The Singapore High Court has recently issued a decision involving the interpretation of Section 14D of the Income Tax Act (Chapter 134) (ITA) and its related provisions. As far as we are aware, the case is the first of its kind at the level of the Singapore High Court, marking this as a landmark case in respect of the deductibility of research and development (R&D) expenses.
As a brief recap, a taxpayer seeking to deduct R&D expenses has various options available to them depending on their R&D arrangements. For example, the following may be taken as deductions provided the prescribed conditions are met:
- R&D expenses incurred on outsourced R&D activities undertaken in Singapore, whether or not relating to the taxpayer’s trade or business.
- R&D expenses incurred on outsourced R&D activities undertaken outside Singapore relating to the taxpayer’s trade or business.
The rules are complex and have changed over time.
To claim R&D deductions, the R&D projects will have to meet the definition of R&D pursuant to Section 2 of the ITA, and inter alia satisfy the prescribed requirements found generally in Section 14D of the ITA.
On 12 October 2020, the Singapore High Court dismissed the appeal filed by the taxpayer in Intevac Asia Pte Ltd v. Comptroller of Income Tax [2020] SGHC 218 (Intevac).
The judgment in Intevac contained certain principles that may have important implications. These relate to the interpretation of key R&D requirements that need to be satisfied, particularly for taxpayers that fund R&D activities (e.g., through R&D outsourcing arrangements). This will be crucial for taxpayers to adhere to when structuring such arrangements and seeking to claim R&D deductions under the ITA.
