Case Note: GIS and others v The Comptroller of Income Tax [2025] SGITBR 3

Background

Three medical professionals (GIS, GIT, and GIU) formalised their joint medical practice through a series of companies.

The Comptroller of Income Tax (CIT) referenced section 33(1) of the Income Tax Act to disregard these corporate structures, asserting their main purpose was to avoid tax. The CIT contended that the arrangement allowed the appellants to earn significant income through tax-free dividends and interest-free shareholder loans, while artificially reducing their salaries.

The Board evaluated whether the arrangements had genuine commercial reasons or were mainly intended for tax reduction, concluding that they offered a substantial tax benefit.

Issues

Objective Purpose or Effect Under Section 33(1)(a) or (c)

Following AQQ the Board objectively examined the arrangement's purpose or effect. They found quantitative tax savings, confirming that the aim was to reduce tax liability.

The arrangement shifted the tax burden from the appellants as individuals to their companies under section 33(1)(a). Even if "ordinary business dealing" is claimed as an objective, the clear outcome was a tax benefit, making it fall under section 33(1).

Statutory Exception Under Section 33(3)(b)

To qualify for the statutory exception, the appellants needed to demonstrate that the arrangement was founded on genuine commercial reasons and that avoiding or reducing taxes was not a primary aim.

GIS outlined various reasons for establishing the companies. However, the Board applied the substance over form principle, focusing on how the arrangement functioned rather than its declared purposes. The pattern of low salaries paired with high dividend extraction suggested that tax minimisation was a main motive.

The Board emphasised that liability segregation arguments must be practical and commercially feasible. When professional liability cannot be transferred to corporate entities, claims related to risk management lose credibility.

Section 43(6) Preclusion Defence

The Board evaluated whether the tax benefits from specific statutory provisions (i.e., the Start Up Tax Exemption or SUTE and Partial Exemption or PTE) align with Parliament's original intent and purpose, which could limit the application of section 33(1).

The Comptroller concluded that these schemes intended to "encourage entrepreneurship and enhance Singapore's appeal to companies by enabling them to keep more earnings for reinvestment into their businesses."

Using a purposive approach to interpret the tax concession schemes, the Board evaluated whether the appellants' activities aligned with the legislative intent behind the incentives. Through a qualitative review of their entrepreneurial efforts, the Board concluded that the arrangement merely duplicated existing professional services within a corporate structure.

The Board concluded that the tax benefits obtained were outside the intended scope and purpose of the SUTE and PTE schemes, so section 33(1) could still apply.

Significance

The Board regarded the employment arrangements as "flimsy corporate veils" intended to enable "artificially low earnings" disclosures, emphasising that the actual substance must match the stated commercial objectives.

This case clarifies that professional service providers must demonstrate genuine entrepreneurial activity, take on commercial risk, or show business growth to qualify for tax benefits, rather than merely adopting existing practices and claiming advantages that do not align with the policy goals of tax incentive schemes.

_________________________________________ 1. Comptroller of Income Tax v AQQ & Anor [2014] 2 SLR 847