Allocation of Foreign Tax Credit to the Various Funds Held by an Insurer

Circular No: ID 11/11
2 August 2011
Principal Officers
All Insurers
Dear Sir/Madam
ALLOCATION OF FOREIGN TAX CREDIT TO THE VARIOUS FUNDS HELD BY AN INSURER IRAS issued an e-Tax Guide on Foreign Tax Credit Policy (Reference No. 2011/IT/1) on 22 June 2011. Insurers may elect to pool the foreign tax paid on any items of the foreign income across the various funds of the company, if the foreign income meets the conditions stated in the e-Tax Guide. The amount of Foreign Tax Credit to be granted is based on the lower of the total Singapore tax payable on those foreign income and the pooled foreign taxes paid on those income. 2 To ensure proper attribution, insurers should allocate such Foreign Tax Credit to the various funds based on the method set out in the appendix. 3 Should you require any clarification, please contact Ng Cheng Wei, e-mail:
cwng@mas.gov.sg or phone: 6229 9693.
Yours faithfully,
(sent via MASNET)
MS LUZ FOO
EXECUTIVE DIRECTOR
INSURANCE DEPARTMENT

Appendix to Circular ID 11/11
Allocation of foreign tax credit (FTC) to the various funds held by an insurer

1. This circular should be read in conjunction with IRAS e – Tax Guide – Foreign Tax
   Credit Policy (Reference No. 2011/IT/1).

2. An insurer should take the following steps to allocate the total FTC claimed under the
   FTC pooling system to the various funds (insurance and non-insurance) held by it:
   Step 1 Calculate the amount of FTC without FTC pooling for each of the funds held. Step 2 Calculate the additional amount of FTC that arose as a result of claiming FTC under the FTC pooling system. Step 3 Identify the funds where the Singapore tax payable on the foreign income of the fund is more than the foreign tax paid on the same foreign income. Step 4 For each of funds identified in Step 3, calculate the amount of Singapore tax payable on the foreign income in excess of the foreign tax paid on the same foreign income. Step 5 Sum up the excess Singapore tax payable on foreign income calculated in Step 4. Step 6 Allocate the additional amount of FTC calculated in Step 2 to each of the funds identified in Step 3 – The additional amount of FTC should be allocated to each of the funds identified in Step 3 based on the proportion of each of these funds’ excess of Singapore tax payable on foreign income as calculated in Step 4 over the total excess of Singapore tax on foreign income as identified in Step 5. Step 7 Calculate the total amount of FTC attributable to each fund – It will be the amount of FTC determined for that fund under Steps 1 and 6, but in no case can the FTC attributable to each fund be more than the Singapore tax payable on foreign income of the fund.

3. The following is a numerical example of the steps explained in paragraph 1.
   Step 1: Calculate the amount of FTC without FTC pooling for each of the funds held. Singapore Insurance Fund – Life – Non￾Participating Singapore Insurance Fund – Life - Participating Offshore Insurance Fund – General Shareholders Fund S’pore tax payable on foreign income 300 3,000 200 1,900 Foreign tax paid on foreign income 900 1,800 500 1,500 FTC without FTC pooling 300 1,800 200 1,500 Step 2: Calculate the additional amount of FTC that arose as a result of claiming FTC under the FTC pooling system. Total Singapore tax payable on foreign income (300 + 3,000 + 200 + 1,900) 5,400 Total foreign tax paid on foreign income (900 + 1,800 + 500 + 1,500) 4,700 FTC claimed under FTC pooling system (lower of 5,400 and 4,700) 4,700 FTC without FTC pooling (300 + 1,800 + 200 + 1,500) 3,800 Additional amount of FTC that arose as a result of FTC pooling (4,700 – 3,800) 900 Steps 3 and 4: Identify the funds where the Singapore tax payable on the foreign income of the fund is more than the foreign tax paid on the same foreign income. For

each of the funds identified, calculate the amount of Singapore tax payable on the foreign income in excess of the foreign tax paid on the same foreign income. Funds with excess Singapore tax payable Amount of S’pore tax payable on foreign income in excess of foreign tax paid Singapore Insurance Fund – Life – Participating 3,000 – 1,800 = 1,200 Shareholders Fund 1,900 – 1,500 = 400 Step 5: Sum up the amounts of excess Singapore tax payable on foreign income calculated in Step 4. Total amount of excess Singapore tax payable on foreign income 1,200 + 400 = 1,600 Step 6: Allocate the additional amount of FTC calculated in Step 2 to each of the funds identified in Step 3 based on the proportion of each of these funds’ excess Singapore tax payable on foreign income as identified in Step 4 over the total excess of Singapore tax payable on foreign income as identified in Step 5. Funds with excess Singapore tax payable Allocation of the additional FTC to the Funds Singapore Insurance Fund – Life – Participating 1,200 / 1,600 x 900 = 675 Shareholders Fund 400 / 1,600 x 900 = 225 Step 7: Calculate the total amount of FTC attributable to each fund. Funds Total FTC attributable to each fund Singapore Insurance Fund – Life - Participating 1,800 + 675 = 2,475 Shareholders Fund 1,500 + 225 = 1,725 Singapore Insurance Fund – Life – Non - Participating 300 Offshore Insurance Fund – General 200

4. For any queries, please contact Ng Cheng Wei (DID: 62299693; Email:
   cwng@mas.gov.sg) for clarification.