Vendors

Vendors should not give incorrect advice about the PIC scheme to their customers and should not misrepresent the scheme in their advertisements. They should also not be involved in wrongful practices.

Definition of Vendor

A vendor is a person or a business entity that sells goods or services to a business or an individual.

What Vendors Should Know

Vendors should take note of the following undesirable practices:

PIC benefits are granted to the taxpayer after taking into account the taxpayer's circumstances. A successful PIC application depends on whether the customers themselves meet the PIC conditions. Hence, even if the vendor's product (e.g. equipment falling in the prescribed PIC IT and Automation Equipment List) qualifies for PIC, the taxpayer may not qualify for PIC, depending on the taxpayer's facts and circumstances.

Hence, vendors must not mislead customers to think that they are definitely entitled to PIC benefits if they buy their product. If need be, vendors should ask their potential clients to write to IRAS to seek clarification

In advertising their products, some vendors may promote PIC as a way to reduce the final price paid by their potential customers. IRAS may intervene in the placement of such advertisements, if the intent and parameters of the PIC scheme are not represented accurately.
IRAS has noted that some vendors misrepresent the PIC scheme through errors in detail, gross exaggerations and promotional gimmicks in an effort to sell their products. Examples include:

  1. Promising that businesses can "profit" from PIC e.g. Profit from PIC!
  2. Suggesting that the government will "pay" the business e.g. Government PAYS You!
  3. Claiming that the product or the vendor is endorsed by IRAS for PIC
  4. Using the IRAS logo in their advertisements

To avoid interventions by IRAS, vendors should make sure their advertisements do not give the wrong impression of the intention of the PIC scheme or make incorrect representations. If vendors persist in making misleading claims, IRAS may consider taking further actions, including legal recourse, against them.

To help their customers claim PIC cash payout for their purchase of the product, some vendors may prepare and submit PIC cash payout claims for their customers. If you do so, please

  • Be familiar with the latest changes in the PIC scheme and the correct procedures to submit PIC claims for your customers.
  • Get the necessary information and assurance that the customers have met the PIC conditions before submitting the PIC claim for them. IRAS may hold both the customer and the vendor liable for any incorrect claims.
  • Advise your customers to verify the claims before they are submitted to IRAS, as they remain ultimately responsible for the PIC claims.
  • Make sure you have knowledge of the latest changes in the PIC scheme and be familiar with the common mistakes made and correct procedures to adopt when submitting PIC claims for your clients.

Wrongful Practices

Vendors 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 finally allowed on the cost of the copier.

You should not artificially inflate PIC cash payout claims by issuing invoices of a higher sale price without reflecting the discounts, cash back or rebates given to their customers.

Unacceptable practice discovered by IRAS:

  • Vendor listed the price of the equipment as $15,000, but gave the customer a discount or a loyalty fee that was not reflected on the invoice. In other instances, the vendor paid a significant referral fee of $3,000 when the customer recommended a client to the vendor. The customer made a claim for PIC benefits on the list price of the equipment, without deducting the discount/ loyalty fee/ referral fee. After IRAS' checks, the vendor admitted to listing the inflated price of the equipment on the invoice. PIC benefits were finally allowed on the price after deducting the discount/ loyalty/ referral fee.

You should not advise customers that do not already have three local employees to hire three employees just to claim PIC cash payout. Examples that IRAS has seen include vendors 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.

Unacceptable practice discovered by IRAS:

  • Vendor 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 cash payout 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.

‘Abusive’ PIC Arrangement

IRAS deems a PIC arrangement abusive when:

  1. The arrangement uses artificial, contrived or fraudulent means to obtain PIC benefits;
  2. The arrangement results in the payment of goods and services for an amount that exceeds the open market value without a bona fide commercial reason; or
  3. 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:

  1. Incorporate sole-proprietorships or companies with ACRA;
  2. 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
  3. 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:

  1. Two individuals arrange to set up a company each, Company A and Company B. Both companies provide identical services (e.g. training).
  2. 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.
  3. 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:

  1. 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.
  2. All companies derived $1,000 in sales in the relevant period.
  3. 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.
  4. 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.
  5. 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 ifd@iras.gov.sg.

Alternatively, you can write in to:

Inland Revenue Authority of Sinapore
Investigation & Forensics Division
55 Newton Road
Revenue House
Singapore 307987

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
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