Global Marine Boiler and Engineering Pte Ltd (GMBE) was convicted of tax evasion for under-reporting profits amounting to $780,152 for the Year of Assessment (YA) 2008. GMBE was ordered to pay a penalty of $421,282.08 and a fine of $8,000.

GMBE supplies, manufactures and repairs marine equipment and engines. It is the second company to be convicted in court for evading tax through abuse of tax exemption scheme for new start-ups under section 43(6A) of the Income Tax Act. In Oct 2009, Steel Forming & Rolling Specialists Pte Ltd (SFRS) became the first company to be convicted for abusing the tax exemption scheme.

Investigations revealed that GMBE set up 4 shell companies in Dec 2006 for purpose of abusing the tax exemption scheme for new start-ups. The 4 companies had no employees except for the directors themselves. There was no work or services performed by the 4 companies for GMBE. Nevertheless, GMBE included fictitious expenses amounting to $780,152 in its audited statements of accounts for the year 2007, purportedly as management fees, commission, labour and service charges paid to the 4 shell companies.

Although the 4 companies had reported their income based on the fees purportedly charged to them, each company paid a negligible amount of tax. This is because the first $100,000 of their chargeable income was exempted from tax under the tax exemption scheme. Through setting up 4 shell companies and including fictitious expenses in its accounts, GMBE had artificially lowered its profits by $780,152 and evaded income tax of $140,427 for the YA 2008.

IRAS has detected cases where shell companies have been used to take advantage of the tax exemption scheme for new start-ups. These companies have no business activities and have few or no employees. Their accounts usually show relatively few transactions and low capitalisation.

The abuse of the tax exemption generally takes the following forms:

1. Allocating the income of a profitable company to a few shell companies.
2. Charging fees or expenses to an existing profitable business without any bona fide commercial reasons.

The effect of these forms of arrangement is an overall reduction of tax for the profitable company and the shell companies.

Tax evasion is a criminal offence that attracts severe penalties. Businesses that abuse tax arrangements or individuals who assist others to abuse the tax system should come forward to report their mistakes to us immediately. IRAS will treat such disclosure as a mitigating factor when considering the penal charges.

Some businesses and individuals could have made mistakes in their reporting because they were negligent or were unaware of their tax obligations. IRAS views such mistakes differently from tax evasion. To encourage taxpayers to disclose errors or omissions and to come forward voluntarily, IRAS will reduce penalties for voluntary disclosures that meet certain conditions under the “IRAS Voluntary Disclosure Programme”. Taxpayers who wish to disclose errors made in their declarations or report malpractices of others that might indicate tax evasion should email to [email protected] or write to:

Inland Revenue Authority of Singapore Investigation & Forensics Division 55 Newton Road, Revenue House Singapore 307987

IRAS will ensure that the identities of informants are kept confidential.

More information on voluntary disclosure is available in IRAS’ e-Tax Guide (PDF, 476KB).