37ID.—(1) Notwithstanding the provisions of this Act, the Comptroller may disallow an amount referred to in subsection (2) of a claim for —
(a)
a PIC enhanced deduction; or
(b)
a PIC cash payout,
and disallow the payment of an amount referred to in subsection (2) of a PIC bonus based on that claim, if the Comptroller has reasonable grounds to suspect that the claim arises from an abusive PIC arrangement.
(2) The amount of the PIC enhanced deduction, PIC cash payout or PIC bonus that may be disallowed under subsection (1) is the amount resulting from the PIC arrangement being abusive as defined under subsection (10).
(3) Notwithstanding the provisions of this Act, the amount referred to in subsection (4) of a PIC cash payout or PIC bonus paid to a person that was based on a claim that arose from an abusive PIC arrangement shall be recoverable by the Comptroller from the person as a debt due to the Government.
(4) The amount of the PIC cash payout or PIC bonus that is recoverable under subsection (3) is the amount resulting from the PIC arrangement being abusive as defined under subsection (10).
(5) The amount that is recoverable under subsection (3) shall be payable at the place stated in the notice served by the Comptroller on the person within 30 days after the service of the notice.
(6) The Comptroller may, in his discretion, and subject to such terms and conditions as he may impose, extend the time within which payment under subsection (3) is to be made.
(7) Sections 86(1) to (6), 87(1) and (2), 89, 90 and 91 shall apply to the collection and recovery by the Comptroller of the amount recoverable under subsection (3) as they apply to the collection and recovery of tax.
(8) In this section, an arrangement is a PIC arrangement if the obtaining of a PIC cash payout, PIC bonus or PIC enhanced deduction, or a higher amount of a PIC cash payout, PIC bonus or PIC enhanced deduction, was the purpose or one of the purposes of the arrangement (referred to in this section as the relevant purpose).
(9) In this section, a PIC arrangement is abusive if —
(a)
it consists or makes use of one or more artificial, contrived or fraudulent steps that is intended to achieve the relevant purpose;
(b)
the arrangement results in the consideration paid or payable for the property or services in question being of a greater value than the open market value of the property or services, and there is no bona fide commercial reason for the difference in the values apart from the relevant purpose; or
(c)
in any other case, there is no bona fide commercial reason for entering into the arrangement or a transaction forming part of the arrangement apart from the relevant purpose.
(10) In this section, the amount of PIC enhanced deduction, PIC cash payout or PIC bonus resulting from a PIC arrangement being abusive is —
(a)
if the arrangement is abusive by reason of subsection (9)(a), the amount that results or has resulted from the use of the artificial, contrived or fraudulent step or steps, excluding any amount the person concerned is entitled to if the step or steps had not been used;
(b)
if the arrangement is abusive by reason of subsection (9)(b), the amount that corresponds to the difference in the values mentioned in that provision; or
(c)
if the arrangement is abusive by reason of subsection (9)(c), the full amount.
Examples
(i)
A enters into a contract for training for his employees. The right to training may be exchanged for goods. Expenditure for the goods is not eligible for a PIC cash payout. A exchanged the right to training for those goods and made a claim for a PIC cash payout in respect of the expenditure. The contract and the exchange together form an abusive PIC arrangement. The amount of the PIC cash payout that results from the arrangement being abusive for the purposes of subsections (1) and (3) is the full amount of the payout.
(ii)
A, in order to obtain a higher amount of PIC cash payout, purchases more equipment than he needs for his business. The purchase of the excess equipment is an abusive PIC arrangement. The amount of the PIC cash payout that results from the arrangement being abusive for the purposes of subsections (1) and (3) is the amount corresponding to the price paid for the excess equipment.
(iii)
A and B, in order to help each other obtain a PIC cash payout, sell to each other equipment that performs the same function. The sales are abusive PIC arrangements. The amount of the PIC cash payout that results from the arrangement being abusive for the purposes of subsections (1) and (3) is the full amount of the payout.
(iv)
A enters into a contract for training for his employees. The contract price for the training includes both the value of the training and the value of other goods to be given to the trainees. Expenditure for those goods is not eligible for a PIC cash payout. The purpose for setting the price for the training in this way is to enable a higher PIC cash payout to be paid to A. The contract is an abusive PIC arrangement. The amount of the PIC cash payout that results from the arrangement being abusive for the purposes of subsections (1) and (3) is the amount corresponding to the price for those other goods.
(11) This section applies only to arrangements made or entered into on or after the date of commencement of section 42 of the Income Tax (Amendment) Act 2014.
(12) In this section —
“arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);
“PIC bonus” means a payment under section 37IA;
“PIC cash payout” means a payment under section 37I;
“PIC enhanced deduction” means a deduction or an allowance under section 14A(1B) or (1BA), 14DA(2), 14R(2) or (2A), 14S(2) or (2AA), 14T(2) or (2A), 14W(1) or (4), 19A(2B) or (2BAA), 19B(1B) or (1BAA), or 37IC.
[Act 37 of 2014 wef 27/11/2014]
Informal Consolidation | Amended Act 34 of 2016
Abusive PIC arrangements
37ID.—(1) Notwithstanding the provisions of this Act, the Comptroller may disallow an amount referred to in subsection (2) of a claim for —
(a)
a PIC enhanced deduction; or
(b)
a PIC cash payout,
and disallow the payment of an amount referred to in subsection (2) of a PIC bonus based on that claim, if the Comptroller has reasonable grounds to suspect that the claim arises from an abusive PIC arrangement.
(2) The amount of the PIC enhanced deduction, PIC cash payout or PIC bonus that may be disallowed under subsection (1) is the amount resulting from the PIC arrangement being abusive as defined under subsection (10).
(3) Notwithstanding the provisions of this Act, the amount referred to in subsection (4) of a PIC cash payout or PIC bonus paid to a person that was based on a claim that arose from an abusive PIC arrangement shall be recoverable by the Comptroller from the person as a debt due to the Government.
(4) The amount of the PIC cash payout or PIC bonus that is recoverable under subsection (3) is the amount resulting from the PIC arrangement being abusive as defined under subsection (10).
(5) The amount that is recoverable under subsection (3) shall be payable at the place stated in the notice served by the Comptroller on the person within 30 days after the service of the notice.
(6) The Comptroller may, in his discretion, and subject to such terms and conditions as he may impose, extend the time within which payment under subsection (3) is to be made.
(7) Sections 86(1) to (6), 87(1) and (2), 89, 90 and 91 shall apply to the collection and recovery by the Comptroller of the amount recoverable under subsection (3) as they apply to the collection and recovery of tax.
(8) In this section, an arrangement is a PIC arrangement if the obtaining of a PIC cash payout, PIC bonus or PIC enhanced deduction, or a higher amount of a PIC cash payout, PIC bonus or PIC enhanced deduction, was the purpose or one of the purposes of the arrangement (referred to in this section as the relevant purpose).
(9) In this section, a PIC arrangement is abusive if —
(a)
it consists or makes use of one or more artificial, contrived or fraudulent steps that is intended to achieve the relevant purpose;
(b)
the arrangement results in the consideration paid or payable for the property or services in question being of a greater value than the open market value of the property or services, and there is no bona fide commercial reason for the difference in the values apart from the relevant purpose; or
(c)
in any other case, there is no bona fide commercial reason for entering into the arrangement or a transaction forming part of the arrangement apart from the relevant purpose.
(10) In this section, the amount of PIC enhanced deduction, PIC cash payout or PIC bonus resulting from a PIC arrangement being abusive is —
(a)
if the arrangement is abusive by reason of subsection (9)(a), the amount that results or has resulted from the use of the artificial, contrived or fraudulent step or steps, excluding any amount the person concerned is entitled to if the step or steps had not been used;
(b)
if the arrangement is abusive by reason of subsection (9)(b), the amount that corresponds to the difference in the values mentioned in that provision; or
(c)
if the arrangement is abusive by reason of subsection (9)(c), the full amount.
Examples
(i)
A enters into a contract for training for his employees. The right to training may be exchanged for goods. Expenditure for the goods is not eligible for a PIC cash payout. A exchanged the right to training for those goods and made a claim for a PIC cash payout in respect of the expenditure. The contract and the exchange together form an abusive PIC arrangement. The amount of the PIC cash payout that results from the arrangement being abusive for the purposes of subsections (1) and (3) is the full amount of the payout.
(ii)
A, in order to obtain a higher amount of PIC cash payout, purchases more equipment than he needs for his business. The purchase of the excess equipment is an abusive PIC arrangement. The amount of the PIC cash payout that results from the arrangement being abusive for the purposes of subsections (1) and (3) is the amount corresponding to the price paid for the excess equipment.
(iii)
A and B, in order to help each other obtain a PIC cash payout, sell to each other equipment that performs the same function. The sales are abusive PIC arrangements. The amount of the PIC cash payout that results from the arrangement being abusive for the purposes of subsections (1) and (3) is the full amount of the payout.
(iv)
A enters into a contract for training for his employees. The contract price for the training includes both the value of the training and the value of other goods to be given to the trainees. Expenditure for those goods is not eligible for a PIC cash payout. The purpose for setting the price for the training in this way is to enable a higher PIC cash payout to be paid to A. The contract is an abusive PIC arrangement. The amount of the PIC cash payout that results from the arrangement being abusive for the purposes of subsections (1) and (3) is the amount corresponding to the price for those other goods.
(11) This section applies only to arrangements made or entered into on or after the date of commencement of section 42 of the Income Tax (Amendment) Act 2014.
(12) In this section —
“arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);
“PIC bonus” means a payment under section 37IA;
“PIC cash payout” means a payment under section 37I;
“PIC enhanced deduction” means a deduction or an allowance under section 14A(1B) or (1BA), 14DA(2), 14R(2) or (2A), 14S(2) or (2AA), 14T(2) or (2A), 14W(1) or (4), 19A(2B) or (2BAA), 19B(1B) or (1BAA), or 37IC.