Global Marine Boiler and Engineering convicted of tax evasion

GMBE was ordered to pay a penalty of $421,282.08 and a fine of $8,000 for under-reporting profits amounting to $780,152 for YA 2008.

According to IRAS, GMBE supplies, manufactures and repairs marine equipment and engines. It is the second company to be convicted in court for evading tax through abuse of tax exemption scheme for new start-ups under section 43(6A) of the Income Tax Act. In Oct 2009, Steel Forming & Rolling Specialists Pte Ltd became the first company to be convicted for abusing the tax exemption scheme.

Investigations revealed that GMBE set up 4 shell companies in Dec 2006 for purpose of abusing the tax exemption scheme for new start-ups. The 4 companies had no employees except for the directors themselves. There was no work or services performed by the 4 companies for GMBE. Nevertheless, GMBE included fictitious expenses amounting to $780,152 in its audited statements of accounts for the year 2007, purportedly as management fees, commission, labour and service charges paid to the 4 shell companies.

Although the 4 companies had reported their income based on the fees purportedly charged to them, each company paid a negligible amount of tax. This is because the first $100,000 of their chargeable income was exempted from tax under the tax exemption scheme. Through setting up 4 shell companies and including fictitious expenses in its accounts, GMBE had artificially lowered its profits by $780,152 and evaded income tax of $140,427 for the YA 2008.

IRAS has detected cases where shell companies have been used to take advantage of the tax exemption scheme for new start-ups. These companies have no business activities and have few or no employees. Their accounts usually show relatively few transactions and low capitalisation.