Review the e-Tax Guide Rights-Based Approach for Characterising Software Payments and Payments for the Use of or

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Review the e-Tax Guide “Rights-Based Approach for Characterising Software Payments and Payments for the Use of or the Right to Use Information and Digitised Goods” published by the Inland Revenue Authority of Singapore (“IRAS”) on 8 February 2013. In this publication, IRAS explains the rights-based approach for characterising payments for software and payments for the use of or the right to use information and digitised goods. Required: Demonstrate your understanding of the above e-Tax Guide by explaining in your own words the proper Singapore income tax treatment on the following transactions. Where applicable, formulate the Singapore withholding tax implications by stating clearly the following:
 The applicable withholding tax rate.  The amount of withholding tax to be deducted and remitted to the Comptroller of Income Tax (“CIT”).
 The due date for notifying the CIT of the withholding tax deduction and the payment of withholding tax.

Transaction 1 A Pte Ltd (“APL”) is a company incorporated and tax resident in Singapore. B Inc. (“BI”) is a company incorporated and tax resident in the US and is in the business of software development. In 2018, BI developed a proprietary application software which allow the users to better understand their customers’ buying behaviour. In 2019, APL purchased this software from BI for its own business use for a consideration of $50,000. (5 marks)

Transaction 2 In addition to the information re: Transaction 1, on 23 December 2019, APL entered into a negotiation with BI’s related company, C Inc (“CI”), a company incorporated and tax resident in the US whereby CI would provide additional software maintenance and support services of the software developed by BI for the year ending 31 December 2020. The contract amount is $36,000 and the contract will be effective from 1 January 2020. APL will be required to make an initial payment of $18,000 on 1 January 2020 to CI and another payment of $18,000 on 1 July 2020 to CI. All services will be provided by CI to APL virtually. (5 marks)

Transaction 3 D Inc (“DI”) is a company incorporated and tax resident in the US and E Pte Ltd (“EPL”) is DI’s wholly-owned subsidiary incorporated and tax resident in Singapore. In 2018, DI developed a proprietary software called “APP” and it is the copyright owner. One of the unique selling propositions of “APP” is that it can help the corporate users to understand the strengths and weaknesses of their employees so that they can be assigned to appropriate jobs that fit their strength profile. DI is keen to bring “APP” to South East Asia (“SEA”) and it has appointed EPL to be the exclusive distributor of APP in the SEA region. What happens is that DI grants the right to distribute "APP” to EPL for a consideration of $50,000. Under the arrangement, EPL does not have any right to reproduce copies of this software. When EPL makes a sale to a customer, it will provide the customer with a password to access and download “APP” from DI’s server. (5 marks)

Transaction 4 F Inc (“FI”) is a company incorporated and tax resident in the US. In 2018, FI developed a computer software that allows the users to find out why their customers would buy their products or services in a particular way. FI is the copyright owner. G Pte Ltd (“GPL”) is a company incorporated and resident in Singapore. Through its online research, GPL discovered this computer software developed by FI and it is keen to negotiate with FI for the right to use this software. After several rounds of negotiation, FI agreed to grant the partial right to GPL for the use of this software for an annual license fee of $50,000 effective from 1 January 2019. The license fee payment is broken down into two parts – the first payment of $25,000 is due and payable to FI on 1 January and the second payment of $25,000 is due and payable to FI on 1 July. (5 marks)

Transaction 5 HI Inc (“HI”) is a company incorporated and resident in the US. In 2018, HI developed an online platform with world-class security measures that targets the small and medium enterprises by providing them with on-demand access to servers, data storage, software analytics and intelligences. In short, HI provides “cloud computer” services to its customers. I Pte Ltd (“IPL”) is a company incorporated and resident in Singapore. In 2019, IPL has concluded a contract for $50,000 with HI for the use of HI’s online platform that is hosted in the US. (5 marks)