IRAS – Getting Companies to Comply (Part 3 of 3)
In extension to our preceding Part 1 and Part 2 article regarding the companies’ tax compliance, we are pleased to present the last part 3, which cover the remaining areas where IRAS compliance efforts will be focus.
- Digital Economy
IRAS aims to achieve broad and even audit coverage across all segments of the taxpayer base. In 2023, IRAS focus has been on taxpayers whose business models revolve around the digital economy, such as content creators and social media influencers.
IRAS audit reviews are ongoing, and plan to continue the compliance efforts in this sector in the coming years. Through the reviews, IRAS have observed the following common errors committed by taxpayers:
- Omission or understatement of income, including sponsorships and gifts received.
- Incorrect claims for expenses, such as personal entertainment and travel for non-business purposes.
- Failure to maintain proper records of actual income received and expenses incurred.
IRAS advise taxpayers to review their tax matters to ensure compliance. If discrepancies or errors are found, taxpayers should voluntarily disclose them to IRAS before they are identified in an audit to benefit from reduced penalties.
- Deductibility of Interest Expenses and Borrowing Costs
Interest expenses and qualifying borrowing costs incurred on loans or borrowings taken specifically to finance income-producing assets are deductible against the income produced. However, if the loans or borrowings are for non-income-producing purposes, such expenses and costs are not tax-deductible. If a company cannot identify and track the use of an interest-bearing loan to specific assets financed by the loan, the total asset method must be applied to allocate the common interest expenses and qualifying borrowing costs to non-income-producing assets, and no deduction should be claimed on the allocated expenses and costs. IRAS regularly reviews the tax returns of taxpayers who incur interest expenses and borrowing costs to ensure that tax deductions are correctly claimed.
Through IRAS ongoing compliance assessments, IRAS goal is to comprehend the measures and controls implemented by these companies to ensure accurate filing of their Corporate Income Tax Returns. IRAS also strive to offer guidance for enhancing their control mechanisms.