Interest deduction claims resulting in tax discharge of approximately S$3m
An OSH client received a favourable decision from the Comptroller of Income Tax for their interest deduction claims resulting in tax discharged of approximately $3m. The client is a large MNC with substantial investments in Singapore. This case is significant as it involved a Mauritius financing structure. We understand that recently, the Comptroller has been actively challenging interest deduction claims from the use of Mauritius financing structures.
The Comptroller had allowed the deduction of the initial interest under a positive ruling. However, he disallowed the deduction of the interest upon the refinancing of the initial loans. He took the view that the Mauritius financing structure did not satisfy the conditions for deduction under an administrative concession for refinancing loans.
We were asked to give our legal opinion and took the view that as the interest was clearly deductible under section 14(1)(a)(i) of the Income Tax Act, the administrative concession was irrelevant. It became clear that the Comptroller’s concern was really with the involvement of a Mauritius entity. OSH provided the client with a strong legal opinion which also addressed the bona fides of the Mauritius financing structure. Upon consideration of our legal opinion, the Comptroller took the view that the refinancing arrangement was effected for genuine commercial reasons and allowed the deduction claims.