Question 1 Precision Pte Ltd (PPL) is incorporated and tax resident in Singapore. PPL is a...
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Question 1 Precision Pte Ltd (PPL) is incorporated and tax resident in Singapore. PPL is a health drink manufacturer and has a manufacturing plant in Singapore. Recently, PPL is in the midst of negotiating a contract with Healthier Ltd (HL), a company which manufactures "Powerup", a health drink that has a known effect of boosting one's energy level after consumption. HL is incorporated and tax resident in Country A and Country A does not have a double tax agreement with Singapore. At present, HL does not have any operations in Singapore. The key terms of the contract between PPL and HL are as follows: HL will provide PPL with the following: . . . Know-how and formulation of "Powerup": Drawing of blueprints for the bottling equipment of "Powerup"; Bottling equipment for bottling of "Powerup"; 4 engineers for a duration of eight weeks for the installation of the equipment; and PPL agrees to pay HL a total sum of Singapore Dollars Three Million (S$3,000,000). The payment shall be on a net of tax basis and shall be credited to a bank account. designated by HL. Foreign sourced income Interest income 2 engineers for a duration of 3 months for the training of PPL's staff on the operation and maintenance of the equipment. For the financial year ended 31 December 2018, PPL recorded the following foreign sourced income in its Profit or Loss account. All foreign sourced income were remitted to PPL's Singapore bank account on 31 December 2018. Royalty income Dividend Income from a subsidiary Country of Source X Y Z Corporate tax rate in country of source 20% 10% 25% Withholding tax in country of source 5% 10% 5% Net amount (SS) 9.500 4,500 $2,000 Country X, Country Y and Country Z operate a classical tax system and they do not have. a double tax agreement with Singapore. PPL recorded an adjusted trading profit after capital allowances from its Singapore operations amounting to S$420,000 for the financial year ended 31 December 2018. Required: (a) (b) (c) Formulate an advice for PPL on its Singapore withholding tax implications based on the contract with HL. Your advice should include a description of the payment, withholding tax rate, the payment due date to IRAS and/or reason(s) why Singapore withholding tax is not applicable to any payment. Discussion of penalties for non-compliance is not required. (13 marks) Discuss how your answer in part (a) will differ if Country A and Singapore has concluded a double tax agreement that is identical to the 2017 OECD model tax convention. (5 marks) Explain whether PPL should elect for foreign tax credit pooling for Year of Assessment 2019 with reference to appropriate tax computations, taking into account partial exemption of chargeable income for companies as follows: Exemption Chargeable Income First $10,000 Next $290,000 Exemption 75% 50% You can ignore any applicable corporate tax rebate. $7,500 $145,000 $152,500 (10 marks) Question 1 Precision Pte Ltd (PPL) is incorporated and tax resident in Singapore. PPL is a health drink manufacturer and has a manufacturing plant in Singapore. Recently, PPL is in the midst of negotiating a contract with Healthier Ltd (HL), a company which manufactures "Powerup", a health drink that has a known effect of boosting one's energy level after consumption. HL is incorporated and tax resident in Country A and Country A does not have a double tax agreement with Singapore. At present, HL does not have any operations in Singapore. The key terms of the contract between PPL and HL are as follows: HL will provide PPL with the following: . . . Know-how and formulation of "Powerup": Drawing of blueprints for the bottling equipment of "Powerup"; Bottling equipment for bottling of "Powerup"; 4 engineers for a duration of eight weeks for the installation of the equipment; and PPL agrees to pay HL a total sum of Singapore Dollars Three Million (S$3,000,000). The payment shall be on a net of tax basis and shall be credited to a bank account. designated by HL. Foreign sourced income Interest income 2 engineers for a duration of 3 months for the training of PPL's staff on the operation and maintenance of the equipment. For the financial year ended 31 December 2018, PPL recorded the following foreign sourced income in its Profit or Loss account. All foreign sourced income were remitted to PPL's Singapore bank account on 31 December 2018. Royalty income Dividend Income from a subsidiary Country of Source X Y Z Corporate tax rate in country of source 20% 10% 25% Withholding tax in country of source 5% 10% 5% Net amount (SS) 9.500 4,500 $2,000 Country X, Country Y and Country Z operate a classical tax system and they do not have. a double tax agreement with Singapore. PPL recorded an adjusted trading profit after capital allowances from its Singapore operations amounting to S$420,000 for the financial year ended 31 December 2018. Required: (a) (b) (c) Formulate an advice for PPL on its Singapore withholding tax implications based on the contract with HL. Your advice should include a description of the payment, withholding tax rate, the payment due date to IRAS and/or reason(s) why Singapore withholding tax is not applicable to any payment. Discussion of penalties for non-compliance is not required. (13 marks) Discuss how your answer in part (a) will differ if Country A and Singapore has concluded a double tax agreement that is identical to the 2017 OECD model tax convention. (5 marks) Explain whether PPL should elect for foreign tax credit pooling for Year of Assessment 2019 with reference to appropriate tax computations, taking into account partial exemption of chargeable income for companies as follows: Exemption Chargeable Income First $10,000 Next $290,000 Exemption 75% 50% You can ignore any applicable corporate tax rebate. $7,500 $145,000 $152,500 (10 marks)
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Answer a Under the terms of the contract PPL is liable to make payments to HL for the knowhow and formulation of Powerup the drawing of blueprints for the bottling equipment of Powerup the bottling eq... View the full answer
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Managerial Accounting A Focus on Ethical Decision Making
ISBN: 978-0324663853
5th edition
Authors: Steve Jackson, Roby Sawyers, Greg Jenkins
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