Singapore Government Press Release

Media Division, Ministry of Information and The Arts,

36th Storey, PSA Building, 460 Alexandra Road, Singapore 119963.

Tel: 3757794/5

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Press Statement On Tax Treatment Of

On-Market Share Buybacks Through Special Trading Counters

 

For shareholders who sell their shares to a company for the company’s share buyback exercise through a special trading counter set up on the Singapore Exchange (SGX), the tax treatment shall be as follows:

 

  1. the amount received by shareholders from such share buybacks will only be treated as a receipt of dividends if the shareholders have held the shares for a period of at least 183 days prior to the sale;

  2. where the amount received from such share buybacks qualifies to be treated as a receipt of dividends (referred to as STC dividends), :-

    1. any tax credit associated with the STC dividends, which is in excess of the tax payable by the shareholders concerned, shall be disregarded; and

    2. no deduction of the cost of the shares which are sold back through the special trading counter shall be allowed to the shareholders.

 

In an earlier press statement, issued on 17th May 1999, IRAS had announced that the amount received by shareholders in a share buyback exercise through a special trading counter will be treated, for income tax purposes, as a receipt of dividends. Recognising that such a tax treatment could lead to tax arbitrages and other abuses, MOF and IRAS also announced that they would be studying the issues thoroughly before share buybacks through special trading counters may be allowed. Examples of abuses include risk-free arbitrages to obtain a tax refund where the refund together with the proceeds from the sale of shares through the special trading counter is higher than the cost of the shares sold. In addition, artificial arrangements with low-tax persons to transact in shares through the special trading counter could also be made to increase the amount of tax refunds. Those trading in shares, if they were allowed to deduct the cost of shares sold through the special counter, could also engage in arbitrages and obtain an even bigger advantage.

 

MOF and IRAS have completed the study. To address the concerns of tax arbitrages and other abuses, the tax treatment of receipts by shareholders from share buybacks through a special trading counter shall be as stated at paragraph 1 above. For the purposes of this tax treatment, companies which buy back their shares through a special trading counter shall only issue dividend vouchers to those shareholders in respect of shares which have been held for at least 183 days. Shareholders who have held the shares for at least 183 days will have to submit to the company concerned a declaration to the effect. In addition, companies should indicate clearly on the vouchers that the dividend is in respect of payment made pursuant to a share buyback conducted through a special trading counter. IRAS will also require companies to provide in electronic medium details of the STC dividends paid so that they can be automatically included in the tax assessment of the shareholders.

 

Under this tax treatment, shareholders will be allowed to use the tax credit associated with STC dividends to set-off their tax liabilities. Any amount of such credit that is in excess of the amount of tax payable will be disregarded. In other words, the excess will not be refunded to the shareholders and neither can it be carried forward to set-off against the shareholders’ future tax liabilities. In the case where shareholder also receive other Singapore dividends, the tax credits from these dividends will be used to set-off the tax payable by them first, followed by the tax credits from the STC dividends. Any tax credits from the STC dividends which are not used will not be refunded or carried forward. Please see example attached in the Annex.

 

Shareholders who receive STC dividends will not be allowed a deduction of the cost of the shares sold back. The cost of the shares sold back will therefore be disregarded for income tax purposes.

 

The SGX will announce details of the systems for trading through special trading counters in due course.

 

If you need further clarification on this Press Statement, please contact Ms Lim Gek Khim from IRAS at 351 2124.

 

An example to illustrate the limit on the amount of tax refund

Employment income

 

20,000

S’pore dividends - STC

5,000

 

Others

1,000

6,000

Assessable income

 

26,000

Less: Personal reliefs

 

10,000

Chargeable income

 

16,000

 

 

 

Tax on 1st $7,500

150.00

 

Tax on bal. $8,500 @ 5%

425.00

575.00

Less: GST rebate

 

500.00

Tax payable

 

75.00

Less: TDS - Other S’pore dividends

260.00

 

STC dividends

1,300.00

1,560.00

 

 

1,485.00

Less: Refund attributable to TDS from STC dividends

 

1,300.00

Amount of tax refund

(i.e. the amount of TDS from other Singapore dividends which exceeds the tax payable of $75.00)

 

185.00

 

 

 

~ END ~

Issued by: Ministry of Finance

Date: 28 February 2000