The Inland Revenue Authority of Singapore (“IRAS”) issued a factsheet on 20 October 2023, which contained four common tax filing mistakes that were noted through audits and that taxpayers should take note of and avoid when filing the YA 2023 CIT return.
What should you do about it? If anything at all, IC Advisors has prepared a simplified checklist to help you identify what you need to be aware of!
1) Recording of revenue:
- Ensure that all invoices related to goods sold or services provided are tallied and maintain good record-keeping practices within the organization.
- Ensure proper recording of incomes generated through alternative channels in order to avoid understatement and omission of income.
- Ensure that proper records are maintained of all financial transactions to ensure correct tax declarations.
2) Capital allowance:
- Ensure that capital allowances are claimed only on qualifying assets such as ‘plant and machinery’ that are purchased and used for the company’s trade or business, and not on non-qualifying assets.
3) Arm’s length principle:
- Ensure compliance with the arm’s length principles in case of transactions with related parties.
- Failure to comply with the arm’s length principles may lead to a transfer pricing adjustment by IRAS leading to an uplift of profit. This will also lead to imposition of surcharge and/ or penalties.
4) Record keeping by family-owned/ managed companies:
- Ensure that adequate supporting documents to substantiate claims are maintained. Claims for tax deductions without a valid basis or proper supporting documents are not accepted by the IRAS.
- Ensure that a clear distinction exists between business and private expenses.
- Ensure that the remuneration paid to key managerial personnel or family members are commensurate with the actual services rendered.
- Ensure that expenses that are claimed as tax deductible are incurred wholly and exclusively for generating business income.
Concluding comments
The Inland Revenue Authority of Singapore (“IRAS”) recovered $79 million in taxes and penalties between July 2020 and June 2023 from companies with erroneous Corporate Income Tax (“CIT”) returns filed for the Years of Assessment (“YA”) 2019 to 2021.
Of the cases audited, two-thirds were picked up through IRAS’ compliance audit programmes, where companies posing higher risk of wrongful tax reporting are selected for audit with the aid of advanced data analytic tools. The remaining cases were identified from random sampling and qualitative analysis, such as environmental scanning and tip-offs, to ensure a comprehensive audit coverage.
Failure to file the CIT Return by the due date is an offence under the Income Tax Act, for which companies may be subject to penalties of up to $5,000.
If you have any questions on these developments or require assistance with your annual transfer pricing compliance requirements, please get in touch with DFDL.
For further information regarding the issue, please contact Jack Sheehan, Partner and Head of Regional Tax, [email protected]
