Clause 21

Notwithstanding the provisions of this Act, the amount of any profit or loss (as the case may be) or expense to be brought into account for the basis period for any year of assessment in respect of any financial instrument of a qualifying person for the purposes of sections 10, 14, 14I and 37 is that which, in accordance with FRS 39, is recognised in determining any profit or loss (as the case may be) or expense in respect of that financial instrument for that year of assessment.(2) Notwithstanding subsection (1), the profit or loss or expense in respect of the financial instrument referred to in the following paragraphs shall, for the purposes of sections 10, 14, 14I and 37, be computed as follows:

where a qualifying person to whom section 10(12)(b) applies derives interest from a negotiable certificate of deposit or derives a gain or profit from the sale thereof, his income therefrom shall be treated in the manner set out in section 10(12);

where a qualifying person derives interest from debt securities and the interest is chargeable to tax under section 10(1)(d), such interest shall be computed based on the contractual interest rate and not the effective interest rate;

any amount of profit or expense in respect of a loan for which no interest is payable shall be disregarded;

where the creditor and debtor of a loan agreement are not dealing with each other at arm’s length, only the interest income or the interest expense based on the contractual interest rate shall be chargeable to tax or allowed as a deduction, as the case may be;

in a case where section 14(1)(a) applies, only the interest expense incurred based on the contractual interest rate shall be allowed as a deduction under section 14(1)(a);

any amount of profit or loss in respect of a hedging instrument where the underlying asset or liability is employed or intended to be employed as capital shall be disregarded;

where a bank or qualifying finance company within the meaning of section 14I is unable to make provision for the amount of impairment losses in respect of a group of financial assets in accordance with FRS 39, but is required to make such provision by the Monetary Authority of Singapore, section 14I shall apply for a period of 5 years, or such further period as the Minister may allow, beginning from the year of assessment relating to the basis period in which the bank or qualifying finance company is first required to prepare financial accounts in respect of its trade or business in accordance with FRS 39.(3) A person who is required to prepare or maintain financial accounts in accordance with FRS 39 may, subject to such conditions as the Comptroller may specify, elect in accordance with subsection (4) not to be subject to this section; and if the person so elects, he shall not be treated as a qualifying person from the year of assessment relating to the basis period during which he is first required to prepare financial accounts in accordance with FRS 39.(4) The election referred to in subsection (3) shall be made by the person by notice in writing to the Comptroller —

at the time of lodgment of the return of income for the year of assessment referred to in subsection (3); or

such further time as the Comptroller may allow.(5) A person who has made an election under subsection (3) may at any time revoke the election by notice in writing to the Comptroller; and if the person so revokes, he shall be treated as a qualifying person from the year of assessment relating to the basis period during which the revocation is made or such year of assessment as the Comptroller may approve.(6) The revocation under subsection (5) shall be irrevocable.(7) A person who is not required to prepare or maintain financial accounts in accordance with FRS 39 may apply to the Comptroller in writing for approval to be subject to this section and, if the Comptroller approves the application, that person shall be treated as a qualifying person from the year of assessment relating to the basis period during which the approval is granted or such later year of assessment as the Comptroller may approve.(8) This section shall have effect for any basis period beginning on or after 1st January 2005.(9) For the purposes of this section, the Minister may make regulations —

to provide for such transitional, supplementary and consequential matters as he may consider necessary or expedient; and

generally to give effect to or for carrying out the purposes of this section.(10) In this section —“contractual interest rate”, in relation to any financial instrument, means the interest rate specified in the financial instrument;“debt securities” has the same meaning as in section 43N(4);“FRS 39” means the financial reporting standard known as Financial Reporting Standard 39 (Financial Instruments: Recognition and Measurement) issued in May 2003 by the Council on Corporate Disclosure and Governance appointed by the Minister under section 200A of the Companies Act (Cap. 50);“Monetary Authority of Singapore” means the Monetary Authority of Singapore established under section 3 of the Monetary Authority of Singapore Act (Cap. 186);“qualifying person”, in relation to any year of assessment, means —

a person who is required to prepare or maintain financial accounts in accordance with FRS 39 and who has not made an election under subsection (3) for that year of assessment; or

a person who is treated as a qualifying person under subsection (5) or (7) for that year of assessment.(11) Any term used in this section and not defined in this section but defined in FRS 39 shall have the same meaning as in FRS 39.Islamic financing arrangements34B.—

This section shall apply to any prescribed Islamic financing arrangement entered into on or after 17th February 2006 between any person and a financial institution.(2) Subject to such exceptions, adaptations and modifications as may be prescribed, sections 10, 12, 13, 14, 15 and 45 and regulations made under section 43Q shall apply in relation to any prescribed Islamic financing arrangement as if a reference in any of those provisions to interest accrued, derived, received or incurred in relation to any loan, deposit or mortgage were a reference to the effective return of the arrangement.(3) Where under a prescribed Islamic financing arrangement, an asset is sold by one party to the arrangement to the other party, the effective return of the arrangement shall be excluded in determining for the purposes of this Act the consideration for the sale and purchase of the asset.(4) Subsection (3) does not affect the operation of any provision of this Act which provides that the consideration for a sale or purchase is to be taken for any purpose to be an amount other than the actual consideration.(5) For the purposes of this section, the Minister may make regulations —

to prescribe anything that is required or authorised to be prescribed under this section;

to provide for such transitional, supplementary and consequential matters as he may consider necessary or expedient; and

generally to give effect to or for carrying out the purposes of this section.(6) In this section —“effective return”, in relation to a prescribed Islamic financing arrangement, means the prescribed return in lieu of interest that has or is accrued, derived, received or incurred under the arrangement;“financial institution” means —

any institution in Singapore that is licensed or approved by the Monetary Authority of Singapore, or exempted from such licensing or approval, under any written law administered by the Monetary Authority of Singapore; or

any institution outside Singapore that is licensed or approved, or exempted from such licensing or approval, under any written law administered by its financial supervisory authority for the carrying on of financial activities;“Islamic financing arrangement” means a financing arrangement which is ––

endorsed by any Shari’ah council or body, or by any committee formed for the purpose of providing guidance on compliance with Shari’ah law; and

permitted under any written law in Singapore or elsewhere.”.