Tax Investigation & Audit Services

There are many similarities between auditing and investigation. However, the intention of each process varies.

Tax investigations are more focused on finding a significant fraud or error in an attempt to avoid tax evasion. IRAS tariff investigation is usually carried out on a company that is suspected, with potential red flags, of tax evasion. Tariff investigations have the goal of gathering evidence in an attempt for prosecution. In order to preserve the integrity of the documentary evidence for the prosecution, a surprise visit is sometimes necessary for tariff investigation cases.

Tax audits, on the other hand, are more about determining the accuracy of a company’s income tariff returns. The audit process is usually viewed as less complicated than a typical tax investigation.

IRAS Tax audit inspects tariff filing with the aim to rectify existing errors and correct inaccurate filing procedures or methods. IRAS audits can come in the form of query letters to ask taxpayers to submit necessary documents.

A tax investigation may be triggered for many reasons and if you wish to start your own business in Singapore, you might want to know these beforehand.

The company might have filed their tariff wrongly, having made errors that need correcting, or they might have filed their tariff late. Inconsistencies or variations between returns could lead to a large fall in income numbers or an increase in costs. This paint a very different picture from the actual financial health and situation of the company.

An investigation is crucial to ensure that companies do not escape the eyes of the law for tax evasion purposes.

Many corporate secretarial firms offer investigation-related services to help companies through the ordeal.

Tax evasions have been commonly and historically served as the principal revenue offence. The willful attempt to evade or defeat tariff assessments or payments is a federal crime across many states and countries.

Under the Income Tax Act, taxpayers or companies may face the following consequences, depending on the circumstantial evidence which indicates the intention of evading tariff:

• Companies or taxpayers might face a penalty of up to 200% of the tariff undercharged, a fine of up to $5,000, and/or up to three years in prison if there is no evidence that they intended to evade tax.

• In serious cases where there is an intention to evade tax, a penalty of up to 400% of the tariff undercharged, as well as a fine of $50,000, will be imposed. The jail term will also be extended up to 5 years.

• If a taxpayer or company in Singapore fails to file the income tariff returns by the deadline, they will face a penalty fine. As of the year of assessment 2021, all businesses must e-file their corporate income tariff returns by November 30, 2021.

• IRAS may lessen fines for voluntary disclosures under its Voluntary Disclosure Programme in order to promote voluntary disclosures of past errors and omissions. Taxpayers or firms can make a voluntary disclosure online.

In Singapore, it is required to go through multiple forms of audit, in addition to audits regardless if they are sole proprietorship or pte ltd companies. One common form of audit is known as the statutory audit, a check to examine the accuracy of the financial records and assets of a company.

Previously, a company is exempted from the auditing process if it has an annual revenue of S$5 million or less. However, the Companies Act was amended in 2014.

This amendment updated the criteria for a company’s audit exemption. In the updated Companies Act, the concept of a “small company was introduced to better define and determine a company’s eligibility for statutory audit.

According to Singapore’s ACRA website, a company qualifies as a small company if it has at least 2 of the following criterion to be considered a “small company”:

• Total annual revenue of not more than S$10 million.

• Total gross assets at the end of the financial reporting period of not more than S$10 million.

• The total number of employees at the end of the financial year of not more than 50.

• Companies that are part of a small group of companies can also qualify if it meets at least two of the following conditions:

• The total turnover shall not exceed S$10 million.

• At the end of the financial reporting period, the entire balance sheet shall not exceed S$10 million.

• The total average number of employees shall not exceed 50 at the end of the financial reporting period

Additionally, group companies (holding and subsidiary companies) can also apply for the audit exemption if they qualify for the criteria.

Companies who are unaware of their eligibility can always consult an advisory firm or hire an accountant to help with the book-keeping services or calculations.

Both tax audits and statutory audits are different in many ways. They both serve different purposes and occur under different situations.

Unless otherwise exempted, statutory audits are mandatory, with the focus being placed on checking the company’s financial assets and paperwork records.

Tax audits, on the other hand, are conducted on a random basis (in Singapore). The focus on tariff audits are

1. To ensure that your company's tariff returns are compliant with the law;

2. Educate your company on its tariff requirements and how to meet them; and

3. Determine which laws, regulations, and procedures can be simplified or clarified.

Sources: IRAS Tax Audit and ACRA Statutory Audit

Many countries have experienced significant budget deficits as a result of the COVID-19-induced recession. Singapore is no different, having dedicated almost S$100 billion to cushion the economic impact arising from COVID-19 in 2020.

With a projected overall budget deficit of close to S$76 billion in the near future, it is likely that local authorities will keep a closer eye on the tariff landscape of Singapore to focus more on tax governance. Due to the important yet excessive COVID-19 spending, this may be considered a strategy to address tax leakages in order to increase revenue.

With more stringent tariff governance expected, it may be a good idea to hire a tax advisor to guide you and keep you updated on any potential changes in tariff filings, laws, and deadlines.

At Morrison Management, we provide a wide variety of services, ranging from providing Singapore company incorporation, corporate secretarial services, accounting, GST filing, or GST audit services for many firms across the world and locally in Singapore.

Audits can be especially scary for start-up business owners in Singapore due to the thought of owing more tariffs on a limited budget or being held liable without the support of a competent accounting department. Hence, it is crucial to have an advisory partner firm to guide you through and reassure you every step of the way, such as litigation support. We at Morrison Management strive to do that for you.