Singapore Issues Advance Ruling on Tax Treatment, Redefining Tax Boundaries for Global Investors

Introduction

On 2 June 2025, the Inland Revenue Authority of Singapore (IRAS) issued Advance Ruling Summaries No. 7/2025 and No. 10/2025, offering critical guidance on the application of Section 10L of the Singapore Income Tax Act 1947 (ITA) to foreign-sourced disposal gains. These rulings are particularly relevant in the post-BEPS (Base Erosion and Profit Shifting) world, where economic substance has become the decisive factor in determining cross-border taxability. Capital gains from the sale of shares are only subject to taxation in the country where the seller(transferor) resides, as per Indias Double Taxation Avoidance Agreements (DTAAs) with nations like Singapore, Mauritius, and the Netherlands. As a result, these transactions are exempt from capital gains tax in India, creating a tax environment that is advantageous for investments between India and these countries. Taxing Foreign Disposal Gains under Section 10L Section 10L, i.e. Gains from the sale of foreign assets, is a Singapore anti-avoidance provision that seeks to tax foreign-sourced gains from the sale of shares or assets when such gains are remitted to Singapore, unless the disposing entity qualifies as an excluded entity.An “excluded entity” which is defined under Section 10L(16) under ITA as :

• A Pure Equity-Holding Entity (PEHE) that satisfies Singapore’s economic substance requirements, or
• A non-PEHE that similarly demonstrates substantial operations in Singapore.

Foreign disposal gains sent to Singapore would be subject to income tax under Section 10(1)(g) if they did not pass these requirements. Consequently, an entity must be classified as a 'excluded entity' in order to be eligible for the exemption.

Advance Ruling Summary No. 7/2025: Relief for PEHEs Facts : Company A, a Singapore-incorporated PEHE under section 10L(16) of the ITA, sold shares in Company B (a foreign entity) and earned disposal gains for example, selling shares. Findings: Company A:

• Was an entity of a relevant group.
• Had its operations and activities managed in Singapore;
• Had no other income except dividends, share gains, and incidental holding activities.
• Had submitted (or would submit) its annual return to the Accounting and Corporate Regulatory Authority of Singapore (ACRA)
• Had adequate human resources and premises in Singapore to carry out its operations.

IRAS Ruling: Company A qualified as an excluded entity. The disposal gains derived by Company A would not be subject to tax under section 10(1)(g) of the ITA for five years i.e. year of Assessment of X to X+4

Advance Ruling No. 10/2025: Extending Relief to Non-PEHEs Facts:

• Company A is a non-pure equity-holding entity, engaged in services and investments.
• Intended to sell shares in Companies B and C (foreign entities).
• Substantial business operations and local expenditure in Singapore.

IRAS Ruling:

• Company A met economic substance standards for non-PEHEs.
• Board decisions and key activities occurred in Singapore.
• IRAS confirmed exemption from tax under Section 10(1)(g) for Years of Assessment Y to Y+4.

Implication:
This expands the economic substance safe harbour beyond passive holding companies, benefiting service-oriented or hybrid entities with robust Singapore operations. India-Singapore DTAA and Global Perspectives Article 13 of the DTAA allows residence-based taxation of capital gains. Gains from the alienation of shares are taxable only in the resident country (Singapore) unless treaty benefits are denied under Article 24A, The primary purpose of Article 24A is to deny treaty benefits to artificial companies or those created solely to claim tax treaty advantages (LoB clause). Indian courts have resisted such arguments. In Blackstone Capital Partners (Singapore) VI FDI Three Pte. Ltd. Versus The Assistant Commissioner Of Income Tax, Circle International Taxation 1 (1) (2), Delhi - 2023 (2) TMI 35 - DELHI HIGH COURT ruled:
“The concept of “beneficial ownership” under the India-Singapore DTAA is not applicable to capital gains. This concept features in the India-Singapore DTAA only in the context of dividends, interest and royalty. The assessee was not a conduit/shell company as it exceeded the threshold of operational expenditure specified under the India-Singapore DTAA clause relating to the limitation of relief.”

Whereas in the case of Commissioner Of Income Tax (IT) - 2 Versus M/s. Citicorp Investment Bank (singapore) Ltd.) C/o. Citibank NA Securities and Fund Services, - 2023 (6) TMI 1222 - BOMBAY HIGH COURT it was held that:
“the exemption or reduction of tax to be allowed under the DTAA in India shall only apply to so much of the income as is remitted to or received in Singapore where the laws in force in Singapore provides that the said income is subject to tax by reference to the amount which is remitted or received in Singapore. When under the laws in force in Singapore the income is subject to tax by reference to the full amount thereof, whether or not remitted to or received in Singapore, then in that case Article 24(1)would not apply.”

Conclusion

For international investors and tax experts, the 2025 Singapore Advance Rulings are an invaluable resource. The India-Singapore DTAA is still a potent tool for capital gains planning, but how Indian courts and tax authorities balance the LoB clauses with beneficial ownership requirements will determine how effective it is going forward.