Revaluation surplus and tax issues with Yeo Hiap Seng

What is the issue?
Yeo Hiap Seng (YHS) said the revaluation surpluses ($215.3mio) accumulated for several pieces of land it owned are not taxable gain and has not made any tax provision.

PricewaterhourseCoopers, its auditors, has signed off on the accounts for the year ended Dec 31, 2006 while highlighting the “discrepancy” in the audit report.

The Inland Revenue authority (IRAS) has, expressed its disagreement with that position. It is currently reviewing the information submitted by YHS.

Further Explanation
YHS has chosen to make no provisions for tax liability on revaluation surpluses of $128.8 million and $86.5 million, on its tax counsel’s advice that they are capital accretion.

The Sterling / Gardenvista – condominium developments
Prior to obtaining the developer’s licence in Apr 1997, I presume that YHS would be saying that it was holding the land as long term investment or for its own use given F&B as its main business.

Only after Apr 1997, YHS, with the developer’s licence, is now officially in the property development business.

Thus any appreciation in the value of the lands it was holding prior to that date would go to Revaluation Reserve account. Thus YHS’s position that $215.3mio revaluation surplus is deemed not taxable.

In 2004, however, the IRAS said some revaluation surpluses may not be considered capital accretion. In Feb 2006, IRAS repeated that part of YHS’s $128.8 million surplus would not be considered capital accretion. It asked YHS for more information so that it could update its assessments. YHS made submissions to IRAS on June 9.

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