Tax investigations

Most business owners will know that they are due to pay taxes to the government through ACRA and IRAS regularly. In some cases where businesses fail to pay their taxes properly, a tax investigation will be conducted by IRAS to find out why. For those who are curious to know what happens when a tax investigation is launched and the legal repercussions, this article will give a brief rundown on what happens.

What is a tax investigation?

A tax investigation will usually start with a letter seeking information, more commonly known as an ‘information notice’. This letter explains which part of your tax return IRAS is interested in checking. Most inspectors will prefer to visit the company in person to check their tax records. It is important to know that this is different from the GST auditing process.

As a team, the investigators will request both hard softcopies of relevant documents and may confiscate devices such as laptops and phones to access these documents. They may also record statements of any staff or personnel they deem to be potentially suspicious or could be involved in the case.

Why will a tax investigation occur

Tax investigations can happen for several reasons. It can happen if the company files their taxes wrongly with errors made or filed their taxes late. Variations and inconsistencies can reflect an inaccurate fall in income numbers or increase in costs, and paint a false picture of how the company is doing.

However, the main reason for tax investigations is to ensure that companies do not commit tax evasion.

Common tax offences and penalties

For the most part, tax evasions are the number one tax revenue offence. This refers to an intentional attempt to evade tax assessments and payments, which is considered a federal crime across many states and countries, Singapore included.

If found guilty, you could face the following penalties: 

• Without evidence pointing to the intention to evade tax, companies or taxpayers might face up to an imposed penalty of up to 200% of the amount of tax undercharged, fine up to $5,000; and/or up to three years imprisonment

• For the more severe cases of intentionally avoiding tax, a penalty of up to 400% of the tax undercharged may be imposed, along with an additional $50,000 fine. The imprisonment length is also extended up to five years.
• In Singapore, if a taxpayer or company fails to furnish the income tax returns before the stipulated deadline, he will be imposed a penalty fine. From the year of assessment 2021, all companies will be required to e-File their Corporate Income Tax Returns by 30 Nov 2021.
• In a bid to encourage voluntary disclosures of past errors and omissions, IRAS may reduce penalties for voluntary disclosures under IRAS’ Voluntary Disclosure Programme. A voluntary disclosure can be made online.

Tax investigation vs tax audit

Though there are many similarities between audits and investigations, the intention of each process likely varies from the other.

Tax investigations focus on finding significant tax frauds and errors made to avoid tax. The investigation is only conducted on the company that is suspected. The goal is to gather evidence that can be used for an official prosecution. 

On the other hand, tax audits are more concerned about the accuracy of the company’s income tax returns. This process is usually less complicated than tax investigations. Their goal is to rectify inaccurate tax filing procedures and methods and can come in the form of query letters to taxpayers and request the submission of necessary documents.

Tax investigations in Singapore

Before you think of committing tax fraud, be aware of the consequences that can arise from doing so. It is also important to note that you should file all due taxes accurately and on time to avoid any suspicion about your taxes. If you need help settling your company’s taxes, you can drop us a call or WhatsApp us where our expert team will be able to help you out.