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SINGAPORE: Three specialist doctors who minimised their taxes by paying themselves low salaries while extracting millions in dividends have lost a High Court challenge \u2013 and the case shows why such arrangements cross the line.<\/p>\n
The doctors, obstetricians and gynaecologists Dr Adrian Tan Chek Jin, Dr Caroline Khi Yu May and Dr Jocelyn Wong Sook Miin, had set up a web of jointly and individually owned companies through corporate restructuring.\u00a0<\/p>\n
They paid themselves monthly salaries of S$5,000 to S$6,000 (US$3,900 to US$4,600) while taking interest-free loans from their companies on top of the dividends.<\/p>\n
After an audit, the Inland Revenue Authority of Singapore (IRAS) invoked tax laws to disregard their business arrangement and revise how the doctors would be taxed. The doctors appealed, but the High Court upheld the ruling on Jun 18.<\/p>\n
What raised red flags about their arrangement, and what do professionals with similar structures need to know?<\/p>\n
The three doctors left KK Women’s and Children’s Hospital in 2004 to set up a joint private practice. They incorporated ACJ Women’s Clinic, each holding a third of the shares, and signed employment contracts paying themselves S$5,000 a month.<\/p>\n
Over the following decade, each doctor layered additional companies on top of this structure. By 2014, each had set up an individual surgical company of which they were the sole director and shareholder.\u00a0<\/p>\n
These individual companies invoiced patients for inpatient services, while their first company, ACJ Women\u2019s Clinic, invoiced patients for outpatient services.<\/p>\n
Setting up new entities also entitled them to claim rebates under the Start-Up Tax Exemption and Partial Tax Exemption schemes.<\/p>\n
The doctors signed employment contracts with their surgical companies for S$6,000 a month. But the bulk of the money they took from these companies came in the form of dividends and interest-free loans.<\/p>\n
Between 2013 and 2018, Dr Tan received dividends of S$5.14 million from one firm and S$2.35 million from another, plus loans of up to S$3 million, while drawing a monthly salary of S$5,000. That was a fraction of the S$45,600 he had earned each month before moving to private practice.<\/p>\n
The structure exploited the gap between personal and corporate income tax rates. In Singapore, dividends are generally exempt from personal income tax, since the paying company has already been taxed at the corporate rate of 17 per cent. Personal income tax can reach 24 per cent.<\/p>\n
“If we interpose a company in between, then the company will be paying 17 per cent tax on that S$1 million,\u201d said Mr P Sivakumar, a director at BR Law.<\/p>\n
Such structures are not inherently unlawful. Single-shareholder companies are common across consultancy and professional services fields, noted Ms Ng Chun Ying, a senior partner and head of tax at Dentons Rodyk.\u00a0<\/p>\n
The problem arises when they are used artificially to reduce tax, with no genuine commercial rationale, said Mr Koh Chon Kiat, a partner from Rajah and Tann\u2019s tax team.\u00a0<\/p>\n
In this case, two details were particularly damaging to the doctors’ position. First, their salaries were not in line with market rates.\u00a0<\/p>\n
Professionals using such structures should pay themselves an “arm’s length wage”, meaning remuneration comparable to what an independent employer would pay for the same role, said Mr Vikna Rajah, head of the tax and private client departments at Rajah and Tann.\u00a0<\/p>\n
Dr Tan’s S$5,000 monthly salary was roughly 11 per cent of his pay before he entered private practice.<\/p>\n
Second, the doctors’ salaries remained the same even as their companies’ profits grew. This did not make sense because the revenue earned by the companies came from the doctors\u2019 efforts, said Mr Yang Shi Yong, a director with Drew and Napier\u2019s tax and private client services team.<\/p>\n
Additionally, since the interest-free loans were made to the doctors as sole directors and shareholders of their own companies, they were under no obligation to repay the funds and could simply write them off, Mr Sivakumar said.<\/p>\n
Tax arrangements like these can attract scrutiny from IRAS and may cross the line into tax avoidance, said Mr Yang.<\/p>\n
Tax avoidance refers to structuring one\u2019s affairs to minimise the amount of tax payable using legal means. \u201cIt typically involves arrangements that comply with the letter of the law but achieve a tax result that parliament did not intend,\u201d he said.<\/p>\n
This is different from tax evasion, which involves deliberately misrepresenting or concealing information. This could include understating income, fabricating deductions or hiding assets.<\/p>\n
Tax evasion is a criminal offence, while tax avoidance is not. But both carry real legal consequences, Mr Yang said.<\/p>\n
IRAS invoked Section 33 of the Income Tax Act to disregard the doctors’ arrangement, treating the income channelled through their companies as personal income taxable at applicable rates.\u00a0<\/p>\n
The Comptroller of Income Tax also raised additional assessments to claw back the rebates the surgical companies received.<\/p>\n
Additional assessments were raised for the 2013 to 2018 years, and the tax exemption rebates their surgical companies had claimed were also clawed back.<\/p>\n
As of June 2026, the Comptroller has invoked Section 33 in 279 cases, IRAS said in response to CNA’s queries. Seven of the cases were heard by the Income Tax Board of Review, four of these were further appealed to the High Court, and all were decided in the Comptroller’s favour.<\/p>\n
When IRAS successfully invokes this law, the primary consequence is reversing the tax advantages, said Mr Yang. This means that the taxpayer must pay the tax that would have been payable if he had not entered into the beneficial arrangement.<\/p>\n
From the year of assessment 2023, a 50 per cent surcharge on the additional tax assessed is imposed when Section 33 is successfully invoked, meaning the financial penalty for detected arrangements now significantly exceeds any tax savings gained.<\/p>\n
\u201cGiven the sums involved \u2013 dividends in the millions and shareholder loans exceeding S$2 million for Dr Tan alone \u2013 the additional tax liability would be considerable,\u201d said Mr Yang.<\/p>\n
“The practical takeaway is that tax avoidance through corporate structuring is a gamble that does not pay.”<\/p>\n
In its statement to CNA, IRAS said it takes a firm view of artificial or contrived arrangements put in place to avoid tax.<\/p>\n
\u201cSelf-employed professionals, like all taxpayers, are expected to ensure that their tax affairs reflect the commercial and economic reality of their arrangements,\u201d it said.<\/p>\n<\/div>\n
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