SINGAPORE – Three specialist doctors in private practice who avoided income tax by choosing to pay themselves very low salaries have lost their challenge in the High Court against a ruling by the Inland Revenue Authority of Singapore (IRAS).
In a written judgment, Justice Alex Wong said their application was “the latest of several cases where medical professionals have run afoul of the tax authorities in how they have conducted the business of their medical practices”.
Obstetricians and gynaecologists Adrian Tan Chek Jin, Caroline Khi Yu May and Jocelyn Wong Sook Miin were colleagues at KK Women’s and Children’s Hospital before they ventured into private practice. The doctors, who set up a series of jointly and individually owned companies through two rounds of corporate restructuring, had given themselves very high tax-exempt dividends and interest-free loans.
Following a tax audit, IRAS revised the assessment for the years of assessment 2013 to 2018 such that income from the business could be taxed in the doctors’ individual names. IRAS also adjusted the corporate tax for some of the companies as a claw-back of the tax exemptions and rebates they had received.
The three doctors sought a review of the decision from the Income Tax Board of Review, but were unsuccessful. They then applied to the court to set aside the board’s decision. On June 18, the trio’s bid to challenge the tax ruling was dismissed by the High Court.
Tan, the most senior of the three doctors, drew a monthly salary of $5,000 from the company they jointly set up, though he was paid $45,600 a month before moving to private practice.
The judge said Tan’s evidence that he was new to private practice “partially” explains why his salary was set at a modest level. But Tan could not explain why his salary remained at that level as the practice became more profitable or why those profits were instead extracted as dividends and loans, the judge said.
During the years of assessment from 2013 to 2018, Tan was paid dividends of $5.14 million from one firm and $2.35 million from another. He obtained up to about $830,000 in loans from one firm and up to $2.1 million from another.
The judge said: “In the absence of a reasonable explanation from Dr Tan, the payment of substantial tax-exempt dividends and shareholder loans points to the avoidance or reduction of tax as one of the main purposes for the arrangement.”
The case centred on whether IRAS was justified in invoking a provision in the Income Tax Act which empowers it to disregard any arrangement in order to counteract tax advantages obtained by taxpayers.
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