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:||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:||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:||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:||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 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:
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:
|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|
A PIC arrangement is abusive if:
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:
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:
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:
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.