Vendors and PIC consultants are expected to be familiar with the rules and procedures relating to the PIC scheme, if they intend to help their clients claim PIC.
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:
- Do not mislead customers into thinking that they are definitely entitled to PIC benefits on your products/ services
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.
- Do not misrepresent the PIC scheme when advertising your products/ services
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:
- Promising that businesses can 'profit' from PIC e.g. Profit from PIC!
- Suggesting that the government will 'pay' the business e.g. Government PAYS You!
- Claiming that the product or the vendor is endorsed by IRAS for PIC
- 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.
- Do not give incorrect advice when helping customers make PIC cash payout claims
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:
- 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.
Definition of PIC consultant
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).
What PIC Consultants Should Know
When submitting PIC cash payout claims, PIC consultants must take note of the common mistakes made and the correct procedures to submit the PIC claims. This will minimise unnecessary delays in the processing of PIC applications and avoid IRAS' penalties for an incorrect PIC claim.
Find out more about the common mistakes to avoid when filing PIC claims.
PIC consultants and vendors should not be involved in wrongful practices such as:
- Making claims on non-qualifying expenditure
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:
A 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 only allowed on the cost of the copier.
- Artificially inflating the PIC expenditure
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:
A 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 only allowed on the price after deducting the discount/ loyalty/ referral fee.
- Encouraging customers who do not have 3 employees to hire additional employees just to qualify for PIC cash payout
You should not advise customers that do not already have 3 local employees to hire 3 employees just to claim PIC cash payout. Examples that IRAS has seen include vendors/ consultants encouraging Multi-Level Marketing salespersons, freelancers and swim coaches to hire 3 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 3 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:
A vendor/ consultant encouraged real estate salespersons who did not normally have 3 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.
Measures to Curb PIC Abuse
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 4 times the amount of cash payout fraudulently obtained, and a fine of up to $50,000 and/or imprisonment of up to 5 years. This includes any person who wilfully assists another person to obtain a cash payout or PIC bonus which he is not entitled to.
Offenders Convicted of PIC Abuse
Abusive PIC Arrangements
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 3 years.
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. The following scenarios, in our view, contain abusive features:
- Shell Businesses and Artificial Transactions
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 the works which were purportedly done were not for bona fide commercial reason
- 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 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:
- 2 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.
- 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 (e.g. 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 - Company X sells clothes, Company Y sells toys and Company Z sells diapers.
- All companies derive $1,000 in sales in the relevant period.
- All companies engage an e-commerce vendor to develop a website and inventory management system for each of the companies. Each company incurs $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 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.
View more examples of abusive PIC arrangements (PDF, 1016KB) (refer to Annex H).
If you wish to report potential abuse of the PIC scheme, you can email IRAS at [email protected].
Alternatively, you can write to:
Inland Revenue Authority of Singapore
Investigation & Forensics Division
55 Newton Road
Promoters of Abusive PIC Arrangements
Many of the above abusive PIC arrangements are facilitated by promoters. 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.
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 3-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.