Stay current. Be tax savvy TaXavvy www.pwc.com/my May 2012

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Stay current. Be tax savvy
TaXavvy
May 2012
Issue 3/2012
Inside this issue
Tax Laws
• Income Tax (Transfer Pricing) Rules 2012
• Income Tax (Advance Pricing Arrangement) Rules 2012
• Stamp Duty (Exemption) Order 2012 - Approval for incentive under the
Green Lane Policy
• Income Tax (Deduction for Expenditure to Obtain the 1-InnoCERT
Certification) Rules 2012
• Income Tax (Deduction for Promotion of International or Private School)
Rules 2012
• Income Tax (Deduction for Participation in an Approved Career Fair)
Rules 2012
• Income Tax (Deduction for Expenditure Incurred for the Provision of an
Approved Internship Programme) Rules 2012
3
Tax Administration
• Public Ruling 2/2012 – Foreign Nationals Working in Malaysia: Tax
Treaty Relief
• Public Ruling 3/2012 – Appeal Against an Assessment
7
Double Taxation Agreement
• Ratification of Protocols
• Tax Information Exchange Agreement with Bermuda
• Hong Kong and India Tax Treaties
7
Indirect Taxes
• Goods and Services Tax (GST) Business Readiness Questionnaire
• Service Tax on Employment Services
8
Tax Cases
9
Upcoming Events
11
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 (Transfer Pricing) Rules 2012
The above Rules gazetted on 11 May 2012, are deemed to come into
operation on 1 January 2009. These Rules apply to controlled
transactions for the acquisition or supply of property or services,
including financial services.
The salient points of these Rules are:
1. “Controlled transactions” are transactions referred to under
Section 140A(2) and (5) of the Income Tax Act 1967 (ITA).
2. “Property” includes any goods, movable or immovable thing, or
intangible property and beneficially owned property.
3. “Service” includes any rights, benefits, privileges or facilities that
are, or to be provided / granted in an arrangement and includes
financial assistance.
4. Contemporaneous transfer pricing documentation is required to
be prepared and maintained at the point of developing,
implementing and reviewing controlled transactions.
5. The method and manner in determining the arm’s length price is
in the following order:
i. Traditional transactional method (comparable uncontrolled
price or resale price or cost plus methods); otherwise
ii. Transactional profit method (profit split or transactional net
margin method; otherwise
iii. Other methods which provides the highest degree of
comparability between the transactions.
6. The Rules list the comparability factors in the selection of
comparables in determining the arm’s length price of a controlled
transaction.
7. The Director General (DG) may disregard and make adjustments to
the structure of the controlled transaction entered into by the
taxpayer to reflect what would have been adopted by an
independent person.
8. The Rules provide information on the treatment of intra-group
services, cost contribution arrangement, intangible property and
the provision of financial assistance.
9. The DG may make adjustment by substituting or imputing the
price or interest where he has reason to believe that the price or
interest is not at arm’s length.
10. The Rules specify that a permanent establishment is treated as a
distinct and separate entity from its head office and related
branches.
Income Tax (Advance Pricing Arrangement) Rules 2012
The above Rules gazetted on 11 May 2012, are deemed to come into
operation on 1 January 2009. These Rules apply only to cross-border
transactions and outline the procedures to apply for a Unilateral,
Bilateral or Multilateral Advance Pricing Arrangements (APA), which
will constitute a binding undertaking on the parties to the
arrangement.
3
Tax Laws
The salient points of these Rules are:
The period covered by the APA is a minimum period of 3 years of
assessment to a maximum of 5 years of assessment. The APA may be
applied to prior years of assessment under certain circumstances.
1. The taxpayer shall request for a pre-filing meeting 12 months
prior to the first day of the period to be covered under the APA.
Within 14 days of the pre-filing meeting, the DG will notify the
taxpayer if an application for the APA can be made. Such
application, when allowed, is to be made in a prescribed form and
within 2 months from the date of notification.
2. The DG may decline an application for an APA under specified
circumstances, which are:
• Failure to comply with the Income Tax (Transfer Pricing)
Rules 2012 and the Malaysian Transfer Pricing Guidelines;
• Hypothetical transactions or situations;
• The transaction is limited in nature and value, or the arm’s
length price can be determined without material doubt;
• The transaction is subject to an assessment and appeal under
the ITA;
• The transaction involves a tax avoidance scheme.
3. However, where an application is declined, the taxpayer may,
within 30 days of receipt of such decision, make a representation
to the DG for a further review. The decision of the DG on the
representation will be final.
4. The taxpayer may, at any time before the APA is concluded,
withdraw the application.
5. Where an APA is entered into, a compliance report has to be filed
within 7 months from the close of the accounting period (which
constitute the basis period), for each year of assessment.
6. The APA may be cancelled or revoked, by the DG or the tax
authorities of a treaty country, under certain specified
circumstances such as failure to comply with the conditions, failure
to provide information, fraud, false / misleading statements, etc.
7. The taxpayer may apply for renewal no later than 6 months before
the expiration of the APA.
Please contact our Transfer Pricing specialists for more
information:
SM Thanneermalai (Tel: +603 2173 1582)
Email: [email protected]
Jagdev Singh (Tel: +603 2173 1469)
Email: [email protected]
Anushia Joan Soosaipillai (Tel: +603 2173 1419)
Email: [email protected]
Desmond Goh (Tel: +603 2173 1439)
Email: [email protected]
4
Tax Laws
Stamp Duty (Exemption) Order 2012
– Financing under the Green Lane
Policy Incentive
Income Tax (Deduction for
Expenditure to Obtain the 1InnoCERT Certification) Rules 2012
Income Tax (Deduction for Promotion
of International or Private School)
Rules 2012
The Stamp Duty (Exemption) Order 2012
was gazetted on 25 April 2012. It provides
for stamp duty exemption on any loan /
financing instrument under the Syariah,
which is chargeable to stamp duty, and
executed (from 15 June 2011 to 31
December 2014) between a Small and
Medium Enterpise (SME) and:
These Rules were gazetted on 25 April
2012 and provide for deduction on the
expenditure incurred in obtaining the 1InnoCERT certification. The salient points
of the Rules include:
These Rules apply to a Malaysian resident
international or private school which is either
a company incorporated under the Companies
Act 1965 or a society registered under the
Societies Act 1966, and registered with the
Ministry of Education.
•
•
•
•
Bank Perusahaan Kecil & Serderhana
Malaysia Berhad; or
Bank Pembangunan Malaysia Berhad;
or
Export-Import Bank of Malaysia
Berhad.
•
The SME must have been given approval
by the Ministry of Finance for an incentive
under the Green Lane Policy and may only
apply for the exemption once.
The eligible person is a Malaysian
resident in the manufacturing,
manufacturing related services, agrobased, services, primary agriculture,
and information and communication
technology industries; subject to
fulfilling criteria on number of
employees and annual sales turnover.
The expenditure eligible for deduction
is the certification fee and the expenses
incurred by SIRIM Berhad’s auditors
covering mileage, accommodation and
meals.
These Rules are effective from year of
assessment 2010 for applications made on
or before 31 December 2014.
A deduction is given for expenditure incurred
primarily to promote the international or
private school operating and located in
Malaysia. Eligible expenditure include
expenditure incurred in respect of market
research, air fares and accommodation
expenditure incurred in participation in
education fairs approved by the Ministry of
Education Malaysia held outside Malaysia,
and for publicity and advertisement.
Expenditure for participation in education
fairs is restricted to RM100,000 per year of
assessment.
These Rules are effective from year of
assessment 2012.
5
Tax Laws
Income Tax (Deduction for
Participation in an Approved Career
Fair) Rules 2012
These Rules were gazetted on 7 May 2012
and provide for a double deduction on
expenditure incurred primarily for the
purposes of participating in an approved
career fair held outside Malaysia as
organized / endorsed by Talent
Corporation Malaysia Berhad.
The expenditure allowed are:
•
Economy air fares, accommodation (up
to RM300/day), sustenance (up to
RM150/day) for 3 representative
personnel;
•
Marketing and promotional materials;
•
Payment made to the career fair
organizer; and
•
Expenses incurred directly for
participating in the career fair.
These Rules are effective for years of
assessment 2012 to 2016.
Income Tax (Deduction for
Expenditure Incurred for the
Provision of an Approved Internship
Programme) Rules 2012
These Rules were gazetted on 7 May 2012
and provide for a double deduction on
expenditure incurred for conducting
structured internship programme in
Malaysia, which is approved by Talent
Corporation Malaysia Berhad.
The expenditure allowed per eligible
student per year of assessment, are:
Internship allowance
Not less
than
RM500
• Expenditure incurred
for training the students;
Not more
than
RM5,000
per year of
assessment
• Meal, travelling and
accommodation
allowance for the
students; and
• Fees paid to person
conducting an approved
internship programme.
6
Tax Administration
Double Taxation Agreement
Public Ruling 2/2012 – Foreign Nationals Working in
Malaysia: Tax Treaty Relief
Ratification of Protocols
The Inland Revenue Board (IRB) has issued the Public Ruling 2/2012 –
Foreign Nationals Working in Malaysia: Tax Treaty Relief dated 3 May
2012. The public ruling explains the tax treaty relief available to foreign
nationals from treaty countries seconded to Malaysia by their employers
that are not resident in Malaysia.
The protocol on the exchange of information for the treaties between
Malaysia and the following countries have been ratified :
 Bahrain on 20 February 2012
 South Africa on 6 March 2012
Tax Information Exchange Agreement with Bermuda
Public Ruling 3/2012 – Appeal Against an Assessment
The IRB has issued a new Public Ruling 3/2012 – Appeal Against an
Assessment dated 4 May 2012 which explains the procedure in respect of
appeals against assessments made or deemed made and the
requirements to be complied with when making appeals. Public Rulng
3/2012 replaces Public Ruling No 3/2001 and its Addendum issued on
18 January 2001 and 18 May 2009 respectively.
Malaysia and Bermuda signed a tax information exchange agreement on
23 April 2012, which is the first agreement between the two countries
in respect of implementing the international standards for the exchange
of information for tax purposes.
Hong Kong and India Tax Treaties
The following Double Taxation Agreement were signed recently:
A copy of the Public Rulings 2/2012 and 3/2012 can be obtained from the
IRB’s website at http://www.hasil.gov.my/
•
•
between Malaysia and Hong Kong, signed on 25 April 2012
between Malaysia and India, signed on 9 May 2012.
These agreements will enter into force once the treaty partners
complete the ratification procedures.
7
Indirect Taxes
Goods and Services Tax (GST) Business Readiness
Questionnaire
The Tax Review Panel (TRP) has issued a questionnaire to assess
business readiness to implement GST in terms of resources, IT
readiness and pricing structure. Subsequently, a discussion on the
GST readiness was held between TRP and the various stakeholders
which included trade associations and professional bodies.
Arising from the discussion, the stakeholders were told that
businesses may not have 18 months to prepare for GST once
Government makes the announcement to implement the tax.
Application has also been made to withdraw the Goods and Services
Tax Bill 2009 from the second reading in Parliament to enable
amendments to be made to the Bill.
Service Tax on Employment Services
During the recent Customs-Private Sector Consultative Panel meeting,
Customs Headquarters have agreed to further consider the imposition
of service tax on employment services due to attempts by some
Customs stations to tax employment services as management services.
This is particularly so in cases where the employment services
provided qualify for the exclusion criteria of “in the form of
secondment of employees or supplying employees to work for another
person for a period of time” which are excluded from the imposition of
service tax.
Some Customs stations have taken the view that when one party
seconds or provides an individual to another party, the individual is
seen to be carrying out management services for the receiving party
and service tax is to be imposed on any profit or margin made on the
charges for the supply of the individual.
8
Tax Cases
The following cases were decided recently:
Case
Issue(s)
Decision/ Status
This is an appeal by the Director General of Inland Revenue (DGIR)
against the High Court’s decision that the average gross profit ratio
should be at 8% instead of 22% and the DGIR had not exercised his
"best judgment" within the meaning of Section 91 (1) of the ITA.
DGIR’s appeal allowed
Whether, upon succeeding in the judicial review to quash the action
of the DGIR to tax gain from compulsory land acquisition on the
basis it is unlawful, the taxpayer is entitled to interest on the sum
unlawfully retained by the DGIR.
DGIR’s appeal dismissed
Court of Appeal
Ketua Pengarah Hasil Dalam
Negeri v Lai Keng Chong &
Kong Chee Leong
Ketua Pengarah Hasil Dalam
Negeri v Pelangi Sdn Bhd
High Court : In favour of taxpayer
SCIT: In favour of DGIR
High Court: In favour of taxpayer
High Court
Tropiland Sdn Bhd v Ketua
Pengarah Hasil Dalam Negeri
Whether the Special Commissioners of Income Tax (SCIT) decision
that a multi-storey car park is not plant for capital allowance
purposes, is correct in law.
Taxpayer’s appeal allowed
SCIT: In favour of IRB
Ketua Pengarah Hasil Dalam
Negeri v Success Electronics &
Transformer Manufacturer Sdn
Bhd
Whether the SCIT was correct in its decision that nonproduction areas are “factory” for the purposes of reinvestment
allowance claim.
DGIR’s appeal dismissed
SCIT: In favour of taxpayer
9
Tax Cases
Case
Issue(s)
Decision/ Status
Whether the SCIT was correct in its decision that air fares and
accommodation expenses incurred by a pharmaceutical company
for doctors attending overseas medical conventions were not
entertainment under section 18 the ITA, hence deductible under
Section 33(1) of ITA.
DGIR’s appeal dismissed
1) Whether rental paid in advance is deductible in the year of
assessment payment was made pursuant to Section 33(1)(b)
of the ITA;
2) Whether the advanced rental is a capital expenditure under
Section 39 of the ITA; and
3) Whether the imposition of penalty under Section 113(2) is
correctly made.
Taxpayer’s appeal dismissed
Whether Section 102(1) of the ITA was mandatory or directory
on the DGIR to forward the Form Qs to the SCIT within 12
months.
Taxpayer’s appeal allowed
High Court
Ketua Pengarah Hasil Dalam
Negeri v Servier Malaysia Sdn
Bhd
Syarikat Pukin Ladang Kelapa
Sawit Sdn Bhd v Ketua
Pengarah Hasil Dalam Negeri
SCIT: In favour of taxpayer
SCIT: In favour of DGIR
Special Commissioners
S (Malaysia) Sdn Bhd v Ketua
Pengarah Hasil Dalam Negeri
10
Upcoming Events by The Academy
Transfer Pricing Seminar
New Transfer Pricing Rules and
Advance Pricing Arrangement
Rules
Date: 6 June 2012 (Wednesday)
Time: 8.30 am to 5.30 pm
Venue: Renaissance Kuala Lumpur Hotel
Seminar speakers
 Senior IRB official
 Independent legal counsel
 Leader of PwC Singapore’s Transfer Pricing team
 Senior Transfer Pricing team members from PwC Malaysia
Goods & Services Tax (GST) Workshop Series
Getting the GST Essentials Right
Date: 22 May 2012 (Tuesday)
Time: 9.00am - 5.00pm
Venue: Sime Darby Convention Centre
Corporate Tax Workshop Series
Mastering the Essentials of Tax
Computation
Date: 12 June 2012 (Tuesday)
Time: 9.00 am to 5.00 pm
Venue: PwC Training Centre, Level 16, Sheraton Imperial Hotel
Corporate Tax Workshop Series
For more information/to register
please visit PwC’s website at
www.pwc.com/my/en/TheAcademy
or contact Che Sham Ahmad at
+60 (3) 2173 1188
Income & Expenses: Optimising your tax
position
Date: 19 June 2012 (Tuesday)
Time: 9.00 am to 5.00 pm
Venue: PwC Training Centre, Level 16, Sheraton Imperial Hotel
11
PwC Contacts
Our offices
Our services
Kuala Lumpur
Melaka
Khoo Chuan Keat
Tel: +60(3) 2173 1368
[email protected]
Teh Wee Hong
Tel: +60(3) 2173 1595
[email protected]
Penang / Ipoh
Au Yong
Tel: +60(6) 283 6169
[email protected]
Tony Chua
Tel: +60(4) 238 9118
[email protected]
Johor Bahru
Lorraine Yeoh
Tel: +60(3) 2173 1499
[email protected]
Labuan
Jennifer Chang
Tel: +60(3) 2173 1828
[email protected]
Kuching
Norafiza Abdul Rahman
Tel: +60(7) 222 4448
norafiza.abdul.rahman
@my.pwc.com
Phan Wai Kuan
Tel: +60(3) 2173 1589
[email protected]
Christine Cheng
Tel: +60(82) 413 957
[email protected]
Consumer & Industrial
Product Services
Theresa Lim
Tel: +60 (3) 2173 1583
[email protected]
Margaret Lee
Tel: +60(3) 2173 1501
margaret.lee.seet.cheng
@my.pwc.com
Emerging Markets
Teh Wee Hong
Tel: +60(3) 2173 1595
[email protected]
Corporate Services
Theresa Lim
Tel:+60(3) 2173 1583
[email protected]
Japanese Business
Consulting
Junichi Fujii
Tel: +60(3) 2173 1480
[email protected]
Energy, Utilities & Mining /
Technology, InfoComm &
Entertainment
Frances Po
Tel: +60(3) 2173 1618
[email protected]
Transfer Pricing &
Investigation
SM Thanneermalai
Tel: +60(3) 2173 1582
thanneermalai.somasundaram@
my.pwc.com
Financial Services
Jennifer Chang
Tel: +60 (3) 2173 1828
[email protected]
International Tax Services /
Mergers & Acquisition
Khoo Chuan Keat
Tel: +60(3) 2173 1368
[email protected]
Dorothy Ooi
Tel: +60(3) 2173 1444
[email protected]
International Assignment
Services
Indirect Tax
Sakaya Johns Rani
Tel: +60 (3) 2173 1553
[email protected]
Wan Heng Choon
Tel: +60 (3) 2173 1488
[email protected]
Worldtrade Management
Services
Huang Shi Yang
Tel:+60(3) 2173 1657
[email protected]
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