The ISCA Ethics Committee (EC) develops the ISCA Code of Professional Conduct and Ethics (EP 100). As part of outreach efforts to raise awareness, the ISCA EC collaborated with the tax experts who wrote this three-part article to shed light on the adoption of the tax planning standards in EP 100 (revised on 20 March 2025).
Part 1 of the article , published in CA Lab in May, set out tax planning arrangements that are regarded as legitimate and within the scheme and purpose of the tax statute, using the Supplementary Retirement Scheme and tax exemption accorded by the Estate Duty Act as examples where the general anti-avoidance statutory provisions (“GAAR” for general anti-avoidance rule) is not to be invoked. However, there are other “tax planning” moves made by taxpayers in an attempt to avoid liability to tax which may not be within the scheme and purpose of the tax statute. In Part 2 , we looked at the terms “tax evasion” and “tax avoidance” and how they can lead to quite distinctively different consequences. Here, we continue the discussion with illustrations of tax avoidance.
There has been a recent spate of “99-to-1” stamp duty cases, where taxpayers contemplating the purchase of residential properties in joint names have entered into a two-step transaction, which resulted in the full brunt of the additional buyer’s stamp duty (ABSD) being avoided. The ownership of residential properties in multiple names, in those cases, might have been necessary to obtain financing for the purchase.
In such “99-to-1” situations, had the purchase been made by the taxpayers in joint names in a single-step transaction, ABSD would have been collected on the total amount of the purchase price, at the highest rate of ABSD pertaining to the profile of the joint purchasers.
For example, if the joint purchasers are two Singapore citizens (one who does not own any residential property and thus, does not have to pay any ABSD on the purchase of a residential property; the other owns a residential property and has to pay ABSD on the purchase of a second residential property), the ABSD is collected on the total amount of the purchase price at the rate of ABSD applicable to the joint purchaser who purchases his second property. In avoiding the full brunt of the ABSD, the taxpayer (usually a Singapore citizen who is not required to pay ABSD on the purchase of his first residential property) may first purchase the residential property such that there is no ABSD imposed. Almost immediately afterwards, the purchaser then sells a 1% interest of the residential property to the planned joint owner, such that ABSD would only be collected on the sale price of the 1% interest (the rate of which would depend on the profile of the purchaser in the second step).
In such a planned two-step structure to achieve joint ownership of a residential property, the incidence of the amount of ABSD would have been reduced. The Commissioner of Stamp Duties has considered such a two-step transaction to reduce the liability of stamp duty as not to be within the “scheme and purpose” of the Stamp Duties Act and has used the GAAR in the Stamp Duties Act, which is similar to that in the Income Tax Act 1947 (ITA), to impose the full amount of ABSD as if there was a single-step purchase transaction. Given that the policy intent of the ABSD introduction is to curb residential property speculation, it is not surprising that such an arrangement is seen as an improper scheme to avoid tax.
There are other tax avoidance arrangements which were subject to attack by the GAAR in the ITA as well.
The Comptroller of Income Tax has invoked the GAAR against medical and other professionals who have used a corporate vehicle to take advantage of the tax rate differential between the corporate tax rate of 17% for companies, and the maximum marginal tax rate of 24% for personal income.
In many of such cases, the taxpayer, who is providing personal services by himself at hospitals or clients’ offices, does not even need a physical office and has minimal supporting staff. Nevertheless, the taxpayer sets up a company and becomes an employee of his own “personal service company”. The professional then draws an unrealistically low salary from the company that is not commensurate with his expertise, such that the remaining profits of the company, after the payment of salaries and other expenses, may be taxed at the lower corporate tax rate of 17%. The after-tax profits are then paid to the taxpayer as tax-exempt dividends as a shareholder of the company. Had all the profits of the company been paid to the taxpayer as the salary or director’s fee, the personal income may be taxed up to the highest marginal tax rate of 24%. The Comptroller of Income Tax has successfully countered such tax avoidance in cases that have gone before the Income Tax Board of Review and the courts1.
Nevertheless, where there are legitimate and commercial reasons for the corporate structure, such as in the case of complex business organisations with substantial contractual relationships with suppliers, employees and landlords, and a robust governance framework on remuneration and other payments, such structures may not be regarded as anti-tax avoidance arrangements.2
As may be seen from the abovementioned “99-to-1” stamp duty and the personal service company cases, there are some situations where the arrangements may be susceptible to attack by the GAAR of the ITA or the Stamp Duties Act, as the case may be. In such an attack, the tax authority may take action to nullify any tax advantage which may be derived by the taxpayer from such arrangements.
Nevertheless, whether the reduction of tax sought by the taxpayer is one contemplated by the tax statute is, in many cases, a matter of judgement. In making the judgement on the application of the GAAR, the “scheme and purpose” approach in Comptroller of Income Tax v AQQ and another appeal [2014] SGCA 153 is to be adopted. As acknowledged in AQQ, the judgement on whether a tax advantage is within the scheme and purpose of the tax statute in a particular case is not always an easy one.
In the case of uncertainty whether the GAAR may impact the arrangements of his financial affairs, what measures may the taxpayer adopt? It is to be noted that even where the application of the GAAR may be triggered, there is still a defence against a section 33 attack accorded to the taxpayer in section 33(3)(b) of the ITA. Under section 33(3)(b), the GAAR is not to be applied where the taxpayer’s arrangement (1) is carried out for bona fide commercial reasons, and (2) is not, as one of its main purposes, the avoidance or reduction of tax.
The professional adviser should be able to test any suspected arrangement against the two conjunctive tests set out in section 33(3)(b) of the ITA, in evaluating whether the arrangement may be subject to the full force of the GAAR.
Where an arrangement is subject to a tax adjustment under section 33, there is also an additional 50% surcharge on the amount of tax which was to be avoided under the tax avoidance arrangement. The surcharge, which is imposed from the Year of Assessment 2023, is intended to prevent “the gaming of the system”, where a taxpayer may enter into a tax avoidance arrangement and would only have to pay the tax if the arrangement is not successful. With the imposition of the 50% surcharge, the taxpayer would hitherto have to take into account the possibility of the impact of the amount of the surcharge as well, in arranging his tax affairs.
The distinction between tax evasion and tax avoidance is that the former is illegal whereas the latter is not. With respect to tax avoidance, where a tax advantage is considered not to be within the scheme and purpose of the tax statute, it may be subject to attack by the GAAR in that the tax authority may attempt to counter the tax advantage by adjusting upwards the amount of tax. In that situation, where the taxpayer is able to successfully mount the defence that the arrangement he has entered into is for a bona fide commercial purpose, and tax avoidance is not one of the main purposes of the arrangement, the tax authority will not be able to make any tax adjustments to counter the tax advantage. However, where the tax authority is able to successfully apply the GAAR, an additional surcharge of 50% of the amount of tax that was to be avoided, will also be imposed on the taxpayer.
Tay Hong Beng, CA (Singapore), is a member of the Board of Directors of Singapore Chartered Tax Professionals (SCTP), and a former Partner and Head of Tax, KPMG Singapore. Leung Yew Kwong is Principal Tax Advisor, KPMG Singapore.
1 See IRAS e-Tax Guide: Incorporation of Companies by Medical Professional and its Implications” (9 September 2024).
2 A professional accountant complying with EP 100 (revised on 20 March 2025) exercises professional judgement in determining if there is a credible basis in laws and regulations for a tax planning arrangement. To do so, EP 100 sets out actions that the accountant might take, for example, consulting with tax specialists or tax authorities and considering whether the basis used is an established practice that has not been successfully challenged by the tax authorities.
3 At [109] of AQQ
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