Lessons from Raffles Town Club’s appeal

nearing completion?

In yesterday’s Today, it was reported that Raffles Town Club (RTC) has lost its arguments in the Court of Appeal on the following:-

  • failed to obtain tax deductions for the costs involved in leasing its land and in constructing the clubhouse on the ground that $108 million cost of acquiring the land from the State and the $91.4 million incurred in building the clubhouse were capital in nature and therefore
    not eligible for tax deduction;
  • secondly, it failed to have its membership fees taxed over 30 years, the life span of the club (this is an interesting attempt in defining the timing of revenue recognition and consequently, timing of taxability);
  • thirdly, it failed to secure relief for YA2001 from the tax department for the $53.28 million in damages it had to pay members after it lost the 2005 class action suit filed by several thousand members who claimed the club had falsely led them to believe they were part of an exclusive establishment and;
  • lastly, it failed to secure tax deductibility for the $2.34 million that RTC paid for geomancy fees.

Consequently, RTC is liable to pay tax for the Years of Assessment 1998-2003 on the full amount of $526.14 million it collected from its 19,000-odd members who had paid $28,000 each to join.

I have quoted verbatim the learning points from Justice Phang’s concluding remarks:-

  • “Where ordinary accounting principles run counter to the principles of tax law, they must yield to the latter for the purposes of computing gains and profits for tax.”
  • “Accounting and tax have different objectives in mind. Financial accounting is intended to provide information regarding firm performance to the market place while taxable income is prescribed by the government to meet budgetary needs … Regardless of how persuasive accounting evidence is, the prerogative still lies with the court to decide whether a particular item should be regarded as income that has accrued for the purposes of liability to tax.”
  • He pointed out that while accounting treatment focuses on the balance sheet, “taxation requirements are centred on the profit and loss accounts, so that the distinctions between revenue and capital, which are vital for tax purposes, may be lost in the accounting treatment”.
  • Concluding, he said: “I am also of the view that the present case turns on how well-established tax principles and tax law would apply rather than on the correct treatment of the items brought to tax.”

ACRA – Changes to note

my lunch place in Jakarta

Dear friends,

The Accounting and Corporate Regulatory Authority (ACRA) has announced that it will be implementing several initiatives as an impetus for locally incorporated companies to comply with corporate regulatory requirements as well as to acknowledge companies who have made the effort to comply.

For a start, ACRA will focus on the preparation of the annual financial statements, the holding of Annual General Meeting (AGM) and the filing of the Annual Returns (AR). The initiatives are as follows:-

a) Launch of “Colour-coded Compliance rating”. This is a rating system that recognises companies with a good record for holding its AGM on time, tabling and filing up-to-date financial statements and Annual Returns for the year in question with a positive compliance rating (in the form of a green tick) which makes them eligible for a Certificate of Compliance; while those which were non-compliant in their filing would be given a negative rating (in the form of a red cross). The compliance rating record and other relevant information for all locally incorporated companies will be reflected on ACRA’s free online Directory of Registered Entities for inspection by the public.

b) Issuance of “End of Financial Year Reminder” to provide an earlier alert to companies of the requirement to table up-to-date financial statements and to hold AGM timely with our new End of Financial Year (FY) Reminder, and

c) “Shortening of the Extension of Time” which will reduce the maximum allowable period for extension of time to hold AGM from 3 months to 2 months.

My comments

  • The rating system (just like for the hawker stalls) – What are the purposes? Firstly, of course to encourage compliance. Secondly, could the rating be used to guide your corporate customers’ and suppliers’ decision as to whether to deal with your company? For hawker stalls, would a C-rating discourages people from patronising your stall? We will wait and see the effect of this.

  • The reminder system to comply – In my opinion, this is the most useful aspect if implemented properly. ACRA should introduce even easier ways for companies to comply by simplifying further the filing processes.

I am looking forward to that.

(Announcement copied from ICPAS’s email to members for your information.)