Accordingly, the payment of $400 received by SPL falls within royalties as defined in Article 12(3).

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1 Question 2 In term of DTA between Singapore and China, the definition of the term royalties in Article 12 inter-alia contains the term royalty to mean the use of or the right to use, industrial, commercial or scientific equipment. Accordingly, the payment of $400 received by SPL falls within royalties as defined in Article 12(3). The remittance of royalties must have been subject to tax in China at 10% (maximum ratio) under Article 12(2). Based on the provision of Article 22 elimination of double taxation, SPL will claim tax credit in Singapore based on the Article 22(2) mechanism whereby SPL will be allowed tax credit either: a) directly; or b) against Singapore tax payable on the income of the resident, as is the case with SPL. Article 22(3) also contains tax sparing provisions, so if the royalties were exempt from tax under China s tax laws in respect of projects of economic significance, then SPL can claim tax credit in Singapore as though tax was paid on it in China. It is assumed that the Chinese company is not a PE of SPL. The amount of $150,000 in compensation for loss of sixty trolleys may fall under Article 13 as capital gains arising from alienation of moveable property. In terms of Article 13(6), capital gains are to be taxed where the alien is resident. As such the state of Singapore will have the right to tax in accordance with the provisions contained in SITA.

2 Question 3 2) Non-Ordinary Resident (NOR) scheme The following are the key features of the Non-Ordinary Resident (NOR) scheme as stipulated under section 13N of the Singapore Income Tax Act (SITA). A person, being an individual presently resident in Singapore, is eligible to apply to the comptroller to be approved as an NOR. The conditions which need to be satisfied are stated in sub-sections (3), (4), (5) and (5a) of section 13N. The election and approval under sub-section (5a) and (1) is considered as irrevocable. As a result of this, the following is exempt in the hands of the NOR individual: Any income from exercise of employment for the basis (income) year if it is exempt from tax in the assessment year relevant to basis year, provided: - the person is not present in Singapore (physically) for at least 90 days by reason of exercise of employment in Singapore; - the person derives gain from employment of an amount not less than $160,000; and - the person s effective tax rate is not less than 10%. Further exemption is also available in respect of contributions up to the permissible amount which is made by an employer to any non-obligatory pension or provident fund established outside Singapore, provided: a) the person is neither a citizen or a permanent resident of Singapore at the time such contribution is made; b) the person derives gains from exercise of employment or profits of at least $160,000 for the year preceding the year of assessment; and c) the employer has not claimed such deduction as admissible, nor has it been allowed to. A person being a director in a company is eligible for this scheme. 3) Five key reliefs for qualifying amalgamations in Singapore 1) Effects on cancellation of shares. When on amalgamation the shares of the acquired company are cancelled, the acquired company shall be treated as having disposed of the shares at cost to the acquiring company. 2) Transfer of property. 3) Deduction for intellectual property rights under section 19B shall be allowed to the amalgamated company in respect of such intellectual property which was in existence prior to the amalgamation. 4) Deduction for bad debts, expenditure losses. The amalgamated company shall be allowed a deduction in respect of bad debts, in respect of debts, expenditure or loss as if the amalgamated company would have been allowed the deductions were it not amalgamated. The bad debt, expenditure or loss must relate to the trade or business.

3 5) Unabsorbed capital allowances, donations or loss against income or statutory income of the amalgamated company shall be allowed as a deduction in the amalgamating company provided the amalgamating company was carrying on trade or business until the amalgamation, and provided the amalgamated company continues to carry on the same business or trade on the date of amalgamation as the amalgamating company.

4 Question 5 1) GST treatment for outbound travellers The purchase of goods by a traveller from merchants operating within the duty-free zone of the airport is treated as export of goods. The exports are subject to zero per cent GST. However the provisions of GST Act require that, in the event of export of goods, an invoice be issued to a person outside Singapore. Considering the facts of the case where passengers are misutilising the facility, they are duty bound to deposit the GST once the goods are brought into Singapore at arrivals. The comptroller has powers to issue notes and frame assessment, levying GST at 7% on such goods purchased from duty-free shops and being bought back into Singapore. 2) There is no income tax bias in favour of debt financing for companies resident in Singapore. The Singapore Income Tax Law does not contain any specific provision on the issue of Thin Capitalisation, i.e. how financing of a trade or business is to be carried out, through either equity only or a mix of both equity and debt financing. However, the Singapore law empowers the comptroller to resort to the anti-avoidance procedures contained in the law to ensure whether or not a debt transaction is at arm s length basis or not. Further the law also provides for and empowers the comptroller to disregard or recharacterise a transaction where the substance of the transaction does not match its form. As such as long as there is genuine and bona fide financing of an enterprise based on arm s length interest rate and no special conditions are imposed between the borrower and the lender, the loan should be accepted as bona fide for the purpose of financing in a company. 3) The remittance basis of taxation has been effectively abolished. The provisions of the Singapore income tax system are based on the territorial basis of taxation and not source-based taxation. Accordingly, taxes on income in Singapore are paid in respect of income of any person accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of the six heads of income specified in section 10(1a). Further section 12, dealing with sources of income, by fiction of law deems certain income from interest, royalties and employment outside Singapore, on behalf of government. Such income is only taxable when it is remitted into Singapore. It would not be proper to state that remittance basis of taxation has been effectively abolished since the provisions are existing in the law whereby such remittances are subject to tax in Singapore. Presently, as a result of economic measures, such remittances when brought into Singapore are either not subject to income tax or are taxed at a reduced rate of tax.

5 Similarly, on outward remittances, in respect of any transaction where the payer is not sure whether the recipient is a resident of Singapore or does have a presence in Singapore by way of PE or fixed base. Income tax withholding is required from the payments at the rates specified. However, again as a result of economic measures, the withholding tax has either been exempted or reduced. In view of the above discussion, it could be said that the Singapore law adequately caters for, and employs provisions and stipulations for, remittance basis of taxation. However, presently, due to various economic measures adopted, the taxation of remittances have either been exempted or carried out at a reduced rate for a given period of time. We can see from various exemptions and concessions that they are period-bound, i.e. only effective for a limited period of time.

6 Question 7 1) Tips of $500, each paid to three former ships captains employed in a social club in Singapore where Tom regularly brings his clients for meals and discussions, are an expenditure not incurred wholly and exclusively for the purposes of business as the tips have nothing to do with Tom s trade or business. 2) The amount of 2% commission paid by Tom to a real estate agent in PRC is a tax deductible expense in computing the income of Tom for trade or business since the properties were identified by and purchased through the same commission agent to whom an advance commission of 2% was paid. 3) An air fare of $3,200 incurred to travel to attend a conference in India should be allowed as a tax deductible expenditure provided the conference was related to the trade or business of Tom and presentations were made for technological, marketing and business aspects related to the business or trade or Tom. 4) In view of the fact that Tom is in the business of towing and salvaging and shipbreaking, the interest payment of $12,000 is a payment incurred for the purposes of trade or business and it is not an expense in the nature of capital or personal nature. 5) The payment of $10,000 compensation from the Singapore government is for compulsory acquisition of part of land upon which Tom s office buildings is situated is not subject to tax being of capital in nature. This is a compensation of loss of revenue earning apparatus and cannot be treated as revenue receipt being subject to tax in Singapore. 6) The $1.2 million commission for brokerage services rendered in sale of ship by a regular customer will be taxable, being part of receipt from trade or business carried out by Tom. 7) The legal fee of $12,000 paid to Tom s lawyer and $12,000 to the defendant on account of legal costs incurred in successfully defending a case of claims for aborted deal is an expense wholly and exclusively incurred for the purposes of the trade or business and should be allowed as tax deductible. Since $12,000 is paid to the defendant as per rule of law, it was an expense for the purposes of business. Further, since the claim related to commission on an aborted deal, it is a revenue expense and allowable under the law.