Tax Savings for the Automation Industry. Thursday, 26 July 2012

Transcription

1 Tax Savings for the Automation Industry Thursday, 26 July 2012

2 Productivity and Innovation Credit (PIC) Scheme - Overview

3 Background The Productivity and Innovation Credit (PIC) was introduced in Budget 2010 to encourage productivity and innovation activities in the public and private sector. In 2010, the spend on R&D activities was approximately 2.14% of GDP. The goal of the Singapore Government is to have the spend on R&D activities to be 3.5 % of GDP by 2015, through key incentives such as the PIC. Figure. Gross, Business and Public Expenditure on R&D (GERD) as a percentage of GDP( )

4 Innovation Eco System University Research Institution Innovation Eco System Corporate Laboratories Enterprises

5 PIC activities PIC Productivity Innovation Training of employees Acquisition of intellectual property Registration of intellectual property Investments in automation Design Research and development

6 Some key features of the PIC Scheme Design Research and development Registration of intellectual property Years of Assessment % tax deductions / allowances for the first $400,000 of qualifying expenditure for each activity Training of employees Investments in automation Acquisition of intellectual property rights Cash conversion option Election for tax deferral

7 The PIC offers significant benefits Expenditure 400% tax Tax benefits $100,000 deduction $68,000 Existing benefits $17,000 New benefits $51,000 * Tax benefits are computed based on prevailing corporate tax rate of 17%

8 Illustration of PIC benefits Area of Spending 1. PIC Automation Equipment Amount of Spend Incremental Tax Deductions (under PIC) $ $ % = $ 600,000 Tax Savings $ 600, % = $ 102, Registration of IP $ 100,000 $ x 300 % = $ 300,000 $ 300, % = $ 51, R&D activity Software Development $ 200,000 $ % = $ 600,000 $ 1,200, % = $ 102,000 Total $ 500,000 $ 1,500,000 $ 255, 000

9 Generally no prior approval required No requirement to apply to any government agency (other than for Design) File claims with annual tax return Some additional documentation required Retain relevant documents However, ensure: You know your entitlements You know respective conditions/requirements You know what forms/documentation is required for each category of claim

10 PIC Scheme: Productivityrelated measures

11 Automation Equipment Investments in automation Purchase Lease Pay Prescribed equipment such as: IT equipment Software Printers, fax machines etc Graphics processing equipment Cloud services member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

12 Training of employees Internal (in-house) Training Types of training WDA-certified ITE-certified Others (up to $10,000 per year) Qualifying expenditure (net of grant or subsidy) Remuneration of certified in-house trainer Rental of external training premises Course meals and refreshments Training materials and stationery External Training Qualifying expenditure (net of grant or subsidy) Training fees Registration / enrolment fees Examination fees Tuition fees Aptitude test fees Exclude accommodation, travelling and transportation of employees member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

13 PIC Scheme: Innovation-related measures

14 Intellectual Property Acquisition of intellectual property Qualifying expenditure: Acquisition costs of qualifying IPRs Legal and economic ownership of the patent, trade mark, registered design, plant variety must belong to the business entity in Singapore Minimum ownership period: 1 year, otherwise clawback 2011 KPMG Services Pte. Ltd. (Registration No: G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

15 Registration of Intellectual Property Registration of intellectual property Qualifying expenditure (net of grant or subsidy) Official fees Made to Registry of Patents, Trademarks, Designs, Plant Varieties: - Filing fees - Search and examination report Professional fees Applying for any patent, or registration of IPRs Preparing specifications or other documents Giving advice on validity or infringement of any IPRs Legal and economic ownership of the patent, trade mark, registered design, plant variety must belong to the business entity in Singapore Minimum ownership period: 1 year, otherwise clawback of benefits 2011 KPMG Services Pte. Ltd. (Registration No: G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

16 Design Design Qualifying conditions: Costs incurred to create new products and industrial designs where design projects / activities are primarily done in Singapore Approved design activities Prior approval required from Design Singapore Council (DSC) Application must be submitted to DSC at least 2 months before the commencement of the design project Design Service Providers which conduct design activities for another business and do not own the IP derived from the design project not eligible 2011 KPMG Services Pte. Ltd. (Registration No: G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

17 R&D Tax Incentive

18 Research and development Research & development Key Features R&D done in Singapore: First $400,000 expenses Excess 400% tax deduction 150% tax deduction R&D done overseas: First $400,000 expenses Excess 400% tax deduction 100% tax deduction Key criteria R&D benefits the company 2011 KPMG Services Pte. Ltd. (Registration No: G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

19 Research and development Research & development Eligible Expenditure Incremental tax 17% 100,000 51, , ,000 1,000, , KPMG Services Pte. Ltd. (Registration No: G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

20 R&D is widely defined most companies would have R&D Transport/Logistics Improving track and trace system Development of IT procurement system Use of RFID technologies for inventory tracking Manufacturing Improved manufacturing processes to improve yield / productivity Modified manufacturing process to manufacture new products Media Improved printing capabilities Development of social media channels Development of advertising platforms Banking/Finance New trading platform New or improved internet banking facilities Development of mobile applications Food New or improved food products or formulations New or improved food packaging Tourism New or improved travel booking system New or improved travel concierge services Consumer / Industrial Products New or improved products Customised products for customers New functionalities in products Construction Processes to improve productivity or safety Use of environmentally-friendly materials Info-comms Enhancing systems to improve internet connectivity Development of systems to provide new telecoms services

21 Research and Development Qualifying Period Year of Assessment (YA) 2012 Financial Year Ended 2011 (FY11) Expenditure incurred in FY11 Qualifying R&D projects Projects started before FY11 but continued into FY11 Projects started and completed within FY11 Projects started in FY11 and continued past FY11 Due date for YA 2012 claims: 30 Nov 2012

22 Research and development: Qualifying Expenditure Staff costs Consumables Outsourced R&D payments R&D cost-sharing payments Direct and supporting manpower Items consumed during the project duration 60% of amount outsourced payments/r&d cost-sharing payments, unless breakdown of manpower and consumables provided Work undertaken in Singapore, and outside Singapore (subject to limits)

23 Definition of Research & Development Any systematic, investigative and experimental study carried out in the field of science or technology AND That involves novelty or technical risk AND With the object of: (a)acquiring new knowledge or (b)using the results of the study for the production or improvement of materials, devices, products, produce, or processes but not including: a) quality control or routine testing b) research in the social sciences or the humanities c) routine data collection d) efficiency surveys or management studies e) market research or sales promotion f) routine modifications or changes g) cosmetic modifications or stylistic changes

24 Examples of software development not considered R&D Seven examples of what are NOT considered software R&D from YA 2012 onward: Use of capabilities of existing software (such as application programming languages, graphical user interface builders or report generation tools) as they are intended to be used and within their limitations. Development, modification or customisation of software using standard approaches (such as through the routine application of a software development kit) where the underlying technology is neither developed nor applied in new means. Acquisition, installation, de-bugging and customisation of well-established software solutions, achieved through standard techniques that can be executed by software engineers familiar with these systems for use in company processes. Software integration work where known methodologies and techniques are utilised to perform the integration. Development, modification or customisation of existing software in relation to aesthetic changes (such as colours and graphics) or user functionality (such as user interface, visual presentation to users and data entry procedures). Use of standard methods of encryption, security verification, data migration and data integrity testing. Development, modification or customisation of software that automates an established manual procedure through a standard methodology.

25 R&D Filing and Documentation Requirements Where R&D expenditure exceeds $150,000 (excluding government grants), detailed project descriptions must be submitted to IRAS together with tax returns: Guideline for the project description: Project objective Project description (description of novelty or technical risk) Project schedule Work done during the basis year (whether performed locally; whether undertaken by an R&D organisation) Government grants or subsidies Failure to submit the requisite information/documents will lead to a disqualification of the company s claim

26 Examples of R&D Projects: Automation Industry

27 Commercial Imperatives That Drive R&D in Automation Evolving market and business expectations: Improve efficiency Emissions reduction Improving functionality Cost control/rationalisation: Manufacturing rationalisation Distribution improvements Alternative processes Reduce costs Increase productivity Safety Increased reliability Corporate responsibility: Environment Health trends

28 Examples of projects from the automation industry Development/enhancement of equipment or software for use in an assembly plant Development of a control system in a plant or product for increased productivity and safety Fault monitoring systems to determine faults and potential failures or root cause analysis in safety critical environments Customisation of existing technology for unique requirements to develop new products or application Industrial equipment development to facilitate the automation of heavy lift processes at plants or rigs Enterprise information automation to translate manufacturing data into business information Machine to Machine Automation to increase business productivity

29 Examples of projects from the automation industry Development of a data management system to enable workflow and integration across disparate systems Development and design of tools to be used for programming of automation controls, set up of equipment where this provides technological challenges in design

30 Project Example 1 Diaper Line Upgrade Core Activity Example of Supporting Activities Novelty / Technical Risk Upgrade of a diaper line to implement side panels (an elastic structure, added to the design of the diaper to introduce elasticity to the diaper to cater for a wider range of baby sizes, and to improve comfort). Review of the existing manufacturing process and identification of areas for improvement Investigation of current technologies available Project management Optimisation and change in balance of pulp and super absorbent polymer (SAP) to increase absorption of fluid within the diaper with a thinner absorbent layer. Novelty The production line was unique to other production lines globally, as the line has been designed and modified for the specific diaper and production requirements in South Africa. For example, the material used to produce diapers differs from that of other diaper producers globally, and as such the equipment on the production line has been designed for the material requirements Technical Risk There was technical risk to create the correct vacuum to position the diaper for the cutting of the side panels by a rotary die cutter. The equipment suppliers could not guarantee the production rate of 600 diapers/minute with current equipment, which required significant trialling and mechanical, electrical and software modifications on their existing equipment to achieve this rate.

31 Project Example 2 Fault Monitoring System Development to monitor and report safety critical and productivity related equipment Core Activity Iterative development of a fault monitoring system to monitor events and report on defective equipment and failure analysis Example of Supporting Activities Review of current technology used to monitor faults on the plant / system Initial research and feasibility studies regarding development of system Project Management Installation of sensors on equipment Novelty / Technical Risk Technical Risk One of the key technological challenges in the development was ensuring that a third party control system could be integrated into the existing system to monitor parameters without impacting on the safety of the system. Development of the software algorithms to monitor limits under which the equipment in the plant should operate and report when the equipment moves over the prescribed limits to the plant operator.

32 Summary: Research and development Research & development Wide range of activities may be eligible No cap on eligible expenditure Immediate benefits - "low hanging" fruit Eligible Expenditure Incremental tax 17% 100,000 51, , ,000 1,000, ,000 Calculation assumes not more than $800,000 of expenditure relates to R&D work performed outside Singapore in FY2011 member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.

33 2010 KPMG Services Pte. Ltd. (Registration No: G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

34 Please contact: Thank You Chiu Wu Hong Partner, Tax Head of Enterprise Incentives Advisory T: E: Harvey Koenig Partner, Enterprise Incentives Advisory T: E: 2010 KPMG Services Pte. Ltd. (Registration No: G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. Lynton Peters Manager, Enterprise Incentives Advisory T: E: lyntonpeters@kpmg.com.sg The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.