PIC IRAS

When approached by vendors, salespersons and consultants to buy their products and claim PIC, please be careful that you are not being led to participate in an unacceptable PIC arrangement. Penalties may apply if you are found to have been involved in such an arrangement.

As a general guide, you should be wary of vendors/ salespersons/ consultants who promise one or more of the following:

What vendors/ salespersons/ consultants promise Implications to claimants
“No need to pay if PIC cash payout is not approved by IRAS” This implies that there is no genuine business need for the equipment and that it was purchased merely to get the PIC benefit. This is not acceptable. Do note that, even if the claim is approved, IRAS may, within the next 5 years, check and ask for records to prove that the equipment was indeed installed and used by you and payment was made.You will have to refund the PIC benefit if you are not able to produce sufficient records to prove the above. Penalties may apply.
“Just sign on the form, we will settle the PIC claim for you”Example:

  • Vendor persuaded hair salon owner to commit to buy $90,000 of software and IT equipment and to claim PIC. Vendor submitted the PIC cash payout claim after getting the hair salon owner to sign on a blank form after providing business details. The claim was rejected after IRAS found that the equipment was not even installed months after the PIC claim was made. The hair salon owner claimed that he didn’t know what was on the form as the vendor submitted for him.
You are ultimately responsible for the accuracy of your claims, even if the vendor had helped you submit the claims. You will bear the penalties if the PIC claim is found to be incorrect.
“I can help you set up the business and find 3 employees for you”Example:

  • Vendor, for a fee, helped start-up to register a business with ACRA and contributed CPF for 3 persons. The business owner did not know who his “employees” were and merely signed on the PIC cash payout claim form. The claim was rejected after IRAS interviewed the claimant and found this arrangement.
  • Vendor persuaded a real estate agent to set up a company and contribute CPF for 3 persons even though there was no genuine commercial reason for setting up a company and employing 3 persons. The claim was rejected after IRAS discovered this arrangement.
You should not set up a business or hire 3 employees merely for the purpose of making a PIC cash payout claim.You are ultimately responsible for the accuracy of your claims; even if the vendor had helped you submit the claim. You will bear the penalties if the PIC claim is found to be incorrect.
“To meet the PIC condition, you just need to find any 3 persons and pay them CPF in that month”Example:

  • Vendor persuaded a tuition business to claim PIC cash payout on $25,000 of external training. The business owner, who did not previously hire any employees, found 3 family members to send for training and contributed CPF to them to create the impression that they were employees. The claim was rejected after IRAS found that the 3 employees were not genuine employees and the training attended was not for business purposes.
Hiring 3 employees purely for the purpose of meeting the PIC condition is not acceptable. It must be to meet genuine business needs. You will bear the penalties if IRAS subsequently finds that the 3 employees were not hired for genuine business purposes.
“The three local employees can include part-timers” While a part-timer can be considered as one of the three local employees, it is not acceptable to hire part-timers for the purpose of meeting the PIC condition and not for meeting any genuine business need. You will bear the penalties if IRAS subsequently finds that the part-timers were not hired for genuine business purposes.
“I can help you set up a business and after claiming PIC cash payout, you just need to close off the business.”Example:

  • Vendor helped a claimant register a business with ACRA and contribute CPF for 3 persons. After the business received the PIC cash payout successfully, it applied to ACRA to terminate the business. The claim was recovered back by IRAS when it was discovered that the business was set up as a shell company and the 3 employees were not hired for genuine business purposes.
You should not set up a business or hire 3 employees merely for the purpose of making PIC claims.You will bear the penalties if IRAS finds that you are abusing the PIC scheme by making use of fraudulent arrangement to obtain PIC benefits.

IRAS takes a serious view of any abuse of PIC scheme

IRAS takes a serious view of taxpayers who defraud the government. Offenders convicted of PIC fraud will have to pay a penalty of up to four times the amount of cash payout fraudulently obtained, and a fine of up to $50,000 and/or imprisonment of up to five years. This includes any person who wilfully assist another person to obtain a cash payout or PIC bonus which he is not entitled to.

List of offenders convicted of PIC abuse:

Date Summary

Sep 2013

Feb 2014

Aug 2014

Measures to curb PIC abuses

IRAS has come across business arrangements aimed at artificially creating or inflating PIC claims. While such cases make up a minority of PIC claims, the following anti-abuse measures have been introduced to target abusive arrangements and intermediaries that promote or facilitate such arrangements:

  1. Deny PIC benefits arising from abusive arrangements as follows:
    Where the arrangement is abusive because Amount of PIC benefits disallowed
    It consists or makes use of artificial, contrived or fraudulent step(s) That part of PIC benefits that arises from the use of the artificial, contrived or fraudulent step(s)
    The amount paid for the goods/ services exceeds their open market value for no bona fide commercial reason PIC benefits computed based on the difference between the amount paid by the business and the open market value
    There is no bona fide commercial reason for entering into the arrangement Full amount of PIC benefits
  2. Impose penalties on promoters of PIC arrangements (including vendors and consultants) who know, or have reasonable grounds to believe that the arrangements they are promoting are abusive PIC arrangements. Convicted offenders will have to pay a fine of up to $10,000 and/ or imprisonment of up to three years.A promoter of PIC arrangement is a person who:a) Designs, facilitates, organises or manages that arrangement; or
    b) Publishes, disseminates or communicates any information for the purpose of inducing or encouraging any other person to enter into the arrangement.

Abusive PIC Arrangement

A PIC arrangement is abusive if:

  • it makes use of artificial, contrived or fraudulent step(s) to obtain PIC benefits;
  • the arrangement results in the payment of goods/ services for an amount that exceeds the open market value without a bona fide commercial reason; or
  • there is no bona fide commercial reason for entering into the arrangement, apart from getting the PIC benefits.

Examples of Abusive PIC Arrangements

IRAS adopts a commonsensical approach towards interpreting the law on the above anti-abuse measures and will consider all relevant facts and circumstances. An in-depth investigation may be conducted, depending on the facts and circumstances, to ascertain whether an offence has been committed. The following are examples of scenarios that we are of the view contain abusive features:

Shell businesses and artificial transactions

An individual who is not carrying out an active business takes the following action so as to make PIC cash payout claims with IRAS:

  1. Incorporate sole-proprietorships or companies with ACRA;
  2. Make minimum/low CPF contributions for persons who are not employees, such as parents, siblings, friends or other persons. This is done so that they appear to be employees of the claimants for PIC claims when in fact no work was done or that the works which were purportedly done were not for bona fide commercial reason; and/or
  3. Sign agreements with related/friendly parties to purchase items or services such as mobile apps or websites at inflated prices.

The claims will be disallowed as the PIC arrangements are abusive. The actions are contrived, overvalued and put in place so as to make PIC cash payout claims without bona fide commercial reason. IRAS will consider whether these claims should be subject to criminal investigations.

Transactions with no bona fide commercial reason

In some abusive PIC arrangements, a group of individuals sets up multiple businesses and sell PIC-qualifying products or services among them, typically at inflated prices. There is no bona fide commercial reason for such sales aside from obtaining a PIC cash payout.

Such an arrangement may include the following:

  • Two individuals arrange to set up a company each, A and B. Both companies provide identical services (such as training).
  • A engages B to conduct training to A’s employees for $15,000; while B also engages A to conduct similar training to B’s employees for $15,000.
  • The cost for delivering both sets of training is negligible since the companies could have provided the training services to their own employees.

A and B are both seeking to benefit from PIC cash payouts and bonus of $24,000 each. The claims will be disallowed as the PIC arrangements are abusive. Aside from deriving PIC cash payouts, there is no bona fide commercial reason for the arrangements. IRAS will consider whether these claims should be subject to criminal investigations.

Expenditure disproportionate to revenue generated

An individual sets up many companies. These companies derive minimal revenues, but would each incur PIC qualifying expenditure that is disproportionate to their revenue (for example, 10 times the revenue) and claim PIC cash payouts and bonus. For example:

  • A director sets up companies X, Y, and Z to sell baby products through mail order – X sells clothes, Y sells toys and Z sells diapers.
  • All companies derived $1,000 in sales in the relevant period.
  • All companies engaged an e-commerce vendor to develop a website and inventory management system for each of the companies. Each company incurred $15,000 on the software.
  • All companies would claim PIC cash payouts and bonus of $24,000 each. The net receipt of the companies would be $9,000 each after subtracting $15,000 paid to the software vendor.
  • In participating in this arrangement, the director of X, Y, and Z would benefit $27,000 in total.

The claims will be disallowed as the PIC arrangements are abusive. Apart from the purpose of obtaining PIC cash payouts, there is no bona fide commercial reason to incur such disproportionate expenditure and to duplicate 3 sets of website and inventory management software for this scale of business activity. IRAS will also consider whether these claims should be subject to criminal investigations.

Promoters of abusive PIC arrangements

Many of the above abusive PIC arrangements are facilitated by a promoter. Typically the promoter will, for a share of the PIC cash payout, provide step-by-step guides and documentation for the purpose of providing substantiating evidence for PIC cash payout audits by IRAS.

The documentation provided would be for the purpose of providing false evidence to IRAS and may include employment contracts for part-timers, working timesheets, payment vouchers for part-timer salaries, guides to contributing CPF, product flyers or brochures (for the part-timer to hand out, e.g. as flyers), application forms for grants or loans, quotations, invoices, User Acceptance Test Checklists and Systems Acceptance Forms. If the claimant is unable to find sufficient names of their own, the promoter may also provide names and particulars of individuals for the claimants to contribute to their CPF accounts, so as to meet the three-local-employee requirement.

IRAS keeps a close watch on claims linked to promoters of abusive PIC arrangements. Once detected, IRAS will subject these claims to close scrutiny and may disallow claims linked to promoters of abusive PIC arrangements. With enhanced enforcement powers, IRAS will also subject these promoters of abusive PIC schemes to criminal investigations.

Source: https://www.iras.gov.sg/irasHome/page04.aspx?id=15889

Novatise

Novatise
Novatise
We help SMEs in Singapore to create digital solutions to increase sales and productivity. At Novatise, we work in a lean environment as such no sales person is involve. We deal with the customers directly to achieve growth and success.

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