Discharge of over S$4 million in income tax
OSH LLC has successfully secured for a listed REIT the discharge of over $4m in income tax, bringing a welcome resolution to a stand-off with the Comptroller which lasted almost 3 years.
The dispute, which concerned the tax transparency of rental support income received by the industrial REIT, was not without its twists and turns. Despite disagreeing with our legal opinion that the rental support income was not taxable in the REIT’s hands, the Comptroller had declined to issue a Notice of Refusal to Amend, which would have kick-started the formal appeal process. The Comptroller’s lengthy consideration was likely due not only to the large amount at stake but also the fact that the issue was a highly novel one – there had and has been to date no published dispute in Singapore concerning the tax transparency treatment which is granted to most trusts, including REITs, in respect of certain income. In the intervening period, legislative amendments were made to the Income Tax Act to explicitly include rental support income as a form of income which should be granted tax transparency – thereby confirming our initial opinion from a policy perspective. The Comptroller however still would not budge, taking (correctly) the position that the amendments were only prospective. An advance ruling sought in respect of the REIT’s prospective rental support income was however also rejected on the basis that the matter was currently under dispute. For what they were worth, the amendments in retrospect however did mark the turning of the equity of the matter to our side.
Faced with what looked to be an impasse, we, with the client’s blessing, stood firm and maintained that the dispute should proceed to an appeal before the Board if the Comptroller would not agree to the REIT’s treatment of the rental support income. Finally, almost 3 years after the initial opinion was first issued, the Comptroller relented, agreeing not only to the REIT’s tax transparent treatment in whole, but also that all future rental support income would be accorded the same treatment.
This matter demonstrates the importance of formulating a cogent and persuasive initial case theory which can serve as a strong foundation for going the distance. The case theory here, while being a novel one, afforded both the firm and the client the confidence to bring the matter to the Board of Appeal should it be necessary. What should not be understated too is the Comptroller’s willingness to consider the matter in good faith and eventually come around to, what in our reckoning must be, the correct position.