Tax avoidance gamble fails: 3 Singapore doctors paid themselves low salaries to avoid income tax, while taking millions in dividends and interest-free loans

SINGAPORE: Three Singapore specialist doctors who paid themselves modest salaries while receiving millions through dividends and interest-free company loans have lost their High Court challenge against the Inland Revenue Authority of Singapore (IRAS).

The ruling backs IRAS’s decision to treat the arrangement as tax avoidance rather than legitimate business planning. The doctors’ tax-avoidance arrangement failed because it was artificial and designed primarily to reduce tax. Corporate structures must demonstrate commercial reality, not simply deliver tax savings.

The case involved obstetricians and gynaecologists Dr Adrian Tan Chek Jin, Dr Caroline Khi Yu May and Dr Jocelyn Wong Sook Miin, who built a network of jointly owned and personal companies after leaving KK Women’s and Children’s Hospital to start a private practice, Channel NewsAsia (CNA) reported (June 30).

Building a corporate structure around low salaries

The doctors opened ACJ Women’s Clinic in 2004, with each owning one-third of the company. They employed themselves on monthly salaries of S$5,000 before later setting up separate surgical companies that also paid them salaries of S$6,000 a month.

Those companies billed patients for inpatient services, while the clinic handled outpatient work. The companies also qualified for tax relief under Singapore’s Start-Up Tax Exemption and Partial Tax Exemption schemes.

Most of the doctors’ earnings, however, didn’t come from salaries but through tax-exempt dividends and interest-free shareholder loans.

Between 2013 and 2018, Dr Tan received more than S$7.4 million in dividends in total from two companies and borrowed up to S$3 million through interest-free loans, while continuing to draw a monthly salary of S$5,000. Before entering private practice, he had earned about S$45,600 each month.

The court sided with IRAS because the doctors’ salary didn’t match their earnings

The High Court agreed with IRAS that the arrangement crossed into tax avoidance.

Legal and tax specialists stressed that owning a company is lawful and common among professionals. The problem starts when the structure has little commercial purpose beyond reducing taxes.

Several experts pointed to two major warning signs. The first was the unusually low salaries. Tax specialists said professionals should receive an “arm’s length” salary that matches what someone doing the same work would normally earn.

The second was that the salaries barely changed even as company profits climbed sharply. Since income depended almost entirely on the doctors’ own work, the fixed salaries didn’t align with the businesses’ financial success.

Experts also noted that the interest-free loans raised further concerns because the doctors controlled their own companies. They could choose whether those loans would ever be repaid.

The law allows IRAS to claw back tax savings or reverse tax benefits

The case also helps explain an important legal distinction. Tax avoidance isn’t the same as tax evasion.

Tax avoidance involves arranging finances in ways that technically follow the law but defeat Parliament’s intended tax outcome. Tax evasion, by contrast, involves deliberately hiding income or providing false information and is a criminal offence.

Although tax avoidance isn’t a criminal offence, IRAS can still undo the arrangement under Section 33 of the Income Tax Act. That is exactly what happened here.

IRAS treated the income channelled through the companies as the doctors’ personal income and issued additional tax assessments. The agency also recovered tax rebates that the companies had previously claimed.

IRAS invoked Section 33 in 279 cases as of June 2026. Seven reached the Income Tax Board of Review, four were later appealed to the High Court, and every one ended in the Comptroller of Income Tax’s favour.

Since the Year of Assessment 2023, taxpayers who lose a Section 33 case also face a surcharge of 50 per cent on the additional tax assessed, making failed tax avoidance arrangements far more costly than before.

Artificial tax arrangements can end up costing more than they save

The judgment reaches beyond three doctors. Many professionals, consultants and business owners operate through companies for legitimate commercial reasons.

This case shows that IRAS looks beyond paperwork and examines whether a business arrangement matches economic reality. A company structure on its own isn’t the problem. Artificially channelling income while paying an unrealistically low salary can be.

The lesson learned here is that tax planning is part of running a business, but pushing an arrangement beyond its genuine commercial purpose can end up costing far more than it saves.