34. The principal Act is amended by inserting, immediately after section 37K, the following section:| “Deduction for acquisition of shares of companies |
37L.—(1) Subject to this section, where —| (a) | a Singapore company (referred to in this section as the acquiring company); or | | (b) | a subsidiary of the Singapore company that is directly and wholly owned by the Singapore company, and is incorporated for the primary purpose of acquiring and holding shares in other companies (referred to in this section as the acquiring subsidiary), |
| has incurred capital expenditure during the period from 1st April 2010 to 31st March 2015 (both dates inclusive) for any qualifying acquisition of ordinary shares in another company (referred to in this section as the target company), the acquiring company may claim a deduction for the capital expenditure, in accordance with this section. |
| (2) Any claim for deduction under this section shall be made at the time of lodgment of the return of income for the year of assessment relating to the basis period in which the capital expenditure is incurred or within such further time as the Comptroller may, in his discretion, allow. |
| (3) For the purposes of subsections (1) and (2), capital expenditure for an acquisition of ordinary shares in a target company shall be treated as being incurred on the date of the acquisition of those shares. |
(4) In this section, a qualifying acquisition of ordinary shares in a target company by an acquiring company or an acquiring subsidiary is any of the following:| (a) | an acquisition that results in the acquiring company or the acquiring subsidiary, as the case may be, owning more than 50% of the total number of ordinary shares in the target company where, before the date of the acquisition, the acquiring company or the acquiring subsidiary, as the case may be, owns 50% or less of the total number of ordinary shares in the target company; | | (b) | any other acquisition the date of which falls in the same basis period as that of the acquisition referred to in paragraph (a); | | (c) | an acquisition that results in the acquiring company or the acquiring subsidiary, as the case may be, owning 75% or more of the total number of ordinary shares in the target company where —| (i) | before the date of the acquisition, the acquiring company or the acquiring subsidiary, as the case may be, owns more than 50% but less than 75% of the total number of ordinary shares in the target company; and | | (ii) | the date of the acquisition does not fall in the same basis period as the date of the acquisition referred to in paragraph (a); |
| | (d) | any other acquisition the date of which falls in the same basis period as that of the acquisition referred to in paragraph (c), |
| provided that at the end of that basis period, the acquiring company or acquiring subsidiary, as the case may be, continues to own more than 50% (in the case of paragraphs (a) and (b)) or 75% or more (in the case of paragraphs (c) and (d)) of the total number of ordinary shares in the target company. |
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| (5) An acquiring company may elect for its qualifying acquisitions to be, instead of those referred to in subsection (4)(a) and (b) or subsection (4)(c) and (d), acquisitions of ordinary shares in a target company the dates of which fall in a prescribed period and which include an acquisition referred to in subsection (4)(a) or (c), and the provisions of this section shall apply to the qualifying acquisitions so elected subject to such modifications as may be prescribed. |
| (6) The election under subsection (5) shall be made by the acquiring company at the time of lodgment of the return of its income for the year of assessment relating to the basis period in which the date of the acquisition referred to in subsection (4)(a) or (c) falls, or within such further time as the Comptroller may, in his discretion, allow. |
| Deductions allowable in respect of capital expenditure claimed |
(7) For the purpose of subsection (1) and subject to subsections (11) and (19) and the regulations made under subsection (24), deductions in respect of capital expenditure for a qualifying acquisition of ordinary shares in a target company by an acquiring company or an acquiring subsidiary, as the case may be, are to be allowed as follows:| (a) | to the extent the capital expenditure is not contingent consideration or, if it is contingent consideration, is incurred in the same basis period as that in which the date of the acquisition of the shares falls, the deduction allowed shall be the amount specified in subsection (8) for each of 5 successive years of assessment (referred to in this section as the 1st, 2nd, 3rd, 4th and 5th years of assessment, respectively), beginning with the year of assessment relating to the basis period in which the date of the acquisition of the shares falls; and | | (b) | to the extent the capital expenditure is contingent consideration that is incurred in a basis period after the basis period for the 1st year of assessment, the deduction allowed shall be —| (i) | where the contingent consideration is incurred in the basis period for the 2nd, 3rd or 4th year of assessment, the amount specified in subsection (9) for that year of assessment and for each successive year of assessment up to and including the 5th year of assessment; or | | (ii) | where the contingent consideration is incurred in the basis period for the 5th year of assessment or a subsequent year of assessment, the amount specified in subsection (10) for that year of assessment. |
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(8) Subject to subsections (13) and (19), the amount referred to in subsection (7)(a) shall be calculated in accordance with the formula | | is the capital expenditure to the extent that it is not contingent consideration or, if it is contingent consideration, is incurred in the same basis period as that in which the date of the acquisition of the shares falls. |
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(9) Subject to subsections (13) and (19), the amount referred to in subsection (7)(b)(i) shall be calculated in accordance with the formula | | is the contingent consideration that is incurred in the basis period for the 2nd, 3rd or 4th year of assessment, whichever is applicable; and |
| | | | | (a) | 2 (where the contingent consideration is incurred in the basis period for the 2nd year of assessment); |
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| | | (b) | 3 (where the contingent consideration is incurred in the basis period for the 3rd year of assessment); or |
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| | | (c) | 4 (where the contingent consideration is incurred in the basis period for the 4th year of assessment), |
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(10) Subject to subsections (13) and (19), the amount referred to in subsection (7)(b)(ii) shall be calculated in accordance with the formula | | is the contingent consideration that is incurred in the basis period for the 5th year of assessment or the subsequent year of assessment, whichever is applicable. |
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(11) The following provisions shall apply in determining the amount of deductions under subsection (7) to be allowed to the acquiring company for all qualifying acquisitions of ordinary shares in one or more target companies whose dates of acquisition fall within one basis period:| (a) | where the aggregate of the amounts of “A” referred to in subsection (8) in respect of all such qualifying acquisitions exceeds $100 million, the amount by which the aggregate exceeds $100 million shall be disregarded for the purposes of the deduction to be allowed under this section; and | | (b) | where the aggregate referred to in paragraph (a) does not exceed $100 million but the aggregate of the following exceeds $100 million:| (i) | the aggregate referred to in paragraph (a); and | | (ii) | the aggregate of all contingent consideration in respect of all such qualifying acquisitions incurred in the basis period for any year of assessment subsequent to the 1st year of assessment and in any earlier year of assessment other than the 1st year of assessment, |
| the amount by which the aggregate of sub-paragraphs (i) and (ii) exceeds $100 million shall be disregarded for the purposes of the deduction to be allowed under this section. |
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| (12) For the purposes of subsections (8), (9), (10) and (11), the amount of any consideration paid for any qualifying acquisition that comprises shares in the acquiring company, is the market value of the shares in the acquiring company as at the date of the acquisition of the shares and, if it is not possible to determine such value, the net asset value of those shares in the acquiring company at the end of its accounting period immediately before the date of the acquisition of those shares. |
| (13) Notwithstanding subsections (8), (9) and (10), where any amount of “A”, “B” or “D” referred to in subsections (8), (9) and (10), respectively, that is paid by the acquiring company or acquiring subsidiary, as the case may be, in respect of any qualifying acquisition is greater than the amount which would have been paid if the acquiring company or the acquiring subsidiary, as the case may be, were unrelated to the shareholders in the target company, the first-mentioned amount shall be substituted with the second-mentioned amount, and any question regarding the quantum of the second-mentioned amount shall be determined by the Comptroller. |
| (14) A deduction under this section to an acquiring company shall be made against the balance of its statutory income after the deductions allowed under sections 37(3), 37B and 37G. |
(15) Section 14D(4) and (5) shall apply in relation to the deduction to be allowed in this section, as they apply in relation to the deduction of the expenditure and payments referred to in section 14D(1)(aa) and (c), subject to the following modifications:| (a) | a reference to the amount of the expenditure or payments (after deducting any amount in respect of which an election for a cash payout has been made under section 37I) is a reference to the deduction to be allowed in this section; and | | (b) | a reference to a specified amount of the expenditure or payments in section 14D(4) is a reference to an amount computed in accordance with the following formula: | | is the deduction to be allowed in this section; |
| | | the rate of tax specified in section 43(1)(a); and |
| | | | | (i) | in a case where the concessionary income (as defined in section 14D(5)) derived by the person from the trade or business carried on by him is subject to tax at a single concessionary rate of tax, that rate; or |
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| | | (ii) | in a case where the concessionary income derived by the person from the trade or business carried on by him is subject to tax at 2 or more concessionary rates of tax, the higher or highest of those rates. |
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| Conditions for deductions |
(16) A deduction in respect of a qualifying acquisition shall be made to an acquiring company under this section for any year of assessment only if —| (a) | where it is an acquisition referred to in subsection (4)(a) or (c) —| (i) | the acquiring company —| (A) | is carrying on a trade or business in Singapore on the date of the acquisition of the shares; | | (B) | has in its employment at least 3 local employees at all times during the period of 12 months immediately before that date; | | (C) | is not connected to the target company for at least 2 years immediately before that date; and | | (D) | in a case where the acquiring company is a subsidiary of another company within the meaning of section 5 of the Companies Act (Cap. 50), has a Singapore company as its ultimate holding company on that date; |
| | (ii) | where the acquisition is made by the acquiring subsidiary, the acquiring subsidiary —| (A) | does not carry on a trade or business in Singapore or elsewhere on the date of the acquisition of the shares; | | (B) | does not claim any deduction for any capital expenditure under this section for that year of assessment; and | | (C) | is directly and wholly owned by the acquiring company on that date; and |
| | (iii) | the target company or a subsidiary wholly and directly owned by the target company —| (A) | carries on a trade or business on the date of the acquisition of the shares; and | | (B) | has in its employment at least 3 employees at all times during the period of 12 months immediately before that date; |
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| | (b) | where it is an acquisition referred to in subsection (4)(b) or (d) —| (i) | the acquiring company —| (A) | is carrying on a trade or business in Singapore on the date of the acquisition of the shares; | | (B) | has in its employment at least 3 local employees at all times during the period of 12 months immediately before that date; | | (C) | is not connected to the target company for at least 2 years immediately before that date; and | | (D) | in a case where the acquiring company is a subsidiary of another company within the meaning of section 5 of the Companies Act (Cap. 50), has a Singapore company as its ultimate holding company on that date; |
| | (ii) | where the acquisition is made by the acquiring subsidiary, the acquiring subsidiary —| (A) | does not carry on a trade or business in Singapore or elsewhere on the date of the acquisition of the shares; | | (B) | does not claim any deduction for any capital expenditure under this section for that year of assessment; and | | (C) | is directly and wholly owned by the acquiring company on that date; |
| | (iii) | the target company or a subsidiary wholly and directly owned by the target company —| (A) | carries on a trade or business on the date of the acquisition of the shares; and | | (B) | has in its employment at least 3 employees at all times during the period of 12 months immediately before that date; and |
| | (iv) | the circumstances specified in paragraph (a) are also satisfied in relation to —| (A) | in the case of a deduction for a qualifying acquisition referred to in subsection (4)(b), a qualifying acquisition referred to in subsection (4)(a); and | | (B) | in the case of a deduction for a qualifying acquisition referred to in subsection (4)(d), a qualifying acquisition referred to in subsection (4)(c). |
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(17) No deduction in respect of any qualifying acquisition of ordinary shares in a target company shall be made to the acquiring company for the year of assessment relating to the basis period in which any of the following events occurs or for any subsequent year:| (a) | after the date of the acquisition of the shares, the target company issues additional ordinary shares which reduces the acquiring company’s ownership or the acquiring subsidiary’s ownership, as the case may be, of the ordinary shares in the target company to 50% or less; | | (b) | the acquiring company —| (i) | ceases to carry on a trade or business in Singapore; or | | (ii) | ceases to have at least 3 local employees; |
| | (c) | where the qualifying acquisition is one referred to in subsection (4)(a) or (b), the acquiring company or the acquiring subsidiary (as the case may be) divests of its shares in the target company which reduces the acquiring company’s ownership or the acquiring subsidiary’s ownership of the ordinary shares in the target company to 50% or less, and such divestment occurs in a basis period other than that for the 1st year of assessment; | | (d) | where the qualifying acquisition is one referred to in subsection (4)(c) or (d), the acquiring company or the acquiring subsidiary (as the case may be) divests of its shares in the target company which reduces the acquiring company’s ownership or the acquiring subsidiary’s ownership of the ordinary shares in the target company to a percentage below 75%, and such divestment occurs in a basis period other than that for the 1st year of assessment; | | (e) | the acquiring company or, if the acquiring company is a subsidiary of another company within the meaning of section 5 of the Companies Act (Cap. 50), its ultimate holding company, ceases to be a Singapore company; or | | (f) | the acquiring subsidiary —| (i) | carries on any trade or business in Singapore or elsewhere; | | (ii) | incurs capital expenditure for which it claims a deduction under this section; or | | (iii) | ceases to be directly and wholly owned by the acquiring company. |
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| (18) If the Comptroller is satisfied that the shareholders of the acquiring company on the first day of the year of assessment in which the deduction is to be allowed in respect of a qualifying acquisition are not substantially the same as its shareholders on the date of the acquisition of the shares, then no deduction in respect of the qualifying acquisition shall be made to the acquiring company for the year of assessment relating to the basis period in which the deduction is to be allowed and for any subsequent year of assessment. |
| Modifications for groups of companies |
(19) Where the acquiring company or the acquiring subsidiary, as the case may be, and the target company are part of the same group of companies on the date of a qualifying acquisition of ordinary shares in a target company by the acquiring company or the acquiring subsidiary, as the case may be, no deduction shall be made under this section in respect of that qualifying acquisition unless the total number of ordinary shares acquired by the acquiring company or the acquiring subsidiary, as the case may be, results in an increase in the total number of ordinary shares of the target company held on that date by all companies in the group (excluding the target company) and, where there is such an increase —| (a) | a deduction shall only be allowed under this section for; and | | (b) | references in subsections (7) to (10) to any capital expenditure for a qualifying acquisition shall accordingly be read as references to, |
| the capital expenditure in respect of the number of such shares that corresponds to such increase. |
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| Carry forward of deductions |
| (20) Subject to subsection (21), where in any year of assessment full effect cannot, by reason of an insufficiency of gains or profits chargeable for that year of assessment, be given to any deduction falling to be allowed under this section, the balance of the deduction shall be added to, and be deemed to form part of the corresponding deduction, if any, for the next succeeding year of assessment, and if no such corresponding deduction falls to be allowed for that year, shall be deemed to constitute the corresponding deduction for that year, and so on for subsequent years of assessment. |
| (21) No balance shall be added to and be deemed to form part of the corresponding deduction, if any, to be given to an acquiring company under subsection (20) for a year of assessment unless the Comptroller is satisfied that the shareholders of the acquiring company on the last day of the year of assessment in which the deduction was claimed were substantially the same as the shareholders of the acquiring company on the first day of the first-mentioned year of assessment; and such balance shall not be allowed in any subsequent year of assessment. |
| (22) The Minister or such person as he may appoint may, where there is a substantial change in the shareholders of a company and he is satisfied that such change is not for the purpose of deriving any tax benefit or obtaining any tax advantage, exempt that company from the provisions of subsections (18) and (21). |
| Deductions that ought not to have been allowed |
(23) Notwithstanding section 74(1) and (4), where it appears to the Comptroller that a deduction or any part thereof under this section which has been allowed to any acquiring company in any year of assessment ought not to have been allowed by virtue of —| (a) | the occurrence of any event specified in subsection (17) or (18); | | (b) | the failure of the acquiring company or acquiring subsidiary, as the case may be, to pay the consideration for acquiring the shares of the target company in full within 6 months from the date of the acquisition of the shares or, in the case of consideration that is contingent consideration, within 6 months from the date the contingent consideration is incurred; | | (c) | a reduction in the consideration paid in relation to the share acquisition upon satisfaction of indemnity conditions as may be specified in the agreement for the sale of the ordinary shares of the target company; or | | (d) | section 33, |
| the Comptroller may, at any time, for the purposes of making good any loss of tax attributable to the deduction or part thereof, assess the person who has utilised the deduction at such amount or additional amount as according to his judgment ought to have been charged, and this subsection shall also apply with the necessary modifications to any assessment which results in any unabsorbed allowances or losses. |
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(24) The Minister may make regulations —| (a) | to provide for the disallowance of or for the adjustments to be made to the amount of any deduction allowed in any year of assessment under this section where the acquiring company or the acquiring subsidiary, as the case may be, divests of any of the ordinary shares it holds in the target company; | | (b) | to provide for the application of this section to a business trust registered under the Business Trusts Act (Cap. 31A) as it applies to a Singapore company, subject to such modifications as may be prescribed; | | (c) | to prescribe such matters as are required or authorised to be prescribed under this section; and | | (d) | generally for giving full effect to or for carrying out the purposes of this section. |
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(25) In this section —| “capital expenditure”, in relation to any acquisition of shares, means consideration for the shares acquired whether paid in cash or in shares of the acquiring company or both, but excludes transaction costs (including but not limited to due diligence and valuation costs) and any other similar costs; |
| “contingent consideration”, in relation to an acquisition of ordinary shares in a target company, means such part of the total consideration for the acquisition that would be incurred only upon the satisfaction of such conditions in respect of the target company as may be specified in the agreement for the acquisition entered into by the acquiring company or the acquiring subsidiary, as the case may be; |
| “group of companies” means 2 or more companies each of which is either a holding company or subsidiary of the other or any of the others; |
| “holding company” and “subsidiary” have the same meanings as in section 5 of the Companies Act (Cap. 50); |
“local employee” means an employee of the acquiring company — | (a) | who is a citizen of Singapore or a Singapore permanent resident; and | | (b) | who makes contributions in respect of the income derived from his employment with the acquiring company to the Central Provident Fund which are obligatory under the Central Provident Fund Act (Cap. 36), |
| but exclude a director as defined in section 4 of the Companies Act; |
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| “Singapore company” means a company which is incorporated in Singapore and resident in Singapore; |
| “ultimate holding company” has the same meaning as in section 5A of the Companies Act. |
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(26) In this section, the date of acquisition of ordinary shares in a target company is —| (a) | the date on which the agreement for the sale of those shares is entered into by the acquiring company or the acquiring subsidiary, as the case may be; or | | (b) | in the absence of an agreement referred to in paragraph (a), the date of the transfer of those shares from the target company to the acquiring company or acquiring subsidiary, as the case may be. |
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(27) For the purposes of subsections (13) and (16) —| (a) | a person is related to another if —| (i) | one of them directly or indirectly controls the other; or | | (ii) | both of them are under the direct or indirect control of a third person; and |
| | (b) | a company is connected with another if —| (i) | at least 75% of the total number of ordinary shares in one company are beneficially held, directly or indirectly, by the other; or | | (ii) | at least 75% of the total number of ordinary shares in each of the 2 companies are beneficially held, directly or indirectly, by a third company. |
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(28) For the purposes of subsections (18), (21) and (22) —| (a) | the shareholders of the acquiring company at any date shall not be deemed to be substantially the same as the shareholders of that company at any other date unless, on both those dates, not less than 50% of the total number of issued shares of the company are held by or on behalf of the same persons; | | (b) | shares in the acquiring company held by or on behalf of another company shall be deemed to be held by the shareholders of the last-mentioned company; and | | (c) | shares held by or on behalf of the trustee of the estate of a deceased shareholder or by or on behalf of the person entitled to those shares as beneficiaries under the will or any intestacy of a deceased shareholder shall be deemed to be held by that deceased shareholder.”. |
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