July 23: Singapore’s Income Tax Board of Review rejected the tax authorities’ claim that the Income Tax Act sets out a “mini-regime” for insurance companies providing that an insurance company’s sale of investments would automatically be subject to income tax. Rather, it was determined that the disposals were capital gains, and not taxable revenue.
Summary
The taxpayer company was a member of a corporate group, and conducted business as a general insurer in Singapore. As such, it was required to establish separate insurance funds for each class of insurance business, and to assign assets, liabilities, receipts, and expenses to the appropriate funds.
The taxpayer established a Singapore insurance fund and an offshore insurance fund for its domestic and offshore policies, respectively. These funds were used to invest in shares of a bank and other companies. Due to corporate acquisitions / reorganizations, the taxpayer eventually sold shares of the bank and companies to an acquiring bank, and in exchange took back shares of the acquiring bank and cash.
The tax authorities asserted that the taxpayer’s gains from these disposals were taxable revenue.
The Income Tax Board of Review concluded that the gains from the disposals were capital gains—i.e., the taxpayer had not engaged in any trade or business with respect to the subject shares—and not taxable income to the taxpayer.
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