Parco Bugis Junction owner loses tax case

A Bid by the owner of Parco Bugis Junction to be allowed to deduct advertising and promotion (A&P) expenses from gross rent to offset property tax has failed in the Court of Appeal.

The court last Friday dismissed an appeal by BCH Retail Investment to have reasonable A&P expenses incurred in relation to the shopping centre deducted from gross rent.

In 2002, BCH obtained a ruling that $592,000 of A&P contributions by tenants not be subject to tax. Last year, it went further and sought a ruling that it be allowed to deduct all reasonable A&P expenses from gross rent, saying an additional $2 million should be deducted from gross rent for Parco Bugis Junction when determining its annual value.

Industry players told BT at the time that a ruling in BCH’s favour would open the door for other landlords to deduct A&P expenses when valuing their properties.

The Court of Appeal has now ruled that expenses that have nothing to do with rent should not be taken into account when calculating annual value, and found that both tenants’ A&P contributions and additional A&P expenses are in this category.

Because tenants’ A&P contributions are included in gross rent, they have to be excluded from gross rent to calculate annual value. But additional A&P expenses are not included in gross rent and therefore should not be excluded from gross rent, the court said.

BCH is an indirectly owned associate of CapitaLand and Parco Bugis Junction is part of CapitaMall Trust’s portfolio. BCH was represented by Tan Kay Kheng of Wong Partnership.

Source : Business Times - 13 Mar 2007