Beware Of The Consequences Of Making False PIC Claims

Since the launch of the scheme, companies have benefited from $2.9 billion in tax savings and cash pay-outs over the 2011 to 2014 Years of Assessments (YA). The number of companies benefiting from the scheme has been increasing steadily from 37 percent in YA 2012 to 40 percent and 44 percent in YA 2013 and 2014 respectively. But alongside, the number of false claim cases has also increased. Unscrupulous business owners attempt to abuse the provisions of the PIC program to claim cash payouts or tax exemptions. The Inland Revenue Authority of Singapore (IRAS) has reportedly taken action against 245 fraudulent claims under the PIC scheme. The total amount of monies clawed back stands at about S$10 million as of May 31, including penalties and fines. In the latest false claim case, involving an email marketing company, the managing director was fined the maximum of S$10,000 and ordered to pay a penalty of S$18,000.

The IRAS takes a very serious stand on wrongful tax claims made by companies. The authorities have become vigilant of suspicious claims and have enforced tighter regulations since November last year to confirm the legitimacy of the claims. Under the scheme, businesses that are sole-proprietorship, partnerships, companies and registered trusts are all eligible for cash payouts. Some industry watchers are of the opinion that the sudden surge in the increase in new business formation– especially sole-proprietorship and partnerships in the early half of last year- were driven by the intent to abuse the scheme. It may be partially true, because after the passing of the new regulations the business formation numbers of such entities in the last quarter returned to normal.

Criteria to curb wrongful claims

Besides the fact that the company or business making the claim must be actively engaged in business, there are two key criteria in the regulations to curb wrongful claims they are:

1. Three-employee condition

A business meets the three-local-employee condition if it makes CPF contributions for at least three local employees (Singapore Citizens or PRs) in the relevant month(s). Regardless of them being employed on a fulltime or part-time basis, they must be of employable nature and worth to the company. It must be noted that sole-proprietor, partners or the shareholders working as director of a business will not be taken into account as employees.

Many fraudulent business owners who make false claims, pay CPF contributions for the relatives or friends and fabricate evidence of employment to claim cash payouts. But IRAS has means to verify the authenticity of such employment and if the scrutiny reveals malpractices, the payouts will be denied and the businesses will be charged with fines and penalty.

2. In-Use Condition

The businesses making the claim must prove that the equipment are in use by the company or trade. This is to ensure that such IT and automation equipment were really purchased for the purpose of business and they are being used to enhance the productivity. There have been malpractices involving such claims where the claimants merely produced fictitious invoices by colluding with unscrupulous vendors.

Do not attempt to abuse the PIC scheme

Offenders convicted of PIC fraud will have to pay a penalty of up to four times the amount of cash pay-out fraudulently obtained, and a fine of up to $50,000 and/or face imprisonment of up to five years. This includes any person who wilfully assists another person to obtain a cash pay-out or PIC bonus, which he is not, entitled to.

Anti-Abuse Measures

The following anti-abuse measures are in place to prevent fraudulent claims that are either fictitious or inflated:

1. Deny PIC benefits claimed under abusive arrangement on the following basis

Description of Abusive Arrangement	Amount of PIC Benefits Disallowed
It consists of or uses artificial, contrived or fraudulent means.	That part of PIC benefits arising from the use of the artificial, contrived or fraudulent means.
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.

 2. Any offending vendors and consultant who are found guilty of knowingly promoting an abusive PIC claim will need to pay a fine of up to $10,000 and/or face imprisonment of up to three years.

The authorities will subject suspicious claims to comprehensive and extensive investigations. Common signs of fraudulent claims include:

• Shell companies or sole-proprietorships set up by persons not engaged in any form of active business and fabricating invoices by colluding with related parties. They also make CPF contributions to friends or relatives as proof of employment, while they are all primarily phantom workers. On failure to prove bona fide business and purpose, the benefits claimed will be denied. Further criminal investigations may be ordered.
• No bona fide commercial reasons: Two or more colluding parties set up companies and businesses, to sell and buy among themselves PIC qualifying products or services, merely for the purpose of cash pay-out without any bona fide commercial reasons. If investigations prove guilty, the claims will be disallowed and a criminal investigation may be ordered.
• Disproportionate revenue and expenditure: Companies making false claims showing highly inflated expenses against disproportionately low revenue. Again, claims will be disallowed when investigations reveal the false claims and criminal investigations may follow.

Always engage a professional consultant

Engaging a professional consultant like Hawksford Singapore will give you a comprehensive review of the claim and advice you on what would be admissible and what will not be allowed. A consultant dealing with multiple claimants have a vast knowledge and have the experience of having managed various scenarios and types of claims. Therefore, consultants will be able to help you to avoid all the pitfalls and follow the requirements set by IRAS, so as to avoid any undesirable investigations, which may harm the reputation of your business. Besides, the process of submitting the claims can be speeded and when the papers and documentations are proper, the tax authorities will not hold up the payment of the claims. It is a prudent move to engage a professional, albeit the costs incurred, the benefits score well.