PIC 2015018
False PIC claims
21 Feb 2014: Company Director Jailed for False PIC Claims
A company director was sentenced to 5 weeks’ jail for submitting a false Productivity and Innovation Credit (PIC) claim in order to obtain cash payout of $60,000 for his company. Mr Alex Rajan s/o Anthony Samy (“Alex Rajan”, 47), director of Exel Mitsui Technologies Pte Ltd (“EMTPL”) which manufactures machine tool accessories, was also ordered to pay a penalty of $180,000 for the offence; in default, 18 weeks’ jail. In an earlier sentencing, the court has ordered EMTPL to pay a fine of $8,000 and a penalty of $180,000. This is the second case of a director and its company to be charged for making false PIC claims. IRAS had earlier charged Greenit Pte Ltd, a computer equipment and hardware wholesaler and computer memory modules distributor, and its director Khoo Tzyh Shin for fraudulently claiming a PIC cash payout.
Director made false PIC claims: Alex Rajan made a false declaration in a PIC cash payout application form that EMTPL had purchased PIC automation equipment for $168,000 and that his company met the qualifying conditions for the cash payout. IRAS’ investigations revealed that EMTPL did not incur such expenditure on the equipment. The company also did not employ or make CPF contributions for at least three local employees in the relevant period. In fact, EMTPL had never been in active business operation.
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.
Inflated & False PIC claims
12 Aug 2014: Digital printing company to pay $53,704 in fine and penalty for false PIC claim
Media Grafix Pte Ltd (“Media Grafix”), a digital printing company, was convicted of abusing the Productivity and Innovation Credit (PIC) scheme to illegally obtain a higher PIC cash payout [1], and was ordered to pay a fine of $5,000 and a penalty of $48,704[2].
Media Grafix is the third company to be convicted of PIC abuse.
PIC claim inflated to obtain higher cash payout Media Grafix falsely claimed a total of $27,058 as having been spent to purchase automation equipment including computers, a suite of Adobe software and IT networking and data storage equipment in its PIC cash payout application form.
Investigations revealed that Media Grafix had in fact only paid $21,150 for these purchases, but had used fictitious tax invoice to support a false PIC claim for an inflated amount. IRAS takes a serious view of any abuse of PIC Scheme: IRAS audits PIC claims and takes a serious view of any attempt by claimants, vendors or consultants to artificially inflate the value of their PIC expenditure.
Offenders convicted of abusing the PIC scheme 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.
To guide businesses in getting their PIC claims right, IRAS has published a list of common mistakes to avoid, on http://www.iras.gov.sg/irasHome/commonpicmistakes.aspx.
It is a serious offence for fraudulent PIC claims
Fraudulent PIC claims
19 Sep 2013: Company Director Jailed for Fraudulent PIC Claims
A company director was sentenced to eight weeks’ jail for fraudulently claiming a Productivity and Innovation Credit (PIC) cash payout of $58,143.60 for his company. This is the first PIC prosecution case since the scheme was introduced in 2010.
Mr Khoo Tzyh Shin (“Khoo”, 34) is a Director of Greenit Pte Ltd – a computer equipment and hardware wholesaler and computer memory modules distributor. He is the first director to be charged under section 37J(4)(b) of the Income Tax Act for wilful intent to assist a company in fraud, by obtaining a cash payout which it was not entitled to. Khoo was ordered by the court to pay a penalty of $232,574.40 for the crime.
The court also ordered Greenit Pte Ltd (“Greenit”) to pay a fine of $10,000 and a penalty of $232,574.40. The penalty is four times the amount of cash payout that it had fraudulently claimed.
Objectives of the PIC scheme: The PIC scheme was introduced to support businesses that invest in innovation and productivity improvements. Businesses can enjoy a 400% tax deduction or 30% cash payout1 for investments under six qualifying activities. In Budget 2013, the PIC Bonus was introduced to provide businesses a dollar-fordollar matching cash bonus on top of the existing PIC tax deductions and/or cash payout.
To qualify for the PIC cash payout, businesses must have:
- Incurred PIC-qualifying expenditure during the basis period of the qualifying YA;
- Active business operations in Singapore; and
- Employed and made CPF contributions for at least three local employees. These three local employees must not be sole-proprietors, partners and shareholders who are directors of the company
Fraudulent PIC claims: IRAS’ investigation revealed that Khoo had falsified invoices and declared a sum of $193,812 as qualifying expenditure in order to claim the PIC cash payout when there was no such expenditure incurred by the company. The fraudulent claim was committed with the wilful intent to obtain a PIC cash payout that the company was not entitled to.
Khoo pleaded guilty to assisting Greenit in making the fraudulent PIC claim.
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.
Examples of what IRAS regards as abuse of the PIC scheme are as follows:
- Claiming PIC using false records or documents, where no such expenditure was incurred or where the actual amount incurred was lower.
- Creating a shell company to make PIC claims on purchase of equipment from a related company, where no such purchases were made and where the automation equipment continue to be owned and used by the related company.
- Claiming PIC based on collusion with a third party to purchase automation equipment, when the selling party is not the legal owner of the equipment and was merely renting or leasing it.
- Using phantom employees to meet the PIC qualifying condition of having made CPF contributions for three or more local employees.
- Engaging in arrangements that seek to artificially inflate PIC claims such as purchase/lease arrangements bundled with non-qualifying costs (for example, offering a high cash back for trade-in of an old asset).
- Artificially inflating the staff cost allocated to software development
Abuse of PIC carries a penalty 4x amt of false PIC
and a fine $50,000 and/or imprisonment 5 yrs
PIC 2015019
Signs of unacceptable or contrived PIC arrangement
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. |
| 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. |
Fraudulent PIC claims
16 Oct 2015: Computer Components Distributor Convicted of False PIC Claim
RC Components Pte. Ltd. (“RC Components”) and its director, Chan Keng Chun, have been convicted of providing false information in RC Components’ Productivity and Innovation Credit (“PIC”) cash payout application form.
Facts of the Case
RC Components is a distributor of computer memory products and hardware accessories. Investigations revealed that RC Components submitted an application form dated 22 May 2012 to claim for a cash payout under the PIC scheme. RC Components declared in the application form that it had incurred $77,202 in time costs for five employees purportedly for developing software systems. There was, in fact, no such development of software systems and the five employees did not spend any time on development of software systems. A PIC cash payout of $23,160.60 would have been disbursed to RC Components if the false claim was not detected by IRAS.
Court Sentences
RC Components was charged and convicted of giving false information without reasonable excuse to the Comptroller of Income Tax to obtain the PIC cash payout, which it was not entitled to. The company was ordered by the court to pay a penalty of $46,321.20, which is two times the amount of the PIC cash payout that would have been wrongfully obtained, and a fine of $2,500.
Chan Keng Chun was charged and convicted of giving false information without reasonable excuse to the Comptroller of Income Tax to assist RC Components to obtain a PIC cash payout, which RC Components was not entitled to. He was ordered by the court to pay a penalty of $46,321.20, which is two times the amount of PIC cash payout that would have been wrongfully obtained, and a fine of $2,500.
26 Aug 2015: Managing Partner Convicted of PIC Fraud
A managing partner was charged for submitting false information in order to obtain a Productivity and Innovation Credit (PIC) cash payout of $6,000 for his business.
Mr Neo Leong Kiat (“Neo”, 38) is the managing partner of Mailcarp LLP (“MC”), a limited liability partnership which deals in email marketing solutions and software consultancy.
Facts of the Case
Neo submitted an application for a PIC cash payout based on the purchase of an automation equipment, in which he falsely declared that MC met the qualifying conditions for the cash payout. IRAS’ investigations revealed that Neo made the claim despite knowing that MC did not fulfil the condition of employing three local employees. To make his claim appear legitimate, he made CPF contributions to two individuals one day before the date of the cash payout application, in order to represent them as MC’s local employees when in fact they were not.
Court Sentences
Neo was charged and convicted for wilful intent to assist MC to obtain a PIC cash payout which it was not entitled to by providing false information in the PIC cash payout application form.
Neo was ordered by the court to pay the maximum fine of $10,000 for this charge, and a penalty of $18,000, three times the amount of the cash payout that would have been wrongfully obtained.
Severe Penalties for Abusing the PIC Scheme IRAS takes a serious view of any attempt by claimants, vendors or consultants to defraud the government. Offenders convicted of PIC abuse 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.
PIC 2015020
Iras gets tougher on fraudulent PIC claims
25 Nov 2015: Iras gets tougher on fraudulent PIC claims Business Times
As at Oct 31, it has recovered/denied cash payout and bonus for 150 cases amounting to about S$7.6m.
THE Inland Revenue Authority of Singapore (Iras) now has more teeth to curb abuse of the Productivity and Innovation (PIC) scheme, after new laws were passed to introduce measures to clamp down on errant claims.
THE Inland Revenue Authority of Singapore (Iras) now has more teeth to curb abuse of the Productivity and Innovation (PIC) scheme, after new laws were passed to introduce measures to clamp down on errant claims.
Earlier this month, Parliament passed the Income Tax (Amendment) Bill 2014. One of the changes is that businesses must now show that their IT and automation equipment are on the company’s premises and deployed for the purpose of business before they can claim cash payouts under the PIC scheme. Previously, they just had to show they had incurred the expenditure. In addition, those who promote or facilitate claims for PIC benefits for abusive arrangements can be punished.
According to Iras, it flagged about 4,500 PIC applications (about 10 per cent of all PIC applications) as high-risk between February and October this year. Of the 4,500 high-risk applications, more than half (57 per cent) presented issues.
Specifically, about 1,035 of the claims had to be adjusted, while about 1,485 were rejected. Claims that were rejected had compliance issues which suggested that the businesses had submitted claims solely to take advantage of the PIC.
Iras has adopted a more targeted approach to tackle false claims since August last year, when it set up a task force comprising investigators and auditors to focus on uncovering PIC fraud.
In the early years (2010-2011), the focus was on education and publicity, said Wilson Ong, Iras assistant commissioner, corporate tax division. But there has been a spike in the number of PIC cash payout applications with suspicious characteristics of fraudulent claims more recently
The profile of “suspicious companies” include businesses that do not employ genuine employees (or businesses that have no full-time employees and only hires part-time employees), those that engage in high-value cash transactions which can be 20-30 times the company’s revenue, and newer companies with no track record.
As at Oct 31, Iras has conducted 343 investigations into PIC claims, and recovered/denied PIC cash payout and bonus for 150 cases of wrongful claims amounting to about S$7.6 million (including penalties and fines).
To date, three companies have been prosecuted. These companies – Greenit, Exel Mitsui Technologies, and Media Grafix – have had hefty penalties imposed on the companies and their directors, with jail sentences also handed out to the latter. Offenders that are convicted of PIC abuse may pay a penalty of up to four times the amount of the cash payout fraudulently obtained or the tax evaded, or be fined up to S$50,000, and/or be imprisoned for up to five years.
The increase in fraudulent claims is in part due to an increase in the number of PIC applications.
As at end-August this year, over S$1.8 billion has been granted to businesses in terms of tax savings and cash payouts. In Year of Assessment 2011, 36,000 (33 per cent of active companies) benefited from the PIC scheme.
This figure ballooned to 45,500 (37 per cent of active companies) a year later and 52,500 (40 per cent of active companies) in Year of Assessment 2013.
The PIC has also received generous enhancements since it was first rolled out in 2011. Under the terms of the original PIC scheme, businesses can enjoy a 400 per cent tax deduction or 60 per cent cash payout for investments under six qualifying activities. In 2013, the PIC Bonus was introduced to provide eligible businesses a dollar-for-dollar matching cash bonus on top of their existing PIC tax deductions or cash payout. This year, a PIC+ Scheme was rolled out to provide more support for SMEs making substantive investments to transform their businesses, with a higher expenditure cap for qualifying SMEs.
