Stay current. Be tax savvy TaXavvy www.pwc.com/my July 2013

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Stay current. Be tax savvy
TaXavvy
July 2013
Issue 4/2013
Inside this issue
Tax Laws
• Income Tax (Deduction for Cost of Acquisition of Foreign Owned
Company) Rules 2013
• Stamp Duty (Exemption)(No.9) Order 2013
3
Tax Administration
• Public Ruling 5/2013 – Taxation of Unit Holders of Unit Trust Funds
• Public Ruling 6/2013 – Taxation of Unit Trusts
• Public Ruling 7/2013 – Unit Trust Funds – An Overview
• Public Ruling 8/2013 – Gratuity
• Public Ruling 9/2013 – Special Deduction for Treasury Shares
• Public Ruling 10/2013 – Taxation of Business Trust
• Revised Real Property Gains Tax Guideline
• Guideline in respect of Form CP58
• IRB Technical Guidelines in respect of Malaysian Financial Reporting
Standards
• IRB Audit Framework 2013
4
Regulatory Developments
• Financial Services Act 2013 and Islamic Financial Services Act 2013
• Repeal of all Exchange Control Notices and issuance of 7 new Notices
6
Tax Cases
7
TaXavvy is a
bi-monthly publication
which aims to provide
concise updates on
developments in tax laws,
cases, guides, administrative
practices and other
regulatory developments
Tax Laws
Income Tax (Deduction for Cost of Acquisition of Foreign
Owned Company) Rules 2013
The above was gazetted on 4 July 2013 and is effective from 3 July
2013. The salient points of the rules are:
•
•
A locally owned company is given a deduction of 20% of the cost
of acquisition of a foreign owned company for each year, over a
period of 5 years of assessment.
Where the locally owned company (acquirer) is a pioneer
company, an election can be made to claim the above deduction
commencing from the year of assessment in the first basis period
in respect of its post-pioneer business and the four following
years of assessment.
•
The acquisition has to be completed within 3 years from the date
of application to MIDA.
•
Where the shares of the foreign owned company are disposed
within 5 years from the date of completion of acquisition, the
deduction shall be withdrawn and treated as gross income of the
locally owned company.
Stamp Duty (Exemption)(No.9) Order 2013
This order was gazetted on 14 June 2013 and is effective from 1
January 2007. It provides stamp duty exemption on the following
instruments executed under a scheme to promote Malaysia
International Islamic Financial Centre:
•
Instruments on transactions in currencies other than ringgit in
relation to Islamic banking or takaful activities (executed on or
after 1 January 2007 but not later than 31 December 2016).
•
Instruments in relation to issuance of Islamic bonds in ringgit or
foreign currencies (approved by Securities Commission on or after
1 January 2007 but not later than 31 December 2016).
3
Tax Administration
Public Ruling 5/2013 – Taxation of Unit Holders of Unit
Trust Funds
The above public ruling (dated 23 May 2013) was issued on 30 May
2013. It covers:
•
•
Public Ruling 8/2013 – Gratuity
The above public ruling (dated 25 June 2013) replaces PR1 0/2011 –
Gratuity dated 5 December 2011 . The new public ruling provides
additional examples and covers death gratuity and retirement
benefits.
the taxation of unit holders, and
the tax compliance obligations of the unit holder.
Public Ruling 9/2013 – Special Deduction for Treasury
Shares
Public Ruling 6/2013 – Taxation of Unit Trusts
The above public ruling (dated 23 May 2013) was issued on 30 May
2013. The public ruling covers:
•
•
•
assessment of unit trusts,
deductible expenses, and
taxation of unit trusts and property trusts other than Real Estate
Investment Trust / Property Trust Funds.
Public Ruling 7/2013 – Unit Trust Funds – An Overview
The above public ruling (dated 27June 2013) was issued on 3 July
2013 . This public ruling explains the following:
•
•
•
•
•
•
employee share schemes,
treasury shares,
tax treatment for expenditure on treasury shares , including timing
of deduction and computation methods,
situation where the special deduction does not apply,
tax treatment of gains or losses upon transfer / disposal of treasury
shares, and
documentation.
The above public ruling (dated 28 May 2013) was issued on 6 June
2013. This public ruling covers the following in respect of unit trusts:
•
•
key features and regulatory framework, and
filing of income tax return forms.
4
Tax Administration
Public Ruling 10/2013 – Taxation of Business Trust
Guideline in respect of Form CP58
The above public ruling (dated 3 July 2013) was issued on 5 July 2013. It
covers:
The IRB issued the above guideline dated 1 July 2013 (available in
Bahasa Malaysia only), outlining the taxpayer’s responsibility and type
of payments where Form CP58 reporting is required.
•
•
•
•
structures of business trust,
tax treatment of business trust, including residence status, group
relief, control transfer and tax incentives,
implications of stamp duty and real property gains tax, and
distinction between a company and a business trust.
All public rulings are available for download on IRB’s website
www.hasil.gov.my (Laws and Regulations > Public Ruling).
IRB Technical Guidelines in respect of Malaysian Financial
Reporting Standards (MFRS)
The IRB has also issued three guidelines, dated 4 June 2013, on the
tax treatment in respect of the following MFRS:
•
Revised Real Property Gains Tax (RPGT) Guideline
The Inland Revenue Board (IRB) has issued a revised RPGT guideline
dated 18 June 2013 which replaces the RPGT Guideline issued on 5 May
2011. Changes reflected in the new guideline include:
•
•
•
•
the revised RPGT exemption rates applicable from 2011 onwards,
exemption for disposal of private residence and transfer of real
property to stock,
additional ways for taxpayers to obtain the RPGT form, i.e. via e-filing
and e-lodgement, and
methods for submission of RPGT returns.
•
•
MFRS 5: Non-Current Assets Held for Sale and Discontinued
Operations
MFRS 123: Borrowing Cost
MFRS 140: Investment Property
All guidelines are available for download on IRB’s website
www.hasil.gov.my (Laws and Regulations > Technical Guidelines).
IRB Audit Framework 2013
The new IRB Audit Framework 2013 issued on 8 May 2013 is now
available in English. It is available for download on IRB’s website
www.hasil.gov.my (Laws and Regulations > IRBM Tax Audit
Framework).
5
Regulatory Developments
Financial Services Act 2013 and Islamic Financial Services Act
2013
Following the revocation, Bank Negara has issued the following
Notices (effective from 30 June 2013):
The following Acts have come into operation on 30 June 2013:
Notice 1
Dealings in currency, gold and other precious metals
1. Financial Services Act 2013 (except section 129 and Schedule 9)
2. Islamic Financial Services Act 2013 (except paragraphs 1 to 10 of
Schedule 9 and paragraphs 13 to 19 of Schedule 9)
Notice 2
Borrowings and guarantee
Notice 3
Investment in foreign currency asset
Notice 4
Payments
Notice 5
Security, Islamic security, financial instrument or
Islamic financial instrument
Notice 6
Import and export of currency
Notice 7
Export of goods
The Financial Services Act 2013 (FSA) and the Islamic Financial Services
Act 2013 (IFSA) amalgamate several separate laws and as a result, the
following Acts have been repealed on 30 June 2013:
•
•
•
•
•
•
Banking and Financial Institutions Act 1989
Exchange Control Act 1953
Insurance Act 1996
Payment Systems Act 2003
Islamic Banking Act 1983
Takaful Act 1984
Repeal of all Exchange Control Notices and issuance of 7 new
Notices
With the coming into effect of the FSA and the IFSA, the Controller of
Foreign Exchange has revoked all Exchange Control Notices issued under
the Exchange Control Act 1953 and related circular letters with effect
from 30 June 2013.
The Notices set out transactions allowed by Bank Negara and may be
amended or revoked by Bank Negara through issuance of subsequent
Notices. Where a transaction is not provided or allowed under any of
the Notices, a person must obtain approval from Bank Negara to
undertake or engage in that transaction.
Bank Negara has also issued a document covering the definitions of
terms used in the Notices and a Declaration on entities created,
incorporated in Labuan to be non-residents for purposes of sections
214 and 215 of the FSA and sections 225 and 226 of the IFSA.
The above are available on Bank Negara’s website at www.bnm.gov.my
(Foreign Exchange Administration > Notices)
6
Tax Cases
The following cases were decided recently:
Case
Issue(s)
Decision/ Status
Ketua Pengarah Hasil Dalam
Negeri v Success Electronics &
Transformer Manufacturer Sdn
Bhd
Whether non-production areas are “factory” for the purposes of
reinvestment allowance claim.
IRB’s appeal dismissed
Dr Zanariah binti Ramli v Ketua
Pengarah Hasil Dalam Negeri
1.
Whether the gains from buying and selling bonds was business
income of the taxpayer.
Taxpayer’s appeal dismissed
2.
Whether penalty under section 113(2) of the Income Tax Act
1967 (ITA) was correctly imposed.
SCIT: In favour of taxpayer
High Court: In favour of IRB
Court of Appeal
Ekran Bhd v Ketua Pengarah
Hasil Dalam Negeri
SCIT: In favour of taxpayer
High Court: In favour of taxpayer
Whether the consideration of RM300 million received to give up
rights and responsibilities in a construction project was capital or
revenue receipt.
Taxpayer’s appeal dismissed
SCIT: In favour of taxpayer
High Court: In favour of IRB
Ketua Pengarah Hasil Dalam
Negeri v Shiuh Dong Industries
Sdn Bhd
1.
Whether interest expense incurred on construction of a factory
building was allowable deduction.
Taxpayer’s appeal dismissed
2.
Whether penalty under section 113(2) of the ITA was correctly
imposed.
SCIT: In favour of IRB
High Court: In favour of IRB
7
Tax Cases
Case
Issue(s)
Decision/ Status
1.
Whether research and development expenses incurred to enter
into the Thailand market were deductible under section 33(1) of
the ITA.
IRB’s appeal allowed
2.
Whether penalty under section 113(2) of the ITA was correctly
imposed.
SCIT: In favour of IRB
High Court: In favour of taxpayer
1.
Whether an irrecoverable bad debt was allowed a deduction
under section 34(2) of the ITA.
IRB’s appeal dismissed
2.
Whether penalty under section 113(2) of the ITA was correctly
imposed.
SCIT: In favour of IRB
High Court: In favour of taxpayer
Court of Appeal
Ketua Pengarah Hasil Dalam
Negeri v Viva Life Science Sdn
Bhd
Ireka Corporation Bhd v Ketua
Pengarah Hasil Dalam Negeri
Ketua Pengarah Hasil Dalam
Negeri v Resort Poresia Sdn
Bhd
Whether golf course turfing and grass were plant and therefore the
expenses incurred thereon are qualifying plant expenditure under
Schedule 3 of the ITA.
IRB’s appeal allowed
Ketua Pengarah Hasil Dalam
Negeri v Ipoh Cargo Terminal
Sdn Bhd
Whether terminal, railway track, warehouse, electrical substation and
lamp post fall under the definition of industrial building.
Taxpayer’s appeal allowed in part
SCIT: In favour of IRB
High Court: In favour of taxpayer
SCIT: In favour of taxpayer
High Court: In favour of IRB
8
Tax Cases
Case
Issue(s)
Decision/ Status
Ketua Pengarah Hasil Dalam
Negeri v Hicom Suzuki
Manufacturing (M) Sdn Bhd
Whether supervision fees were eligible for reinvestment allowance
incentive.
IRB’s appeal dismissed
Ketua Pengarah Hasil Dalam
Negeri v Maxis Communication
Berhad
Whether the equivalent cash consideration payment made to
employees (in lieu of rights to acquire shares under the company’s
ESOS scheme) is:
Court of Appeal
SCIT: In favour of taxpayer
High Court: In favour of taxpayer
1.
2.
Ordinary cash remuneration to which section 13(1)(a) of the ITA
applies, or
Gross income to which sections 25(1A) and 32(1A) apply.
IRB’s appeal allowed
High Court: In favour of taxpayer
Special Commissioners
MBCB v Ketua Pengarah Hasil
Dalam Negeri
1.
Whether the IRB was correct to invoke section 140 of the ITA to
deem an interest income on the interest free loans advanced by
the taxpayer to its subsidiaries to purchase ships.
2.
Whether the penalty under section 113(2) was correctly imposed.
Taxpayer’s appeal allowed
(IRB is appealing to the High Court)
CWSGMB v Ketua Pengarah
Hasil Dalam Negeri
Whether deferred license fees received by a club are taxable under
section 24(1) of the ITA in the year the amount is received.
Taxpayer’s appeal dismissed
(Taxpayer is appealing to the High Court)
9
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