On October 27, 2015 the Inland Revenue Authority of Singapore published its IRAS e-Tax Guide – Income Tax: Tax Treatment of Gains Derived from the Disposal of Investments of Insurers. According to the e-Tax Guide the aim of the guide is to set out how the Comptroller of Income Tax (“CIT”) applies the principles enunciated in the case of Comptroller of Income Tax v BBO [2014] SGCA 10 (“BBO”) to determine the tax treatment of gains derived from the disposal of investments of insurers.

 

In paragraph 2 of the e-Tax Guide “At a glance” the following executive summary is given:

Insurance is an arrangement that protects someone from incurring future losses, as from damage, theft, illness, or death. It is an arrangement that transfers the risk of a specified loss to the insurer in exchange for the payment of a premium. The business model of an insurer involves the collection of premiums and channeling such premium receipts into productive uses such as investment in equity and debt securities and properties which would generate investment returns, including dividends, interest, rental and gains from disposal of investments. The premiums collected and the investment returns would be used to meet claims made or to be made by policyholders.

 

As the investment activities are an integral part of the insurance business of an insurer, the CIT has taken the view that all investments of an insurer are revenue assets. Hence, all investment returns of the insurance business, including dividends, interest, rental and gains from disposal of investments of an insurer are revenue in nature and thus taxable.

 

In the BBO case, the Singapore Court of Appeal (“the Court”) ruled that insurers, in addition to holding investments as revenue assets, can also hold investments as capital assets under exceptional circumstances. Arising from the decision in the BBO case, this guide provides the approach that the CIT takes to determine the tax treatment of gains derived from the disposal of investments of insurers.

 

The e-Tax Guide discusses a.o. the following subjects:

·        Background on the BBO case

·        CIT’s application of the principles in the BBO case

o       Investments in ordinary shares (whether quoted or unquoted)

o       Investments in immovable properties

o       Investments in any other assets

·        Administrative procedure

o       Existing investments that are held by insurers

o       New investments acquired by insurers

·        Effective date

 

For further information click here to be forwarded to IRAS e-Tax Guide – Income Tax: Tax Treatment of Gains Derived from the Disposal of Investments of Insurers as available on the website of the Inland Revenue Authority of Singapore, which will open in a new window.

 

 

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