Comptroller of Income Tax v AQQ: Tax Avoidance & Corporate Restructuring

The Singapore Court of Appeal heard cross appeals in *Comptroller of Income Tax v AQQ* regarding a High Court decision on a corporate restructuring scheme. The High Court found that a financing arrangement constituted tax avoidance under Section 33(1) of the Income Tax Act but also held that the Comptroller of Income Tax did not act reasonably in counteracting the tax advantage. The Court of Appeal allowed the Comptroller's appeal in part, regarding the Notice of Assessment for YA 2007, and dismissed the taxpayer's appeal. The Additional Assessments for YA 2004, YA 2005 and YA 2006 were ultra vires.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeal allowed in part and dismissed in part.

1.3 Case Type

Tax

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Singapore Court of Appeal case regarding tax avoidance in a corporate restructuring scheme under Section 33(1) of the Income Tax Act.

1.7 Decision Date

25 February 2014

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Comptroller of Income Tax	Appellant, Respondent	Government Agency	Appeal allowed in part	Partial	Liu Hern Kuan of Inland Revenue Authority of Singapore (Law Division) Pang Mei Yu of Inland Revenue Authority of Singapore (Law Division) Joanna Yap Hui Min of Inland Revenue Authority of Singapore (Law Division)
AQQ	Respondent, Appellant	Corporation	Appeal dismissed in part	Lost	Davinder Singh of Drew & Napier LLC Ong Sim Ho of Drew & Napier LLC Ong Ken Loon of Drew & Napier LLC Joanne Khoo Puay Pin of Drew & Napier LLC Darianne Lee of Drew & Napier LLC

3. Judges

Judge Name	Title	Delivered Judgment
Sundaresh Menon	Chief Justice	Yes
Chao Hick Tin	Justice of the Court of Appeal	No
Andrew Phang Boon Leong	Justice of the Court of Appeal	No

4. Counsels

Counsel Name	Organization
Liu Hern Kuan	Inland Revenue Authority of Singapore (Law Division)
Pang Mei Yu	Inland Revenue Authority of Singapore (Law Division)
Joanna Yap Hui Min	Inland Revenue Authority of Singapore (Law Division)
Davinder Singh	Drew & Napier LLC
Ong Sim Ho	Drew & Napier LLC
Ong Ken Loon	Drew & Napier LLC
Joanne Khoo Puay Pin	Drew & Napier LLC
Darianne Lee	Drew & Napier LLC

4. Facts

AQQ is a Singapore-incorporated company and a wholly-owned subsidiary of B Group, a company listed on Bursa Malaysia.
B Group held interests in various companies, including C, D, E, F, and G.
Changes were announced to the Singapore tax regime, including group tax relief and a move to a single-tier corporate tax system.
The Board of Directors of B Group approved a proposed group restructuring of its Singapore operations.
The Corporate Restructuring involved the incorporation of AQQ and the acquisition of shares of D, E, F, and G by AQQ.
AQQ's acquisition of equity interests in the Subsidiaries was financed through the issuance of fixed-rate notes to N Bank.
N Bank Singapore detached the interest component from the Fixed Rate Notes and sold the principal component to N Bank Mauritius.

5. Formal Citations

Comptroller of Income Tax v AQQ and another appeal, Civil Appeals No 7 and 8 of 2013, [2014] SGCA 15
AQQ v Comptroller of Income Tax, , [2013] 1 SLR 1361

6. Timeline

Date	Event
2002-05-03	Changes announced to Singapore tax regime.
2003-04-01	Board of Directors of B Group approved a proposed group restructuring.
2003-07-31	B Group acquired the shares of AQQ.
2003-08-18	Disposal and transfer of C's 50% interest in E, F and G to AQQ for cash consideration of $75m.
2003-08-18	Disposal and transfer of D’s 50% interest in E, F and G to AQQ for cash consideration of $75m.
2003-08-18	Disposal and transfer of B’s Group’s 100% interest in D to AQQ for cash consideration of $75m.
2003-08-18	AQQ issued $225m of fixed rate notes to N Bank.
2003-11-18	D withdrew its $20m investment deposit with N Bank Singapore and transferred $20m to E.
2004-01-01	AQQ paid interest of 8.85% per annum on the Interest Coupons to N Bank Singapore on a biannual basis, totalling $79,650,000 from 2004 to 2007.
2004-01-01	AQQ submitted tax returns for the years of assessment 2004 to 2007.
2007-07-01	Comptroller conducted an audit of AQQ.
2008-04-07	Comptroller issued Notices of Additional Assessments to AQQ for YA 2004 to 2006.
2013-01-01	High Court decision in AQQ v Comptroller of Income Tax [2013] 1 SLR 1361.
2014-02-26	Judgment reserved.

7. Legal Issues

Tax Avoidance
- Outcome: The court found that the financing arrangement had the purpose or effect of tax avoidance within the meaning of s 33(1) of the Income Tax Act.
- Category: Substantive
Exercise of Comptroller's Powers
- Outcome: The court held that the Comptroller had not exercised his powers under s 33(1) fairly and reasonably in choosing to disregard both the dividend income and interest expenses under the Additional Assessments and the Notice of Assessment for YA 2007.
- Category: Procedural
Ultra Vires Action
- Outcome: The court held that the Comptroller did not have the power to issue the Additional Assessments under s 74(1) of the Act.
- Category: Jurisdictional

8. Remedies Sought

No remedies sought

9. Cause of Actions

No cause of actions

10. Practice Areas

Tax Litigation
Corporate Tax

11. Industries

No industries specified

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
AQQ v Comptroller of Income Tax	High Court	Yes	[2013] 1 SLR 1361	Singapore	Decision from which this appeal arose.
Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue	Supreme Court of New Zealand	Yes	[2009] 2 NZLR 289	New Zealand	Addressed the definition of “arrangement” in YA 1 of the 2007 New Zealand Act.
Peterson v Commissioner of Inland Revenue	Privy Council	Yes	[2006] 3 NZLR 433	New Zealand	Discussed the Commissioner's entitlement to identify the whole or any parts of a single composite scheme as the arrangement for the purpose of section 99.
Lauri Joseph Newton and others v Commissioner of Taxation of the Commonwealth of Australia	Privy Council	Yes	[1958] 1 AC 450	Australia	Established the 'predication principle' for interpreting tax avoidance provisions, focusing on the objective effect of the arrangement.
Owen Thomas Mangin v Inland Revenue Commissioner	Privy Council	Yes	[1971] 1 AC 739	New Zealand	Clarified that tax saving features alone do not trigger anti-avoidance provisions if a bona fide business transaction can be carried out in multiple ways.
Rowdell Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia	High Court of Australia	Yes	(1963) 111 CLR 106	Australia	Addressed tax avoidance where dividends were received, and the court held that there was no tax liability avoided.
Patcorp Investments Limited v The Commissioner of Taxation of the Commonwealth of Australia	High Court of Australia	Yes	(1976) 140 CLR 247	Australia	Addressed tax avoidance where dividends were received, and the court held that there was no tax liability avoided.
Inland Revenue Commissioners v Brebner	House of Lords	Yes	[1967] 2 AC 18	United Kingdom	Interpreted the word “object” in s 28(1) of the Finance Act 1960 as referring to “a subjective matter of intention”.
Challenge Corporation Ltd v Commissioner of Inland Revenue	New Zealand Court of Appeal	Yes	[1986] 2 NZLR 513	New Zealand	Discussed whether a tax saving purpose was incidental and to be decided objectively.
Commissioner of Inland Revenue v Challenge Corporation Ltd	Privy Council	Yes	[1987] 1 AC 155	New Zealand	Rejected the suggestion that formalistic compliance with the conditions in specific statutory provisions would preclude the operation of s 99.
Miller v Commissioner of Inland Revenue	Court of Appeal of New Zealand	Yes	[2001] 3 NZLR 316	New Zealand	Discussed the Commissioner's duty to make an assessment with regard to what in his opinion was likely to have happened if there had been no scheme.
W P Keighery Proprietary Limited v Federal Commission of Taxation	High Court of Australia	Yes	(1957) 100 CLR 66	Australia	Enunciated the choice principle for the first time.
Mullens v Federal Commissioner of Taxation	High Court of Australia	Yes	(1976) 135 CLR 290	Australia	Expanded the choice principle.
Slutzkin v Federal Commissioner of Taxation	High Court of Australia	Yes	(1977) 140 CLR 314	Australia	Expanded the choice principle.
Cridland v Federal Commissioner of Taxation	High Court of Australia	Yes	(1977) 140 CLR 330	Australia	Expanded the choice principle.
Federal Commissioner of Taxation of the Commonwealth of Australia v Gulland	High Court of Australia	Yes	(1985) 160 CLR 55	Australia	Discussed the application of the choice principle.
The Commissioners of Inland Revenue v The Duke of Westminster	House of Lords	Yes	[1936] AC 1	United Kingdom	Established that every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be.
Europa Oil (NZ) Ltd v Commissioner of Inland Revenue	Privy Council	Yes	[1976] 1 WLR 464	New Zealand	Held that s 99 did not strike down transactions which did not have as their main purpose or one of their main purposes tax avoidance.
Federal Commissioner of Taxation v Spotless Services Ltd	High Court of Australia	Yes	(1996) 186 CLR 404	Australia	Discussed the present approach to tax avoidance in Australia.
JD Ltd v Comptroller of Income Tax	Court of Appeal	Yes	[2006] 1 SLR(R) 484	Singapore	Commented on the scope of review in an appeal against a decision of the Comptroller that involved an exercise of discretion.
Donald Jason Ranaweera v R Ramachandran and others	Privy Council	Yes	[1970] AC 962	Sri Lanka	Discussed the power of a statutory constituted taxation board of review to review matters which were the subject of a discretion exercised by executive officers.
Ling Uk Choon and another v Public Accountants Board	High Court	Yes	[2004] 3 SLR(R) 517	Singapore	Discussed the court's ability to review matters that were the subject of an executive discretion where there was a statutory right of appeal.
Mount Elizabeth (Pte) Ltd v Comptroller of Income Tax	High Court	Yes	[1985–1986] SLR(R) 950	Singapore	Discussed the court's approach when considering an appeal from the Board on a finding of fact.
Alesco New Zealand Ltd v Commissioner of Inland Revenue	New Zealand Court of Appeal	Yes	[2013] 2 NZLR 175	New Zealand	Discussed the tax liability that arises from the inclusion of an income sought to be excluded or the disallowance of a deduction sought to be made.
Gokuldas Ratanji Mandavia v Commissioner of Income Tax	Privy Council	Yes	[1959] AC 114	East Africa	Appears to have assumed that s 72 of the East African Income Tax (Management) Act 1952 could only be invoked to assess an amount or additional amount that ought to have been charged.
The Commissioner of Inland Revenue v Common Empire Ltd	Hong Kong Court of Appeal	Yes	[2007] 1 HKLRD 679	Hong Kong	Discussed whether the issuance by the Commissioner of a statement of loss amounted to an assessment.
A B C v The Comptroller of Income Tax, Singapore	High Court	Yes	[1959] 25 MLJ 162	Singapore	Cited observations of Isaacs J in The King v The Deputy Federal Commissioner of Taxation for South Australia; ex parte Hooper regarding the definition of assessment.
Fleming v London Produce Co Ltd	High Court	Yes	[1968] 1 WLR 1013	United Kingdom	Made observations on the scope of s 514 of the United Kingdom Income Tax Act 1952.
Craven v White	English Court of Appeal	Yes	[1989] 1 AC 398	United Kingdom	Considered s 114 of the United Kingdom Taxes Management Act 1970.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
Income Tax Act (Cap 134, 2008 Rev Ed) s 33(1)	Singapore
Income Tax Act (Cap 134, 2008 Rev Ed) s 33(2)	Singapore
Income Tax Act (Cap 134, 2008 Rev Ed) s 33(3)(b)	Singapore
Income Tax Act (Cap 134, 2008 Rev Ed) s 44	Singapore
Income Tax Act (Cap 134, 2008 Rev Ed) s 44A	Singapore
Income Tax Act (Cap 134, 2008 Rev Ed) s 46	Singapore
Income Tax Act (Cap 134, 2008 Rev Ed) s 10(1)(d)	Singapore
Income Tax Act (Cap 134, 2008 Rev Ed) s 14(1)(a)(i)	Singapore
Income Tax Act (Cap 134, 2008 Rev Ed) s 74(1)	Singapore
Income Tax Act (Cap 134, 2008 Rev Ed) s 77(1)	Singapore
Income Tax Act (Cap 134, 2008 Rev Ed) s 89	Singapore
Interpretation Act (Cap 1, 2002 Rev Ed) s 29(1)	Singapore
Interpretation Act (Cap 1, 2002 Rev Ed) s 9A(1)	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Tax Avoidance
Corporate Restructuring
Financing Arrangement
Section 44 Account
Imputation System
Fixed Rate Notes
Tax Credits
Chargeable Income
Additional Assessment
Tax Advantage

15.2 Keywords

Tax
Income Tax
Tax Avoidance
Corporate Restructuring
Singapore
Court of Appeal
AQQ
Comptroller of Income Tax

17. Areas of Law

Area Name	Relevance Score
Tax Avoidance	90
Taxation	85
Income taxation	75
Corporate Restructuring	50
Company Law	40
Administrative Law	30

16. Subjects

Taxation
Corporate Tax
Tax Avoidance
Income Tax Act
Corporate Law