Singapore rules on tax treatment of hybrid securities

The Inland Revenue Authority of Singapore ruled that securities issued by a Singapore-based company constituted “debt securities” under the rules characterizing hybrid instruments in two rulings issued May 3. Accordingly, distributions payable on the instruments should be treated as interest payable on indebtedness.

In addition, the issuer of the debt securities will be entitled to deduct the distributions as interest, provided certain conditions are met.

In both cases, the tax authority determined that the key features of the securities supported their characterization as debt securities. Among other relevant features, the securities conferred the right to receive fixed rate distributions. The distributions were not based on the performance of the issuer.

The rulings refer taxpayers to the tax authority’s e-tax guide on hybrid instruments for further guidance on the factors determining the characterization of hybrid instruments and on the deductibility of distributions from the issuer.