Writing-Down Allowance on Payments for Indefeasible Rights of Use (IRUs)
(1st Edition, Revised)
Published by Inland Revenue Authority of Singapore Published on 07 Oct 2003 © Inland Revenue Authority of Singapore All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording without the written permission of the copyright holder, application for which should be addressed to the publisher. Such written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature.
Introduction On 28 February 2003, DPM and Minister for ...view middle of the document...
The purchaser may be required to pay for operations and maintenance services. Depending on the terms of contract, the IRU purchaser may also be required to bear some of the decommissioning costs of the submarine cable system. The purpose of this Circular is to elaborate on the details of the WDA on payments for IRUs.
“international telecommunications submarine cable system” means an international submarine cable that is laid in the sea and includes its cable landing station and any other equipment ancillary to the submarine cable system.
Current Tax Treatment As mentioned in paragraph 1.3, an international telecommunications submarine cable system is often built and owned a consortium of members (i.e. the grantors of IRUs). The expenditure incurred by the consortium members to develop and build the submarine cable system is capital expenditure for the provision of plant. As such, the consortium members are eligible to claim for capital allowances under section 19 or 19A of the Singapore Income Tax Act (SITA). On the other hand, the purchasers of the IRUs are not able to claim deduction on the payments they made for the purchase of the IRUs. The payments are capital expenditure as they are payments for a right, and hence not tax deductible. The payments also do not come with rights of ownership but only rights to use the capacity. They are therefore not equivalent to payments for the acquisition of plant or machinery. Under the existing provisions of SITA, such payments do not qualify for any capital allowances. In view of the above, telecommunication companies, which acquire the necessary bandwidth capacity via IRUs, may not be able to claim any expenses for tax purposes compared to those who build their own submarine cable system. Details of the Tax Change and Expenditure Qualifying for WDA To encourage telecommunications operators to provide international connectivity, expenditure incurred for the acquisition of an IRU for the purposes of a person’s trade, business or profession, can qualify for WDA over the number of years for which the IRU is acquired. This change will take effect from YA 2004. Payments for IRUs made under agreements or arrangements prior to YA 2004 will not qualify for WDA. IRU payments often include an up-front capital payment and periodic amounts for the operation and maintenance of the cable system. The up-front capital payment (excluding legal
fees, registration fees, stamp duty and other cost related to the acquisition of any IRU) qualifies as capital expenditure for WDA over the number of years for which the IRU is acquired. The periodic amounts for operation and maintenance of the cable system are generally revenue expenditure that qualifies for tax deduction in the same year they are incurred. 4 4.1 How to Calculate WDA on IRU Payments For a person2 who has incurred capital expenditure on the purchase of an IRU for the use of his...