting documents from your clients for their purchases or seen the equipment before submitting a claim for them. IRAS will reject claims that are not supported by proper records.
Wrongful Practices that PIC Consultants Should Not be Involved In
Consultants should not be involved in wrongful practices such as:
You should not help your customers claim PIC benefits on non-qualifying items. Examples of non-qualifying items include maintenance services and extended warranty that are bundled together with contracts on PIC IT and automation equipment.
Unacceptable practice discovered by IRAS:
- Copier reseller priced the copier at $15,000 which included "free" maintenance for 3 years, toners, credits, etc. Upon IRAS' checks, the copier reseller admitted to bundling non-PIC items into the $15,000 and that the actual cost of the copier was significantly lower. PIC benefits were allowed only on the cost of the copier.
You should not advise customers that do not have three local employees to hire three individuals just to claim PIC cash payout. Examples that IRAS has seen include consultants encouraging Multi-Level Marketing salespersons, freelancers and swim coaches to hire three employees to take advantage of the PIC scheme.
You should not encourage start-ups, small businesses and self-employed individuals such as taxi drivers, real estate salespersons and tuition teachers who do not normally have three employees to hire part-timers in order to qualify for PIC Cash Payout and Bonus and not for the purpose of meeting any genuine business need.
Unacceptable practice discovered by IRAS:
- Consultants encouraged real estate salespersons who did not normally have three employees to contribute CPF to their family members or to one another so that they appear as employees to IRAS. Upon IRAS checks', the PIC claims were rejected and previously paid-out claims were recovered from the salespersons.
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 need 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 deems a PIC arrangement abusive when:
- The arrangement uses artificial, contrived or fraudulent means 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
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.
Getting Help from IRAS
1. Read IRAS' dedicated PIC webpage
2. Contact Us
Please contact us for assistance or clarification on PIC.
|Type of Entity||Helplines|| Email|
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1800 356 8622
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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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