INDIRECT TAXES - MICPA

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3 • Royal Malaysian Customs Guideline and Minutes of Meetings

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INDIRECT TAXES

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CPA Tax & Investment Review 2011

1.0 Customs (Amendment) Regulations 2010

Comment:

The above Amendment seeks to:

(i) Introduce new ordinary hours for Marina Pulau Mentagor, Lumut to be from 6.00 a.m. to 6.00 p.m. on any working day.

(ii) Allow goods which are approved by the Director General to be imported and exported at The Marina Jetty of Jabatan Laut Semenanjung Malaysia, Pulau Mentagor, Lumut.

Effective date: 20 September 2010

2.0 Customs (Amendment) (No. 2) Regulations 2010

Comment:


(i) Introduce new ordinary hours for Jeti Penumpang Jabatan Laut Semenanjung Malaysia, Jalan Kemuning, Port Dickson, Negeri Sembilan to be from 8.00 a.m. to 10.00 p.m. on any working day.

(ii) Permit all goods to be imported and exported at The Jetty of Jabatan Laut Semenanjung Malaysia, Jalan Kemuning, Port Dickson, Negeri Sembilan.


3.0 Customs (Anti Dumping Duties) (Amendment) Order 2010 Comment:

The above Amendment seeks to substitute the words “Far Eastern Textile Ltd” with the words “Far Eastern New Century”

Effective date: 13 October 2009 to 22 October 2010

4.0 Customs (Anti Dumping Duties) (Extension of Time) Order 2010

Comment:

The above Amendment seeks to extend the effective period and shall remain in force from 23 October 2010 to 20 April 2011.

Effective date: 23 October 2010

A Amendments to Customs Legislation

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4 • Indirect Taxes

5.0 Customs (Prohibition of Exports) (Amendment) Order 2010

Comment:


1. Introduce the following new item to be inserted:

(1) (2) (3)

Item No.

Description of Goods Destination

4 All kinds of natural sands excluding silica sands and filter sands

All countries

2. Eliminating subheading of Silica sands and quartz sands from the export prohibition list of the minerals and ores of all kinds; and

3. Substituting item 18 with the following:

(1) (2) (3) (4)

Item No.

Description of Goods

Heading / Subheading

Ministry/Department/Statutory Body Issuing

Licence

18 Natural sands:(a) Silica sands only excluding quartz sand

(b) Filter sands only

2505.10 000

2505.90 000

Ministry of Natural Resources and Environment

Effective date: 1 November 2010

6.0 Customs (Prohibition of Exports) (Amendment) (No. 2) Order 2010

Comment:

The above Amendment seeks to require Medicaments containing ephedrine or pseudoephedrine whether or not put up for retail sales to obtain Export Licence.

Effective date: 31 December 2010

7.0 Customs (Prohibition of Imports) (Amendment) Order 2010

Comment:

The above Amendment seeks to substitute subsubparagraph 3 (2) (a) by substituting for subsubsubparagraph (i) the following subsubsubparagraph:

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(i) Pasir Gudang Port Free Zone, Mukim of Plentong, District of Johor Bahru, Johor as the free zone area which goods are prohibited to be imported into Malaysia even under an Import Licence

Effective date: 4 February 2010

8.0 Customs (Prohibition of Imports) (Amendment) (No. 2) Order 2010

Comment:

The above Amendment seeks to eliminate golf cars including golf buggies from the list of goods which may not be imported into Malaysia except under an Import Licence

Effective date: 1 August 2010

9.0 Customs (Prohibition of Imports) (Amendment) (No.3) Order 2010

Comment:

The above Amendment seeks to insert the following item after item 7 under list of goods which may not be imported into Malaysia and movement of goods from free commercial zone to the Principal Customs Area, Labuan, Langkawi and Tioman except in the manner provided:

(1) (2) (3) (4) (5)

Item No.

Description of Goods

Heading/ Subheading

Country Manner of Import

8 Toys, games and children’s bicycles: (a) Tricycles, scooters, pedal cars and similar wheeled toys; dolls’ carriages; dolls; other toys; reduced-size (“scale”) models and similar recreational models, working or not (operated at a nominal

95.03 9504.10 000 9504.90 999 9504.40 900

All Countries

(i) That the import is accompanied by a Certificate of Conformance (COC) and test report issued by laboratory which is accredited by an accreditation body that is signatory to the Asia Pacific Laboratory Accreditation

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voltage of 24V and below) whichever is related; puzzles of all kinds (500 pieces and below) (b) Video games whether or not of a kind used with TV receiver (operated at a nominal voltage of 24V and below)

(c) Playing cards for children

(d) Children’s bicycle

(e) Percussion caps for toys

8712.00 200

3604.90 200

Cooperation Mutual Recognition Arrangement (APLAC MRA) or International Laboratory Accreditation Cooperation Mutual Recognition Arrangement (ILAC MRA) as governed by the Ministry of Domestic Trade, Co-operatives and Consumerism; or

(ii) That the import is accompanied by a Letter of Exemption issued by the Ministry of Domestic Trade, Co-operatives and Consumerism”.

Effective date: 1 August 2010

10.0 Customs (Values of Imported Completely Built-up Motor Vehicles) (Used) Order 2010

Comment:

The above Amendment seeks to revise the value of dutiable imported completely built-up motor vehicles (used) but only applicable for completely built-up motor vehicles (used) (not inclusive of motorcycles) imported by open AP holders.

Effective date: 1 June 2010

11.0 Customs Duties (Exemption) (Amendment) (No. 2) Order 2010

Comment:

The above Amendment seeks to substitute item 21A of Part I of the Schedule by substituting for paragraph (iv) the following

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paragraph:

“(iv) that the motor vehicle/motorcycle may remain in the principal customs area for a period not exceeding 30 days per trip, subject to a maximum period of 90 days in any one year;”.


12.0 Customs Duties (Exemption) (Amendment) (No.3) Order 2010

Comment:

The above Amendment seeks to insert after paragraph (xv) of item 107 of Part I of the Schedule the following paragraph:

(2)

Persons

“(xvi) PCPP Operating Company Sdn Bhd”

Effective date: 13 May 2010

13.0 Customs Duties (Exemption) (Amendment) (No.5) Order 2010

Comment:

The above Amendment seeks to substitute item 94, Part I of the Schedule with the following item:

(1) (2) (3) (4) (5)

Item No.

Persons Exempted

Goods Exempted

Conditions Certificate to be signed by

“94. The Importer

Empty containers including bottles, drums, cylinders and other reusable packaging material exported and subsequently reimported

(i) That a notice is given at the time of export that the reusable packaging material will be reimported;(ii) that the proper officer of customs is satisfied that they are being returned to Malaysia after

The Importer”.

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having been exported containing the goods


14.0 Customs Duties (Goods under the Early Harvest Programme and the Framework Agreement on Comprehensive Economic Co-Operation between ASEAN and China) (Amendment) 2011

Comment:

The above Amendment seeks to amend as follows:

“RULE 6: PRODUCT SPECIFIC RULES

Products which have undergone sufficient transformation in a Party shall be treated as originating goods of that Party. Products which satisfy the Product Specific Rules shall be considered as goods to which sufficient transformation has been carried out in a Party (Refer to Appendix A).”

Effective date: 1 March 2011

15.0 Customs Duties (Exemption) (Amendment) Order 2011 Comment:

The above Amendment seeks to insert after paragraph (q) of item 137 of Part I of the Schedule the following paragraph:

“(r) Universiti Darul Iman Malaysia.”


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B Amendments to Excise Legislation

1.0 Excise Duties (Amendment) Order 2010

Comment:

The above Amendment seeks to increase the specific excise duty rate of:

(1) Cigars, cheroots and cigarillos falling under HS 2402.10 000 and 2402.90 100 from “RM190.00 and 20%” to “RM220.00 and 20%”; and

(2) Cigarettes falling HS 2402.20 900 and 2402.90 200 from “RM0.19 and 20%” to “RM0.22 and 20%”.


2.0 Excise Duties (Exemption) (Amendment) Order 2011

Comment:

The above Amendment seeks to insert after paragraph (q) of item 41 of Part I of the Schedule the following paragraph:

“(r) Universiti Darul Iman Malaysia.”


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C Amendments to Sales Tax Legislation

1.0 Sales Tax (Exemption) (No.3) Order 2010

Comment:

The above Amendment seeks to insert a semicolon after paragraph (xv) of item 70, Schedule B and the following paragraph:

(2)

Persons

“(xvi) PCPP Operating Company Sdn Bhd”

Effective date: 13 May 2010

2.0 Sales Tax (Exemption) (Amendment) (No. 4) Order 2010

Comment:

The above Amendment seeks to substitute item 46, Schedule B with the following item:

(1) (2) (3) (4) (5)

No. Persons Exempted

Goods Exempted

Conditions Certificate to be signed by

“46. The Importer

Empty containers including bottles, drums, cylinders and other reusable packaging material exported and subsequently reimported

(i) That a notice is given at the time of export that the reusable packaging material will be reimported;(ii) that the proper officer of customs is satisfied that they are being returned to Malaysia after having been exported containing the goods

The Importer”.


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Comment:

The above Amendment seeks to eliminate the sales tax for telephones for cellular or wireless networks.


4.0 Sales Tax (Exemption) (Amendment) Order 2011

Comment:


(i) Universiti Malaya;

(ii) Universiti Kebangsaan Malaysia;

(iii) Universiti Teknologi Malaysia;

(iv) Universiti Sains Malaysia;

(v) Universiti Utara Malaysia;

(vi) Universiti Islam Antarabangsa;

(vii) Universiti Teknologi MARA;

(viii) Universiti Pertanian Malaysia;

(ix) Universiti Malaysia Sarawak;

(x) Universiti Malaysia Sabah;

(xi) Universiti Pendidikan Sultan Idris;

(xii) Universiti Teknikal Malaysia Melaka;

(xiii) Universiti Tun Hussein Onn Malaysia;

(xiv) Universiti Malaysia Terengganu;

(xv) Universiti Sains Islam Malaysia;

(xvi) Universiti Malaysia Pahang;

(xvii) Universiti Malaysia Perlis;

(xviii) Universiti Darul Iman Malaysia;


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Comment:


(i) ExxonMobil Exploration and Production Malaysia Inc.

(ii) Sabah Shell Petroleum Co.

(iii) Sarawak Shell Bhd.

(iv) Petronas Carigali Sdn. Bhd.

(v) Nippon Oil Exploration (Malaysia) Ltd.

(vi) Talisman Malaysia Limited.

(vii) Devon Energy Malaysia Ltd.

(viii) Deleted.

(ix) Deleted.

(x) Murphy Sarawak Oil Co. Ltd.

(xi) Murphy Sabah Oil Co. Ltd.

(xii) Devon Energy Malaysia Ltd.

(xiii) Esso Exploration and Production Sarawak Ltd.;

(xiv) PCPP Operating Sdn Bhd.

(xv) Syarikat Newfield Peninsular Malaysia Inc.

(xvi) Syarikat Newfield Sarawak Malaysia Inc.;


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D Amendments to Service Tax Legislation

1.0 Service Tax (Amendment) Regulations 2010

Comment:

The above Amendment seeks to impose service tax on paid television broadcasting services.

Effective date: 1 January 2011

2.0 Service Tax (Rate of Tax) (Amendment) Order 2010

Comment:

The above Amendment seeks to revise the service tax rate from 5% to 6%.

Effective date: 1 January 2011

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SUMMARY OF TAX CASES

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A Malaysian Special Commissioners'Decisions

1.0 SETM SDN BHD V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,000

Facts

The taxpayer is a manufacturer of electronic and electrical products. In 2001, the taxpayer expanded its operations and built a new factory. The new factory started operating in July 2002 and the taxpayer claimed reinvestment allowance (RA) on the following capital expenditure in year of assessment (YA) 2002 and YA 2003:

• Buildingcostwhichincludesareasandfacilitiesliketoilets,surau, office spaces, meeting rooms, staircases, “void area” and lift lobby; and

• Lightingadjustmentintheresearchanddevelopmentroom,the installation of air-conditioning service, the installation of electrical fittings and the installation of partition walls.

The Director General of Inland Revenue (DGIR) disputed the RA claimed in respect of the above capital expenditure by restricting the said claims to production area only and disallowed the claims on certain capital expenditure incurred. Additional assessment was raised and penalty of 45% under Section 113(2) of the Income Tax Act, 1967 (the Act) was also imposed.

Issues

1) Whether the DGIR is entitled to reduce or to disallow the amount of RA claimed in the YAs 2002 and 2003.

2) Whether the DGIR was correct in imposing penalty under Section 113(2) of the Act.

Arguments

Taxpayer

The taxpayer contended that:

1) The new factory was built for expansion (which included the modernization and automation) of its existing business.

2) The DGIR had no legal and/or factual basis in reducing the RA claimed.

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5 • Summary of Tax Cases

3) The building cost for areas and facilities were part of the factory and the capital expenditure was incurred for the purpose of the manufacturing activities.

4) It had acted in good faith by making full disclosure andobtaining professional advice.

DGIR

The DGIR contended that:

1) The taxpayer had transferred its business from existing factory to the new factory and has subsequently utilized the existing factory as a warehouse for raw materials.

2) The building cost were incurred for area and facilities that do not fall under the definition of ‘factory’ as none of the activities carried in those areas are involved in any manufacturing or processing stage.

3) The penalty under section 113(2) of the Act was correctly imposed based on the facts of this case.

Decision

Appeal allowed on the following grounds:

• Paragraph8(a)Schedule7AoftheActdidnotrestrictRAontheproductionareaonly.ThereforethePlaintiffwasentitledto claim RA on the whole amount of capital expenditure incurredforthepurposeofaqualifyingproject.

• Sincetheword“factory”wasnotdefinedintheActforthepurposes of RA, the ordinary and usual meaning of “factory” was to be applied. Applying the principles established in case laws, factory is a building that is used to manufacture goods which may contain areas for production and non-production. Therefore, the meeting room, office spaces, toilets, staircases, void areas, lift lobby, surau and warehouse in the new factory and also the lightning adjustment andthe installations of air conditioning, electrical fittings and partition walls in the new factory were part of the factory that qualified for RA.

• TherestrictionofRAbytheDGIRto“productionarea”onlywas based on the DGIR’s internal ruling without any legal authority. As the internal ruling was not law, the DGIR was not entitled to reduce or to disallow the RA claimed based on the internal ruling.

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• Thetaxpayerhadactedingoodfaith,madefulldisclosureand obtained professional advice. Therefore, the penalty should be waived accordingly.

2.0 FFHM BHD V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,001

Facts

The taxpayer was an investment holding company with nine direct subsidiaries and eight indirect subsidiaries. In YAs 2002 and 2003, the taxpayer had taken short term loans to financeits business activities as well as its subsidiaries. Some of the loans and advances to its subsidiaries were interest bearing and some were interest free. Some subsidiaries were dormant or had ceased operations but there were no details on which subsidiaries received interest-bearing loans or otherwise.

The taxpayer subsequently revised its interest restriction computations and submitted revised tax returns for YA 2001 to YA 2003. The revised interest restriction computations no longer classified the amounts due from subsidiaries as interest-bearing and interest free, resulting in an increased amount of interest expense for YA 2002 and YA 2003. The DGIR disputed the revised interest restriction calculations and disallowed the revised interest expenses. In disallowing the interest, the DGIR did not go on a counter to counter basis but on the classification by the taxpayer itself of the amount due from subsidiaries as ‘interest free’ and ‘interest bearing’ loans.

Issues

Whether the interest expenses arising from the giving of interest free loans to subsidiaries were wholly and exclusively incurred in the production of gross income.

Arguments

Taxpayer


1) Bothinterestbearingloansandnoninterestbearingloansconstituted a single source of income.

2) Same principle applied to dividend income was equally applicable to interest income.

DGIR

The DGIR contended that the interest free loans given to the subsidiaries did not generate income, whether present or future.

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Thus, they were not a source of income and would never be a source of income so long as they were interest free.

Decision

Appeal dismissed.

The grouping in section 4 of the Act were entirely for convenience and simplification, and did not necessarily prescribe similar principles for the tax treatment of each.

The decision of the DGIR in disallowing the interest expenses relating to the interest free loan was not against the principles established in the Multi Purpose Case in which all the loansconstituted a source of income, as all were interest bearing.

The method adopted by the DGIR in calculating the tax computation was correct in law as ‘interest free’ loans granted to the subsidiaries were not a source of income.

3.0 SM SDN BHD V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,002

Facts

The taxpayer was in the business of trading in pharmaceutical products and sold both prescriptive and non-prescriptive drugs. The taxpayer sold its products by two methods:

(1) Medical representatives who visited doctors, clinic and hospitals to promote the drugs; and

(2) Educating and providing guidance to doctors on benefits of its drug by sending the doctors to medical events in Malaysia and overseas. Upon returning from the medical events, these doctors then became speakers at the localmedical events organized by the taxpayer.

The taxpayer bore all expenses incurred in organizing the medical events and including airfare and accommodation expenses for the participating doctors.

The DGIR allowed tax deduction relating to the medical events, except for airfare and accommodation expenses which were classified as entertainment expenses. The DGIR raised notice of additional assessment inclusive of penalties under Section 113(2) of the Act.

Issues

(1) Whether the airfare and accommodation expenses were “entertainment”asdefinedunderSection18oftheAct.

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(2) Whether the penalty under Section 113(2) of the Act was correctly imposed.

Arguments

Taxpayer

The taxpayer contended that the airfare and accommodation expenses were wholly and exclusively incurred in the production of its gross income under Section 33(1) of the Act.

DGIR

The DGIR contended that the airfare and accommodation expenses were entertainment expenses and disallowed them for tax deduction.

Decision

The appeal was allowed on the following grounds:

(1) The taxpayer traded as a pharmaceutical company and in the course of its business sent doctors overseas to attend seminars.

(2) Upon returning home, the doctors became ‘ambassadors’ ofthetaxpayer’sspecialistmedicationsandalsospeakersin the local medical events organized by the taxpayer. This strategy enabled the taxpayer to effectively promote its medical products.

(3) The airfare and accommodation expenses were incurred for the sole purpose of promoting the business of the taxpayer and not for the purpose of providing hospitality to the doctors. Therefore, the expenses were not entertainment and were deductible under Section 33(1) of the Act.

(4) In linewiththeAspacLubricants (Malaysia)SdnBhdcasedecidedbytheCourtofAppeal,thepromotionalexpensesincurred with the sole purpose of promoting the business were not entertainment, and therefore were deductible under Section 33(1) of the Act.

(5) ELM Sdn Bhd case provided further support that wheremedical congresses were part of a pharmaceutical company’s promotion strategy, congress expenses incurred were not entertainment and thus were deductible under Section 33(1) of the Act.

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4.0 CH SDN BHD V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,003

Facts

CHSB was a company resident in Malaysia and carried on thebusiness of manufacturing and exporting latex and synthetic gloves.AHBV,acompanyhavingaprincipleplaceofbusiness intheNetherlands,wasarelatedcompanyofCHSBandpartoftheCAgroup.AHBVfunctionedasacentraltreasuryofthegrouptomonitor the cash flow conditions and funding requirements of entities within the Group.

CHSB entered into agreementswithAHBV tomake advances toeachotherfromtimetotimeatcommercial interestrates.CHSBinvested the surplus funds from its business by way of loans to AHBV and received passive income in the form of interestpayments from AHBV. CHSB was not in the business of moneylending.

CHSBtreatedthe interest received fromAHBVastaxexemptonthe basis that it was a foreign sourced income. The DGIR disagreed with the tax treatment and contended that the interest income was not a foreign sourced income. Notices of additional assessment for yearsofassessment1999to2005wereissuedin2007.Penaltieswere also imposed for incorrect returns.

Issues

i) Whether the interest income was tax-exempt foreign sourced income;

ii) Whether the additional assessment raised for the years of assessment 1999 and 2000 (current year basis) were time barred under Section 91 of the Act; and

iii) Whether the penalties were correctly and reasonably imposed.

Arguments

Taxpayer

• The interest income received from AHBV arose inNetherlands. Therefore, it was sourced and derived in Netherlands and should be exempted from tax under the IncomeTax(Exemption)(No.48)Order1997andParagraph28ofSchedule6oftheAct.

• The additional assessment raised by the DGIR for yearsof assessment 1999 and 2000 (current year basis) in 2007

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were beyond 6 years after the end of the relevant years of assessment;

• Thepenaltiesimposedwereerroneousinlawastherewasno incorrect return made by omitting or understating of income.

DGIR

• The interest income received by CHSB was a Malaysiansourced income as the originating cause of the interest incomewastheloansgivenfromCHSBinMalaysia.

• The additional assessment for year of assessment 1999was raised on the basis of section 91(3) of the Act where no time limit applies. The additional assessment for year of assessment 2000 (current year basis) was raised within the statutory time frame of 6 years.

• Thepenaltieswerecorrectlyandreasonablyimposed.

Decision

TheappealwasallowedbytheSpecialCommissionersofIncomeTax on the following grounds:

1) Pursuant to Income Tax (Exemption)(No.48) Order 1997and Paragraph 28 of Schedule 6 of the Act, income isexempted from tax in Malaysia if it is derived from sources outside Malaysia.

2) The interest income was derived from loans provided to AHBV. Applying the principles established in Hang SengBankcase,ifprofitwasearnedbylendingmoney,theprofitwould have arisen or been derived from the place where the money was lent.

3) Therefore, the interest income was sourced in the Netherlands. Accordingly, the receipt of the interest income fromAHBVbytheCHSBinMalaysiawasnotchargeabletotax.

4) In light of the foregoing determination, issues (ii) and (iii) did not arise.

5.0 EMSB V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,004

Facts

The taxpayer was in the business of marketing and distributinghouseholdcleaningproductsmanufacturedbyGCSdnBhd(GCS).

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ThetaxpayerandGCSwererelatedcompaniescontrolledbyoneindividual.

Included in the cost of purchases paid to GCS was “royalty”payment which the taxpayer claimed was actually expenses for advertisement, sales promotions and technical support. These expenseswereincurredbyGCSandwerelaterrecoveredfromthetaxpayer through debit notes.

The DGIR disallowed the “royalties” expenses and issued Notices of Assessment for the respective YAs.

Issues

(1) Whether the sums incurred and recorded under purchases as cost of sales for YAs 1992 to 1994 and YAs 1996 to 1999 are wholly and exclusively incurred in the production of gross income under Section 33 of the Act.

(2) Whether the DGIR could raise assessments for YA 1992 – 1994 which were outside the six year limit under Section 91(1) of the Act.

(3) Whether the penalties under Section 113 of the Act were correctly imposed for this case.

Arguments

Taxpayer

The taxpayer contended that the expenses were incurred wholly and exclusively in the production of gross income and thus deductible under Section 33(1) of the Act. The term “royalty” used to describe the expenses was merely labels given in the accounting records and irrelevant. The important point was the substance and purposes of the payment, which determined the nature of payment.

DGIR

The DGIR contended that sums incurred under purchases referred to payment termed as “royalty” as defined under Section 2 of the Act and that the taxpayer failed to furnish any evidence to support that the payment termed as “royalty” was made for advertising, marketingandfortechnicalsupport.

Decision

The Special Commissioners dismissed the taxpayer’s appeal onthe following grounds:

(1) The taxpayer failed to provide evidence that the payments

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wereindeedmadeforadvertising,marketingandtechnicalsupport as claimed. Therefore, it could not be said that the expenses were properly incurred for purposes of deduction under Section 33(1) of the Act. Invoices and debit notes issuedbyGSCwerenotconclusiveevidence.

(2) The taxpayer claimed that all documents which could have been produced in support of the “royalty” expenditure were destroyed by fire when the factory was burned down on 17 September 1996 but yet failed to produce documents on “royalty”expenditureitactuallyincurredfor1998.Assuch,the taxpayer failed to discharge the onus of proving that the assessments were excessive and erroneous.

(3) The DGIR was allowed under Section 91(3) of the Act to raise an assessment beyond six years after expiration of the YA where there was fraud, wilful default or negligence. The DGIR had established a prima facie case of wilful default showing that the taxpayer:

(a) deliberately or intentionally failed to do what ought to have been done as a taxpayer;

(b) failedtomaketrueandcorrecttaxreturns;

(c) failed to carry out its duty under the Act; and

(d) failed to comply with the DGIR’s repeated request to furnish details and information relating to payments termed as “royalties”.

(4) The taxpayer failed to maintain the information in its tax return and therefore the DGIR was right in imposing penalties under Section 113 of the Act.

6.0 OS(M)SB V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,005

Facts

The taxpayer, a Malaysian incorporated company was involved in the manufacturing of opto electronics. The taxpayer was granted pioneer status on 15 June 1998. The approved tax relief periodwas for five years commencing 1 August 1996. The pioneer status given was for manufacture of x-ray scanners/systems and pulse oximeters (“the promoted products”).

There were other products manufactured by the taxpayer, i.e. optical mice, optical sensors and musical interface devices.

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These were non-promoted products. The taxpayer had claimed Reinvestment Allowance (“RA”) of 60% on the capital expenditure incurredon the non-promotedproducts for the YAs 1998, 1999and2000(currentyearbasis)(“CYB”).TheseRAclaimswereinitiallyapproved by the DGIR, but later disallowed in the year 2004.

Issues

Whether a pioneer company is excluded from claiming RA and whether incentives are mutually exclusive.

Arguments

Taxpayer

The taxpayer contended that the pioneer status was granted for promoted products and did not preclude the claim of RA in relation to non-promoted products. The pioneer status incentive was conferred exclusively to the products of the company, rather than the status of the company. Pursuant to paragraph 7(a) ofSchedule 7A of the Act, a company is not allowed to claim RA and pioneer status simultaneously only if the claim is on the same promoted product.

DGIR

The DGIR contended that the taxpayer was not entitled to claim RA as it had been granted pioneer status. Also, under paragraph 7(a) (ii) of Schedule 7A of the Act, the exclusion of claiming RA was basedonthestatusoftheCompany(asapioneercompany),notthe status of its products (whether promoted or non-promoted).

Decision

The appeal dismissed.

The exemption and exclusion of the exemption was in reference to the pioneer status of the company rather than to the promoted activities or promoted products. As such, once a company was granted pioneer status, the said company was excluded from claimingRAunderSchedule7AoftheAct.Paragraph7ofSchedule7AoftheActrestrictedacompanyfromenjoyingbothincentivesat the same time.

7.0 RPB V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,006

Facts

The taxpayer carried on the business of operating a golf club and establishing, maintaining and providing golf course and recreational activities. The taxpayer's income comprised of golf

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membership fees and other club operations income. The taxpayer incurred capital expenditure in respect of golf course turfing and grassamounting toRM18,094,547 inYA1995.The typeofgrassused was not synthetic grass neither was it artificial. The grass was fixed to the ground. Revised tax computations were submitted to claim capital allowances in relation to the qualifying plant expenditure incurred for the golf course turfing and grass.

The DGIR disallowed the capital allowances claimed on the basis that the expenditure did not constitute qualifying plant expenditure under Schedule 3 of the Act.

Issues

Whether the capital expenditure incurred for golf course turfing and grass qualified for capital allowances under Schedule 3 of the Act.

Arguments

Taxpayer

The taxpayer contended that the capital expenditure incurred for golf course turfing and grass was qualifying plant expenditure for capital allowances under Schedule 3 of the Act.

DGIR

The DGIR contended that the golf course turfing and grass could not be said to be a tool or a mean for the taxpayer to carry out its business. Instead, the golf course was a setting or premises in which the business of the taxpayer was carried out.

Decision


(1) The question was whether the golf course was the premise in which the business was carried on or an apparatus or tool forthetaxpayertocarryoutitsbusinessactivities.Onlyifit was the latter would the golf course qualify as “plant”.

(2) The golf course in which the turfing and grass were planted were the premises within which the business was carried out. It did not constitute “plant” for the purposes of claiming capital allowances.

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8.0 YEHHSB V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,007

Facts

The taxpayer was principally engaged in investment holding, property investment and acting as shipping agent. Its income was mainly from the shipping activity which included agency fees, cargo operation charges, monitoring fees and ship husbandary fees.

Terminal handling charges

Terminal handling charges were collected on behalf of itsmajorcustomers and these collections were not recognised as part of the taxpayer’sincome.However,thetaxpayerreceivedcommissioninrelation to the collection of these terminal handling charges.

Director’s fees and allowance

The taxpayer paid director’s fees and allowance to a director who was the wife of the founder and had been involved in the taxpayer’s businesses for decades.

Interest on fixed deposits placed by the directors

Interest free loans with no terms of repayment were given to its directors. In turn, the directors placed the monies in fixed deposit accounts with each deposit of not more than RM100,000 so that the interest earned was not taxable. Whenever the taxpayer was in need of funds, the deposits would be withdrawn by the directors.

As the fixed deposits were made by the directors themselves, the taxpayer did not include interest accrued from these deposits in its tax returns for the relevant years of assessment.

Issues

(1) Whether the terminal handling charges collected by the taxpayeronbehalfofitsmajorcustomerscouldberegardedas trading receipts.

(2) Whether the director’s fees and allowance paid to one of the directors were expenses wholly and exclusively incurred in the production of income under section 33(1) of the Act.

(3) WhethertheDGIRwasentitledtoinvokesection140oftheAct to treat the interest on fixed deposits placed by the directors as income of the taxpayer.

(4) Whether the DGIR is correct in law to impose penalties under section 113(2) of the Act.

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Arguments

Taxpayer


(1) The DGIR has misconceived in law and fact to decide that the terminal handling charges collected on behalf were taxpayer’s trading receipts.

(2) The DGIR had no power to restrict the payment made to the directors of the company.

(3) ThatDGIRwasnotentitledtoinvokesection140oftheActto treat the interest from the fixed deposit under the name of the directors as the income of the taxpayer.

(4) Penalty under section 113(2) of the Act should not beimposed.

DGIR


(1) The assessment raised was correct.

(2) The payment made to the directors were not wholly and exclusively incurred in the production of income within the meaning of section 33(1) of the Act.

(3) The decision to use the provisions of section 140 of the Act was correct and enforceable.

(4) Thatthepenaltywascorrectlyandjustlyimposed.

Decision

The appeal allowed on issues 2 and 4 and dismissed on issues 1 and 3:

Issue 1: The taxpayer’s accounting treatment of the terminal handling charges was not conclusive. As the taxpayer did get a commission out of terminal handling charges collected and the terminal handling charges had been classified as debt to the principal, this amount should be assessed as an income of the taxpayer.

Issue 2: As the director had been involved in the business of the taxpayer for decades and her presence generated goodwill for the taxpayer, the director fees and allowance were wholly and exclusively incurred in the production of income and should be allowed for deduction under Section 33(1) of the Act.

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Issue 3: As a scheme was deliberately carried out by the taxpayer with the intention to alter the tax position ofthetaxpayer,theDGIRwasrightinlawtoinvokethe provisions of section 140 of the Act to disregard the placement of the fixed deposits under the directors’ names.

Issue 4: Since the taxpayer had no legal interest in the fixed deposits, the taxpayer could not be held to have filed incorrect tax returns for those years. Therefore, the penalty under section 113(2) of the Act should not be imposed.

9.0 KVSB V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,008

Facts

The taxpayer was engaged in property development and was a wholly-ownedsubsidiaryofTTDBerhad(TTD)since7January1999.TTD acquired lands at a price of RM6,492,537 and subsequently sold the lands to the taxpayer on 25 January 1999 for RM20,000,000. According to the terms of the sale and purchase agreement, the purchase price could be paid upon the execution of the agreement or within such time as might be mutually agreed by the parties. In the taxpayer’s account, the amount due to TTD was reflected as being unsecured, interest-free and having no fixed terms of repayment in YAs 2002 to 2004.

The DGIR took the position that the disposal of property byTTDwassubject toapplicationofSection14of the IncomeTax(Amendment) Act 1999 (ITAA 1999) which provided that “the disposalofstockintradebetweencompaniesinthesamegroupshall be treated at cost unless it can be proven to the satisfaction of DGIR that the disposal was made in the ordinary course of its trade”. The DGIR raised Notice of Additional Assessment upon the taxpayer for YAs 2002 to 2004.

Issues

(1) Whether Section 14 of the ITAA 1999 applied to the taxpayer pursuant to its acquisition of the property from TTD in YA 2000(PYB).

(2) Whether penalties under Section 113(2) of the Act was correctly imposed.

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Arguments

Taxpayer

The taxpayer contended that Section 14 of the ITAA 1999 only appliedto“disposals”andbyextension,tothedisposer,itsstock-in-trade and its cost thereof. It argued that the provision was not intended to apply to acquirer.

DGIR

The DGIR maintained that Section 14 of the ITAA 1999 applied to both disposer as well as acquirer, as the intention behind the provision was to counter the possibility of tax advantages during the tax waiver year. It was submitted that the transaction was merelyaschemetoalter thetaxpositionandtakeadvantageofthewaiverinYA2000(PYB),whichwasthemischiefthatParliamentintended to counter by introducing Section 14 of the ITAA 1999.

Decision


(1) The word “disposal” in the Section 14 of the ITAA 1999 meant “an act of disposing”, thus referring to both disposer and acquirer in the transaction. Further, “between companies in the same group” and “between companies” clearly made reference to both the disposing company and the acquiring company.

(2) Section 14 of the ITAA 1999 was clear and unambiguous. Therefore, the principle of strict interpretation was to be applied.

(3) From the transaction, the taxpayer’s profit would be lower when theassetwasdisposedof later, and subject to lesstax whereas the disposer’s income from the transaction would be exempted from the transaction as the property was disposed of during the tax waiver year. The purpose of Section 14 of the ITAA 1999 was to prevent companies from takingadvantagesofthewaiveryearbydisposingassetstorelated companies.

(4) The taxpayer failed to prove that the disposal was made in the ordinary course of its trade.

(5) The penalties imposed under Section 113(2) of the Act were justifiedinthiscase.

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10.0 PSSSB V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,009

Facts

The taxpayer was a trading company dealing in electronic products and electrical home appliances.

Capital allowances (“CA”) brought forward

The taxpayer claimedCAon “light industrial factory”, “industrialbuilding” and “public beautification” for YA 1997 to 2000 (PYB).TheCAwasinitiallyallowedbyDGIRandtheCAbroughtforwardtoandutilizedinYA2000(CYB)hadbeenconfirmedbytheDGIRviaformBMR64dated2March2001basedonthetaxpayer’staxcomputations.

As a result of a tax audit conducted by the DGIR in 2006, the DGIR disallowedtheCAclaimedontheaboveitemsforYA1997toYA2000(PYB),thusreducingtheCAcarriedforwardtoYA2000(PYB)tonil.PenaltieswerealsoimposedunderSection113(2)oftheActfor incorrect returns.

Expenses incurred on tour promotion, sales promotion, sponsorship and travelling

The taxpayer did not have retail outlets and the only sales channel for its products was via the dealers. As these dealers also acted as dealers of the taxpayer’s competitors, promotion of products and reward to dealers were key components of operating andmanaging the taxpayer’s business.

The taxpayer claimed deductions relating to tour promotions, sales promotions, sponsorship and travelling for YA 2001 to 2004. These deductions were disallowed by the DGIR under Section 39(1) of the Act. In addition, penalty was imposed under Section 113(2) of the Act.

Issues

1) Whether the DGIR was correct in disallowing the utilization of CA carried forward in the YA 2000 (CYB) and whetherpenalties imposed under section 113(2) of the Act was in order.

2) Whether the expenses incurred on tour promotion, sales promotions, sponsorship and travelling for dealers were deductible and whether the penalty under Section 113(2) of the Act could be imposed.

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Arguments

Taxpayer


1) The DGIR was time-barred from disallowing the capital allowancesthatrelatedtoYA1997toYA2000(PYB).

2) The tour promotion, sponsorship, sales promotion and travelling expenses were deductible under section 33(1) of the Act as they were incurred in the production of income for getting, maintaining and increasing sales.

DGIR

1) The taxpayer was not entitled to claim the capital allowances for items such as public beautification, industrial building andlightindustrialfactoryfortheYAs1997to2000(PYB).HenceitwascorrecttodisallowtheutilizationoftheCAinYA2000(CYB).

2) The tour promotion, sponsorships, sales promotion and travelling expenses were disallowed under section 39(1) of the Act.

Decision

Appeal allowed on issues 1 and dismissed on issue 2.

Issue 1

The DGIR was time-barred from re-computing the assessments for YA 1997 to 2000 (PYB) under Section 91(1) of the Act. TheDGIRwould only be allowed to do so if it could invoke Section91(3) of the Act, evidencing that there was fraud, willful default or negligence.However, theDGIRfailedtoprovideanyevidenceonthat. As such, the penalty would not be relevant in this case as well.

Issue 2

Tour promotions and sales promotions expenses were not allowable as deductions under Section 39(1) of the Act. The taxpayer had also failed to prove that the expenditure for sponsorships were actually incurred and the travelling expenses were incurred for business trips wholly and exclusively for the production of income.

Therefore, the DGIR is right in disallowing the said expenses on the tour and is also right in imposing penalty under section 113(2) of the Act.

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11.0 MAAB V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,010

Facts

A notice of additional assessment for YA 2003 amounting to RM213,256.50, was raised pursuant to the following matters in relation to the taxpayer's general insurance business:

(i) The disallowance of advertising costs relating to the publishing of financial statements for the financial year ended 31 December 2003.

(ii) The disallowance of costs of providing food and refreshments, accommodation and transportation in connection with the training of the appellant’s sales agents.

(iii) The disallowance of costs relating to a dinner and award event for the appellant’s top performing sales agents.

(iv) The imposition of a 45% penalty under Section 113(2) of the Act on the disallowed amounts.

Issues

Is the DGIR correct in disallowing the costs listed in (i), (ii) and (iii) above and in imposing a penalty under Section 113(2) of the Act at the rate of 45%.

Arguments

Taxpayer


(i) The costs were deductible under Section 33(1) of the Act as they were wholly and exclusively incurred in the production of gross income;

(ii) The costs were not entertainment within the meaning of Section 39(1)(l) of the Act;

(iii) Alternatively, the advertisement cost, the training cost and dinner and award cost were deductible as management cost under the general insurance business as provided in Section 60(5)(b)(iv) of the Act; and

(iv) Penalty should not be imposed as the costs had beenwrongly disallowed; regardless the outcome of the appeal, as there were serious and cogent arguments in favour of the taxpayer’s position and it had acted in good faith, a penalty under Section 113(2) should not be imposed.

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DGIR


(i) The advertisement cost related to the publication of the financial statements and it was not incurred in the production of income but after the production of income;

(ii) Training cost and dinner and award cost were disallowed under Section 39(1)(l) of the Act as these fell under entertainment; and

(iii) The penalty was correctly imposed as the return was incorrect in relation to tax liability.

Decision

The appeal on issue (i), (ii) and (iii) were dismissed and allowed on issue(iv).TheSpecialCommissionersheldthat:

(i) BasedonthedictuminthecaseofSyarikatK.M.BhdvTheDirectorGeneralofInlandRevenue[(1972)1MLJ224],theadvertisement cost was not incurred wholly and exclusively in the production of income or it was incurred after the closure of the accounting period;

(ii) The training cost and the cost for dinner and award were not allowed as a deduction as they were entertainment as expresslymentioned in Section 39(1)(l) andSection 18ofthe Act; and

(iii) Nopenaltyshouldbeimposedasthetaxpayerdidnotmakean incorrect return by omitting or understating any income or gave any incorrect information. Expenses that have been declared in the accounts and subsequently disallowed should not be viewed as a failure to comply with Section 113(2) of the Act.

12.0 LLWH V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,011

Facts

The appellants, LL andWH, were shareholders of CHSB. On 20June 1996, each held one subscriber’s share. CHSB became areal property company on 2 August 1996 after the company had acquired land. On 3 October 1997, each appellant was issuedanother 124,999 shares. On 13March 1998 the appellants soldall their shares. The appellants were assessed to real property gains tax on the one share using the formula in paragraph 34A Schedule2,RealPropertyGainsTaxAct(RPGTA)applicablebefore

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17October1997andontheremaining124,999sharesusingtheformulaapplicablefrom17October1997.

Issues

(i) Is the acquisition price of the 124,999 shares acquired on 3 October 1997 to be determined by using the formulain paragraph 34A(3)(a) before amendments or paragraph 34A(3)(b) Schedule 2 RPGTA after the amendments bytakingintoaccounttheconsiderationpaidfortheshares?

(ii) Is the disposal price of the 124,999 shares on 13 March 1998 tobedeterminedbyusing the formula inparagraph34A(3)(a)Schedule2RPGTAortheamountorvalueoftheconsideration in money or money’s worth under paragraph 34A(4)Schedule2RPGTA?

(iii) IstheRPGTassessedretrospectivelycorrectinlaw?

(iv) Is the RPGT assessed retrospectively in violation of theappellant’s constitutional right under Article 7(1) of the FederalConstitution?

(v) IstheretrospectiveassessmenttoRPGTexcessivelytaxingandviolatingtherightsofacitizen?

Arguments

Taxpayer


(i) The subscriber share and the 124,999 shares were acquired priortotheamendmenttotheRPGTAon17October1997;

(ii) The respondent had applied the old formula for the one subscriber share and the new formula for the 124,999 shares which were acquired before the effective date of the amendment;

(iii) The law to be applied was at the time of the acquisition of the shares and not the law applicable at a later date;

(iv) There was no provision for the amendment to have retrospective effect; and

(v) It was neither logical nor reasonable to tax excessively by applying an amendment to the law to an acquisition made before the amendment became effective.

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DGIR


(i) Thedateofacquisitionofthe124,999shareswas3October1997 the date they were acquired as provided under paragraph34A(2)(b)Schedule2RPGTAandtheacquisitionprice was the price paid for the shares as determined under paragraph 34A(3)(b)(after amendment) and paragraph 4 Schedule 2 of the RPGTA. There was no retrospectiveapplication of the law;

(ii) The disposal price of RM1.00 for the 124,999 shares was providedinparagraph34A(4)Schedule2oftheRPGTA.Theassessments were therefore correct as provided by law;

(iii) TheRPGTwasbasedonthecorrectformulaandparagraph4ASchedule2oftheRPGTAwasnotusedretrospectively.

(iv) TheviolationofArticle7FederalConstitutiondidnotariseas there was no issue of retrospective application.

Decision

TheSpecialCommissionersdecidedthat:

(i) The acquisition price was to be determined in accordance with the formula in paragraph 34A(3), Schedule 2 of the RPGTAbeforetheamendment;

(ii) The disposal price as determined by the respondent was correct where the consideration for the disposal was in money or money’s worth;

(iii) With the above decisions, the remaining three issues did not arise.

13.0 MBMSB V KETUA PENGARAH HASIL DALAM NEGERI (2010) MSTC 10,012

Facts

Thetaxpayeristhefranchiseholderandwholesalerof[Z]vehiclesin Malaysia. It is engaged in the assembly and distribution of new motor vehicles and the sale of used motor vehicles. The new motor vehiclesformedpartofitsstockintrade.Theappealwasagainstan additional assessment raised for YA 2003 arising from the following:

(i) The disallowance of sponsorship payments to the organiser of an international fashion event in return for the benefit of prominent display of its brand name in the media (magazines, newspapers, billboards, television and radio).

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(ii) The taxpayer’s company cars registered from new motor vehicles were included as the taxpayer’s gross income. The cars were used by its employees on a short term basis and for test drives and were available for sale to any customer.

(iii) The disallowance of written down value of used cars.

(iv) The disallowance of “target margins” paid to dealers for achieving a quantitative target and “standard margins” for achieving a qualitative target.

(v) Thedisallowanceof“holdbackmargins”paidtoCCBBerhadbeing additional margin in recognition of its long term relationship.

(vi) The disallowance of expenses on advertising, incentive trips for dealers, event launches where taxpayer’s brand name and products were prominently displayed.

(vii) Penaltiesimposedundersection113(2)oftheAct.

Issues

(i) Were the payments for sponsorship of the fashion event revenue expenses wholly and exclusively incurred in the productionofgrossincome?

(ii) Werethecarsregisteredfromthetaxpayer’sstockintrade,used by the taxpayer on a short term basis and sold as second-handcarspartof the taxpayer’s stock in tradeoritsfixedassets?

(iii) Was thewritten down value of the used cars as stock-in-tradedeductibleunderSection35oftheAct?

(iv) Were the target and standard margins paid to dealers revenue expenses wholly and exclusively incurred in the productionofgrossincome?

(v) Were the holdback margins paid to CCB Berhad revenueexpenses wholly and exclusively incurred in the production ofgrossincome?

(vi) Were the expenses incurred by the taxpayer on advertising, incentive trips for dealers and event launches revenue expenses wholly and exclusively incurred in the production ofgrossincome?

(vii) Was the imposition of penalties under Section 113(2) of the Actrightandproper?

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Arguments

Taxpayer


(i) The payments for sponsorship was advertising expenditure to promote the sales of its vehicles and was deductible under Section 33(1) of the Act;

(ii) The registered cars which were subsequently sold in the secondarymarket were the taxpayer’s stock in trade andthis was reflected in its audited accounts;

(iii) As the registered cars were its stock in trade the writtendown value of these cars should be deductible;

(iv) The “target and standard margins” and the “holdbackmargins” were deductible under Section 33(1) as the taxpayer had the legal obligation to pay when the dealers achievedtheirsalesandstandardtargetandwhenCCBhadbegun construction of its concept reception, showroom, workshopandotherfacilities;

(v) The expenses claimed on advertising, incentive trips for dealers and event launches were business promotion expenditure and were deductible under Section 33(1) of the Act; and

(vi) There was no legal or factual basis to impose penalty as the taxpayer had acted in good faith, made full disclosure and obtained professional advice.

DGIR


(i) The expenses claimed were not wholly and exclusively incurred in the production of gross income of the taxpayer; and

(ii) It was right and proper to impose a penalty under Section 113(2) of the Act.

Decision

TheSpecialCommissionersdismissedtheappealonallissuesanddecided that:

(i) The sponsorship expenses were not advertisement expenses, they were not revenue expenses wholly and exclusively incurred in the production of gross income;

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(ii) The cars registered in the taxpayer’s name were the taxpayer’sfixedassetsandnolongeritstradingstocksandSection 24(2) of the Act applied;

(iii) The written down value of the used cars in (ii) above should not be allowed for deduction under Section 35 of the Act;

(iv) The “target and standard margins” and the “holdbackmargins” were not deductible as expenses wholly and exclusively incurred in the production of gross income; and

(v) The expenses claimed either fell as entertainment or were paid to non-employees and these expenses were not deductible under Section 33(1) or Section 39(1) of the Act.

(vi) The penalty imposed was confirmed.

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B Malaysian Courts' Decisions

1.0 GOVERNMENT OF MALAYSIA V IMAS AK BLANDA [(2010) MSTC 30-000] (HIGH COURT)

Facts

This was an application by the defendant for the consolidation of two suits filed in different courts. In this suit (first suit) the Government of Malaysia claimed tax due and recoverable from thedefendantofRM656,503.78.Thedefendantfiledanothersuitagainst a third party for indemnity in respect of the Government’s claim pursuant to a Deed of Dissolution between the defendant and the third party who undertook to pay income tax assessedon thedefendant. TheGovernmenthadnoobjectionbut itwasopposed by the third party.

Issue

Canthetwosuitsinvolvingdifferentissuesbeconsolidated?

Arguments

Defendant

The defendant contended that the two suits were inter-related as the decision of one would have a direct effect on the other.

Third party

Thethirdpartyarguedthataparticularjudgehadnojurisdictiontomakeanordertorecuseanotherjudgeofco-ordinatejurisdictionbefore whom a matter had been filed.

Decision

The application for consolidation of the two cases was allowed. TheHighCourtheldthat:

(i) The defendant’s argument that the two cases were inter-related was unassailable;

(ii) Theargumentbythethirdpartythataparticularjudgehadnojurisdictiontomakeanorderintendedtorecuseanotherjudgeofco-ordinatejurisdictionbeforewhomamatterhadbeen filed and registered was irrelevant as it had nothing to dowithrecusalofajudge;and

(iii) The fact that the two suits involved different issues was not fatal to the application.

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2.0 KERAJAAN MALAYSIA V ENG SIM LEONG@NG LEONG SING [(2010) MSTC 30-001] (HIGH COURT)

Facts

The defendant entered into a sale and purchase agreement to sell his property for RM53 million in 1995. A deposit of RM2.65 million was paid by the purchaser. The defendant was assessed to realpropertygains tax (RPGT)on thesaleofproperty.A sumof RM1.5 million was paid in June and July 2002 as part payment. Subsequently, the defendant sent a letter of appeal dated 15 October 2002 for re-assessment to claim certain expenses. Thedefendant claimed that the transaction was revoked on 5 May1998.However,thedepositwasnotrefundedasthetitleswerenotreturned by the purchaser. The defendant claimed he had received a letter dated 11 December 2002 approving his appeal and no further RPGT was payable by him. However, the original versionof the letter was not produced. The defendant claimed that the original letter was given to his lawyer at that time. With this letter, theplaintiffwasestoppedfromclaimingtheRPGTpayable.

Issues

Is the plaintiff estopped from claiming the balance of RPGTpayable?

Arguments

Plaintiff

The plaintiff contended that:

(i) The original letter dated 11 December 2002 was not produced; and

(ii) The letter was a false or forged letter not emanating from theInlandRevenueBoard(IRB).

Defendant

TheplaintiffwasnotentitledtotheRPGTasbytheletterdated11December 2002, his appeal was allowed and it was confirmed that no tax was outstanding.

Decision

TheHighCourtgrantedjudgementtotheplaintiffwithinterestof8%perannum.TheHighCourtheldthat:

(i) The defendant had failed to satisfactorily account for the non-production of the original letter dated 11 December 2002. The copy of the letter was inadmissible as evidence;

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(ii) The letter dated 11 December 2002 was false;

(iii) Any person aggrieved by an assessment should not be allowed to circumvent the jurisdiction of the SpecialCommissioners of IncomeTax (SCIT) by going to the civilcourt; and

(iv) No estoppel may operate against the Government in revenue matters.

3.0 KETUA PENGARAH HASIL DALAM NEGERI V CHELLAM INVESTMENT SDN BHD [(2010) MSTC 30-002] (HIGH COURT)

Facts

The respondent was involved in oil palm cultivation, property letting and investment. The respondent sold part of its estate to a developer. The respondent agreed to secure houses for its displaced workers. The respondent requested for 50 houses tobe reserved for these workers. Only 30 houses were taken upby the workers. The remaining 20 houses were taken up by therespondent. The respondent sold 19 of the 20 units to various purchasers. The remaining one unit was for its own occupation. A requisitionforRPGTwasissuedon27October2000.Subsequently,the appellant retracted its initial position and assessed the gains to income tax under section 4(a) of the Income Tax Act 1967 (ITA). OnappealtotheSpecialCommissionersofIncomeTaxitwasheldthat the gainswere capital gains subject to RPGT. The IRB thenappealedtotheHighCourt.

Issue

Are the gains from the disposal of 19 out of 20 units of residential houses chargeable under Section 4(a) of the ITA or subject toRPGT?

Arguments

Appellant

The appellant contended that the gains from the sale of the residential houses were subject to income tax as Section 4(a)income under the ITA.

Respondent

The respondent contended that the gains were from capital realisationwhichshouldbesubjecttoRPGT.

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Decision

TheHighCourtdismissedtheappealbytheappellant.TheHighCourtheldthat:

(i) TheSpecialCommissionersfindingthattheintentionoftherespondent at the time the residential units were purchased was to provide housing to its displaced employees was not to be disturbed;

(ii) The purchase and disposal of the property was not done in the course of the respondent’s business; and

(iii) The decision of the Special Commissioners that the gainwassubjecttoRPGTwasaffirmed.

4.0 KETUA PENGARAH HASIL DALAM NEGERI V LABUAN FERRY CORPORATION SDN BHD [(2010) MSTC 30-003] (HIGH COURT)

Facts

The respondent rented 3 vessels from the state of Sabah and used them for the carrying of vehicles / passengers between the jettiesatLabuanandMenumbukinSabah.The3vesselswerenotregistered under the Merchant Shipping Ordinance 1952 (MSO)during the relevant years of assessment 1996 to 2001. In the relevant years, the respondent obtained shipping profits from its operations. The respondent claimed exemption on the shipping profits under Section 54A of the ITA as the vessels were Malaysian shipsownedbyastategovernment.TheSpecialCommissionersof Income Tax decided that the ships were not required to be registeredundertheMSOastheshipswereownedbytheSabahState Government. They held that the vessels were “Malaysian ships”asdefinedinSection54AoftheITA.TheIRBappealedtotheHighCourt.

Issue

Does the respondent qualify for exemption under Section 54A of theITA?

Arguments

Appellant

The appellant contended that the vessels did not qualify as MalaysianshipsastheywerenotregisteredundertheMSO.

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Respondent

The respondent contended that the vessels were Malaysian ships under Section 54A. It was not necessary for these vessels to be registered under theMSO as they belonged to the Sabah StateGovernment.

Decision

The High Court allowed the appeal by the appellant. The HighCourtheldthat:

(i) The exemption under Section 54A of the ITA could only be given to Malaysian operators of Malaysian ships. “Malaysian ships”werevesselsregisteredundertheMSO;

(ii) The Special Commissioners finding that the vesselswere not subject to the requirements of the MSO was amisconception of the law; and

(iii) The 3 vessels were not registered during the relevant period under theMSO.Before registration, thevessels couldnotbe considered as “Malaysian ships” for the purpose of tax exemption.

5.0 PEMUNGUT DUTI SETEM V BASF SERVICES (MALAYSIA) SDN BHD [(2010) MSTC 30-004] (COURT OF APPEAL)

Facts

The Respondent (“BASF”) purchased property (“the property”)in Pahang from Perbadanan Kemajuan Negeri Pahang (“PKNP”)pursuant to a Purchase, Sale, Development and InfrastructureAgreement(“theagreement”)dated11October1997.

There were three components to the agreement - the purchase price (RM84,593,372), the development fee (RM24,794,609) andthe infrastructure fee (RM61,257,269) amounting to a total of RM170,645,250.

In the transfer form forwarded to theCollector of StampDuties(“theCollector”) for adjudicationof stampduty, theRespondentstated only the purchase price, and omitted the development fee and the infrastructure fee as part of the consideration. The Collectorassessedthestampdutyontheaggregatedcontractualsum of the three components.

TheHighCourtheldthatonlythepurchasepriceanddevelopmentfee shouldbe taken into theassessmentof stampdutyand theCollector’sassessmentwassetaside.

TheCollectorthenappealedtotheCourtofAppeal.

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Issues

Whether the infrastructure fee is part and parcel of the consideration in the transfer instrument and as such attracts stamp duty.

Arguments

Appellant

TheHighCourthaderredinlawandinfactinholdingthatstampduty cannot be imposed on the infrastructure fee as stamp duty is imposed on the instrument and not the transaction.

Respondent

The Respondent argued that the consideration for the transfer of property does not include the infrastructure fee which is independent of the other two components, and cannot form part of the said consideration, relying inter alia, on PrudentialAssuranceCo.vInlandRevenueCommissioners[(1993)1WLR211HC].

Decision

The Collector’s appeal was allowed and the assessment wasaffirmed on the following basis:

1) Conveyance of a property is an instrument chargeable tostamp duty under item 32(a) of the First Schedule of the Stamp Act 1949.

2) Where an instrument is chargeable with stamp duty under item 32(a) of the First Schedule, the date for determining the market value of any property being transferred shallbe, in the case of a transfer implementing a sale under a duly stamped agreement of sale and purchase, the date of executionofthatagreement[Section12A(b)].

3) Stamp duty under the Stamp Act 1949, is imposed on an instrument and not on a transaction.

4) The parties’ description of the instrument is immaterial, as the real and true meaning thereof has to be ascertained.

5) The instrument should be stamped for its leading and principal object, and the stamp duty covers everythingaccessorytothisobject.

6) Thedepositwaspaidasasum“towardsthePurchasePrice,the Development Fee and the Infrastructure Fee”. The deposit is the initial consideration for three components. It is the payment for the three components collectively, and not for one component only.

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6.0 BASF SERVICES (M) SDN BHD V PEMUNGUT DUTI SETEM [(2010) MSTC 30-005] (FEDERAL COURT)

Facts

The appellant, BASF Services (Malaysia) Sdn Bhd (“BASF”)purchased property (“the property”) in Pahang from PerbadananKemajuanNegeri Pahang (“PKNP”) pursuant to a Purchase, Sale,Development and Infrastructure Agreement (“the agreement”) dated11October1997.

There were three components to the agreement - the purchase price (RM84,593,372), the development fee (RM24,794,609) andthe infrastructure fee (RM61,257,269) amounting to a total of RM170,645,250.

In the transfer form forwarded to theCollector of StampDuties(“the Collector”) for adjudication of stamp duty, the appellantstated only the purchase price, and omitted the development fee and the infrastructure fee as part of the consideration. The Collectorassessedthestampdutyontheaggregatedcontractualsum of the three components.

TheHighCourtheldthatonlythepurchasepriceanddevelopmentfee should be taken in the assessment of stamp duty and theCollector’sassessmentwassetaside.

The Collector then appealed to the Court of Appeal and wassuccessful in that the whole sum of RM170,645,250 was held to be assessable.BASFthenappealedtotheFederalCourt.

Issues

• Whethertheagreementorthetransferformistheinstrumentforthetransferofpropertyandadjudicatedinaccordancewith law;

• Whethertheinfrastructurefeesarepartoftheconsiderationof the agreement and hence liable under Item 32(a) of the First Schedule to the Stamp Act 1949 (“Stamp Act”).

Arguments

Appellant

1) The appellant argued that the transfer form is the relevant instrument chargeable to stamp duty over the agreement. The basis of referring to the transfer form over the agreement is on the premise of the words “conveyance...transfer...on sale of any property” in item 32(a) of the First Schedule to the Stamp Act.

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2) The appellant argued that the infrastructure worksundertaken by PKNP were outside the scope of the term“property” and hence, the fee cannot be part of the consideration for the purchase of the property.

Respondent

1) The respondent argued that the relevant instrument that needstobeadjudicatedistheagreement.

2) The respondent argued that the infrastructure fees are part of the consideration of the agreement and hence liable under Item 32(a) of the First Schedule to the Stamp Act. What the parties call a document was not important. It is the effect and substance of the agreement that counts.

Decision

Theappealwasdismissed.TheFederalCourtheldthat:

1) Both parties agreed that stamp duty is chargeable on aninstrument and not on a transaction. Further, both parties agreed that item 32(a) of the First Schedule to the Stamp Act is applicable, and the instrument attracts ad valorem duty based on the “amount of the money value of the considerationorthemarketvalueoftheproperty,whicheveris the greater”.

2) It agreed with the appellant that the transfer form is the instrument that should attract stamp duty. This is so as theagreementof11October1997doesnothavethelegaleffect of transferring the property to the appellant. In order for the transfer of property to be effective, there is another steptobeundertakeni.e.thefilingofthetransferform,andunless duly stamped the transfer of property falls one step short.

3) The first clause of the agreement stipulates that the depositbeingpaidasasum“towards thePurchasePrice,the Development Fee and the Infrastructure Fee”. In other words, it is a package deal. The initial consideration iscollective in nature and not for one component.

4) The Court of Appeal was correct in stating that thepayments are to be read as a whole and not as separate and distinct payments.

5) The appellant argued that the infrastructure worksundertakenbyPKNPwereoutsidethescopeandhence,thefee cannot be part of the consideration for the purchase of

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theproperty.However,theCourtviewedthatanyreasonableperson could see that with the infrastructure in place, the land will be transformed into an expensive and developed piece of property in an industrial estate.

6) The infrastructure cost is part of the consideration for the transfer of property even though it is not reflected in the transfer form.

7.0 SYARIKAT KION HOONG COOKING OIL MILLS SDN BHD V KETUA PENGARAH HASIL DALAM NEGERI [(2010) MSTC 30-006] (HIGH COURT)

Facts

Theappellantwas involved in themanufactureandmarketingofcookingoil, coconutoil, refinedoil, soap,margarine, shorteningand vanaspati; the distribution of animal and poultry feed; and rubber milling. The appellant was granted a pioneer certificate under the Promotion of Investments Act 1986 (PIA) in relationto margarine and shortening for a period of five years from 1 May1999 to30April2004.Besides thepromotedproducts, theappellant manufactured other products that were non-promoted products. The appellant made a claim for reinvestment allowance (RA) on capital expenditure incurred on plant and machinery used in the manufacture of the non-promoted products. The respondent disallowed the RA claim on the basis that a pioneer company was excluded from qualifying for RA. The appellant appealed to the Special Commissioners who decided that theexclusion was attached to the status of the company and not the promotedproductsoractivity.ThecompanyappealedtotheHighCourt.

Issues

Is a pioneer company precluded from claiming RA for its non-promotedproduct?

Arguments

Appellant

The appellant contended that:

(i) Capital expenditure had been incurred on plant andmachinery used in the manufacture of non-promoted products;

(ii) The exclusion in paragraph 7(a)(ii) of Schedule 7A of the ITA was in relation to a promoted product / activity; and

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(iii) It is entitled to claim RA under paragraphs 1 and 7(a)(ii) of Schedule 7A of the ITA on capital expenditure incurred for the purpose of a qualifying project relating to themanufacture of non-promoted products.

Respondent

The respondent contended that:

(i) The appellant was not eligible to RA as paragraph 7(a)(ii) of Schedule 7A of the ITA excludes it from claiming the allowance; and

(ii) The exclusion was based on the status of the company i.e. whether it had a pioneer certificate and not on the status of the products it manufactured whether promoted or non-promoted.

Decision

The High Court allowed the appeal by the appellant. The HighCourtheldthat:

(i) The words used in paragraph 7(a)(ii) of Schedule 7A of the ITA must be read as a whole as the words “a company” did not appear in isolation;

(ii) The company to be excluded from enjoyment of RA wasnot merely a company which had been granted a pioneer certificate but a company that had been granted a pioneer certificate “in respect of a promoted activity or promoted product”; and

(iii) Paragraphs 1 and 7(a)(ii) were not meant to be read asexclusive of each other.

8.0 AU HOW CHEONG SDN BHD V KETUA PENGARAH HASIL DALAM NEGERI [(2010) MSTC 30-007] (HIGH COURT)

Facts

The appellant was involved in the business of housing developers and building contractors; investment in land and other properties and sale or lease of land and other properties. The appellant companywasownedbyDato’Auandhiswife.Thesubject landwas applied for by Dato’ Au and approved by the State Authority on 16 September 1998 for the purpose of a proposed housingscheme and commercial building. The land which was already sub-divided was subsequently registered in the name of the appellant. About a year later, the landwas sold to another company. By anotice of assessment dated 23 December 2000, the appellant was

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assessedto incometaxofRM819,277.20 foryearofassessment(YA)2000.On1October2001, theassessment for YA2000wasreducedtonil.Thedisposalof landwasthensubjectedtoRPGTandanoticeofassessment forRM1,010,858.90was issued.Theappellant appealed to the Special Commissioners against theassessment for RPGT. TheSpecialCommissioners confirmed theassessment.ThecompanyappealedtotheHighCourt.

Issue

Istheprofitonthesaleofthesaidlandsubjecttoincometaxorrealpropertygainstax?

Arguments

Appellant


(i) The income from the sale of land was trading income and not capital gain on sale of real property;

(ii) The development and sale of land was consistent with the objectsoftheappellant;

(iii) Thelandwastradingstockoftheappellantandpreparatorydevelopment activities had been carried out before the disposal; and

(iv) The same income could not be taxed twice as the gain from thedisposalofrealpropertywassubjecttoincometaxpriortotheassessmenttoRPGT;

(v) The assessment under RPGT was against the principle of“legitimate expectation” as the income for YA 2000 (basis year 1999) was waived from income tax; and

(vi) TheSpecialCommissionersconclusionthatthesaleoflandwasacapitalgainonthesaleofrealpropertyandsubjecttoRPGTwassounreasonablethatitcouldnotreasonablybe maintained.

Respondent

The respondent contended that the gains or profits received by the appellant arising from the disposal of the land were gains or profits subject to RPGT and not gains or profits chargeable toincome under Section 4(a) of the ITA.

Decision

TheHighCourtdismissedtheappealbytheappellant.TheHigh

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Court held that it could not interfere with the findings of theSpecial Commissioners as therewere sufficient facts to supportthe findings of the Special Commissioners that the profits werecapital gains from the disposal of real property.

9.0 KERAJAAN MALAYSIA V EKRAN BERHAD [(2010) MSTC 30-008] (HIGH COURT)

Facts

In a separate appeal, the defendant had filed an appeal to the Special Commissioners of Income Tax against the assessmentforYA1997.TheSpecialCommissionershadallowed theappealdeclaring that the RM210.6 million was not taxable. The plaintiff then filed an appeal to the High Court. Meanwhile both theplaintiff and the defendant applied for a stay of the proceedings to recover the debt due but the defendant withdrew its application. The application by the plaintiff for a stay in proceedings pending thedisposaloftheappealtotheHighCourtwasallowed.TheHighCourtoverturnedthedecisionoftheSpecialCommissioners.Thedefendant had appealed to theCourt of Appeal. The defendantapplied for a stay in proceedings pending the disposal of the appealbytheCourtofAppeal.

Issue

Are there special circumstances to grant the stay in proceedings fortherecoveryofthedebtdue?

Arguments

Plaintiff

The plaintiff contended that:

(i) The assessment was final and when served on the defendant the amount was due and payable;

(ii) The debt was recoverable in civil proceedings; and

(iii) TheCourt shouldnotentertainanyplea that theamountof tax was excessive, incorrectly assessed, under appeal or incorrectly increased.

Defendant

The defendant contended that:

(i) Toproceedwiththecasewouldcauseinjusticeoroppressionto the defendant as it would be a strain on its cash flow and jeopardiseitsdailyoperations;

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(ii) Paymentof tax irrespectiveofappealwasmerelyapolicyand a factor to be considered but it was not mandatory; and

(iii) Therewouldnotbeanyprejudiceorinjusticecausedtotheplaintiff.

Decision

TheHighCourtallowedtheapplicationforastayinproceedings.TheHighCourtheldthat:

(i) As the plaintiff had been granted its application for a stay in proceedings, it would not be fair if the defendant was denied its application;

(ii) The Special Commissioners had decided in favour of thedefendant, thus it would be unfair and unjust to ask thedefendant to pay a substantial amount of tax; and

(iii) The plaintiff could be compensated by an award of interest shouldthejudgementbeupheld.

10.0 KETUA PENGARAH HASIL DALAM NEGERI V ABDUL JALIL BIN HAJI HASSAN [(2010) MSTC 30-009] (HIGH COURT)

Facts

TherespondentwasanexecutiveemployeewithPetronasNasionalBerhad(Petronas).Atthetimeofhisemployment,theretirementageofallexecutiveemployeeswas60yearsold.Petronasmadeanoffer to its executive employees either to elect to retire at 55 years old or continue working with Petronas until age 60. Those whoelected to retire at 55 years of age would be paid compensation based on a formula. The compensation was payable over 10 equal annual instalments or an annual instalment of equal value until the employee reached the age of 55. If the employee left before receiving the full compensation, Petronas had the right not tocontinue the payment of the balance instalments. The respondent accepted early retirement at the age of 54 and he received the compensation sum of RM907,701.00 in one lump sum. The respondent was assessed to tax on this compensation in YA 2002. The respondent appealed to the Special Commissioners. TheSpecialCommissionersconcludedthatthecompensationwasnotincome from an employment but compensation for amending the ageofretirement.TheappellantappealedtotheHighCourt.

Issue

Does the compensation for reducing the age of retirement from 60 yearsto55yearsconstituteincomefromemployment?

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Arguments

Appellant


(i) The compensation arose from an employment source;

(ii) It is not compensation for loss of employment;

(iii) The sum received was salary for 5 years with a discount for early payment and payable in instalments; and

(iv) The payment was more to release Petronas from beingbound by the terms in the employment contract.

Respondent

The respondent contended that:

(i) The compensation was not income from “having or exercising” an employment;

(ii) The compensation arose from his giving up his right to continuehisemploymentwithPetronasuntilage60;and

(iii) The compensation was a “capital receipt” and not income

Decision

TheHighCourtdismissedtheappealbytheappellant.TheHighCourtheldthat:

(i) The compensationwas to allow Petronas to implement anew policy on retirement age;

(ii) It was not income from an employment;

(iii) The payment was not for services performed or to be performed or a payment of advance salary.

11.0 LAI KENG CHONG & ANOR V KETUA PENGARAH HASIL DALAM NEGERI [(2010) MSTC 30-010] (HIGH COURT)

Facts

The appellants were partners and their principal activity is the business of trading of scrap metals. The appellants had submitted their tax return forms (“first return forms”) for the relevant YA and declaredthegrossprofitratio(“GPR”)asfollows:

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YA GPR

1998 28.33%

1999 26.84%

2000CYB 16.79%

2001 15.82%

TheIRBsubsequentlyconductedafieldauditonthepartnershipand found that, amongst others, the appellants’ records of business transactions were incomplete and the appellants had understated their income for the relevant YAs. The appellants agreed with the audit findings and the additional taxes and penalties imposed.

After the audit, the appellants submitted audited accounts for the year ended 2001 and had claimed it was accurate because it was basedonactualdocuments. However,theIRBfoundthat itwasnot accurate and unreliable.

Subsequently,theIRBrevisedtheircomputation,usinganaverageGPRof 22% for all relevant YAs. The average 22%was obtainedfrom the GPR declared by the appellant in their return forms(above).

The additional assessments now stood at RM4.8 million pluspenalties of 60%.

The appellants disagreed with the GPR used by the IRB andappealed to the Special Commissioners of Income Tax (SCIT),contendingthattheGPRof22%usedbytheIRBwasincorrectandexcessive. The IRB countered that thenotices hadbeen issuedaccordingtothebestjudgmentoftheDirectorGeneralofInlandRevenue (DGIR) pursuant to Section 91(1) of the ITA. The SCITagreedwiththeIRB.

TheappellantthenappealedtotheHighCourt.

Issue

• Whether the GPR imposed by the IRB was incorrect andexcessive.

• WhethertheIRB’sassessmentbasedonitsbest judgmentwas correct under Section 91(1) of the ITA.

Arguments

Appellant

1) TheIRBhadfoundvariousdiscrepancies inrespectoftheappellant’s business transactions and records during the audit conducted;

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2) The first return forms were superseded by revised ones based on the audited accounts submitted for the year 2001, which were based on actual sources of documents;

3) TheSCIThadmerelyacceptedthattheIRBhadfoundthatthe said revised accounts were not accurate and unreliable butnoevidenceofthiswasreferredtobytheSCIT.

Respondent

TheIRBcontendedthatthenoticesofadditionalassessmentwerecorrectandhadbeenissuedaccordingtothebestjudgmentoftheDGIR pursuant to Section 91(1) of the ITA.

Decision

The appeal was allowed.

TheCourtheldthatitcouldonlyreviewtheSCIT’sdecision,interalia, where findings or inferences of fact are made which are wholly unsupported by evidence, or that the SCIT have acted withoutevidence or upon a view of facts which could not be reasonably entertained, or there had been an error on a point of law.

Having imposed the additional tax liability after the tax auditcarried out, the respondent cannot later revise their computation usinganaverageGPRon22%basedonthefirstreturnforms.

ThiswasinconsistentontheIRB’spartasitwasusingfigureswhichtheIRBhaditselfacknowledgedtobewrong.

As such, the IRB cannot be said to have issued the noticesaccordingtothe“bestjudgment”oftheDGIRwithinthemeaningof Section 91(1) of the ITA.

TheSCIT’sdecisionandtheIRB’snoticesweresetasideandnewnotices of assessment were directed to be issued on the basis of a GPRat8%whichtheCourtdeemedasjustandappropriate.

12.0 HAMZAH HM SAMAN & 2 ORS V RONALD BEADLE [(2010) MSTC 30-011] (COURT OF APPEAL)

Facts

The appellants in this case were the former Assistant Director Generalof InlandRevenue (“theAssistantDG”), the IRBand theGovernment of Malaysia. The respondent (“the taxpayer”) was aBritishcitizen,employedas theDirectorofOperationsofSEAHelicoptersSdnBhd(“SEAH”).

Upon his resignation, SEAH provided notification under Section83(3)oftheITAtotheIRB,andwithheldanamountofRM27,943

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of the taxpayer’s salary, pending clearance from the IRB, underSection83(5)oftheITA.

TheIRBdirectedSEAHtoremitRM22,778.70fromthetaxpayer’ssalary withheld towards settlement of his tax liability, stating that thebalancecouldbereleasedtothetaxpayer.TheIRBalsowroteto the taxpayer’s current employer, Eagle Aviation Services Sdn Bhd(“EAS”),acompanyincorporatedbythetaxpayer,requestingdetails of his employment with EAS. The response was signed off bythetaxpayer,actingasManagingDirector.BothSEAHandthetaxpayerfailedtoremitthesumofRM22,778.70demandedbytheIRB.

The Assistant DG then issued a certificate under Section 104 of the ITA, preventing the taxpayer from leaving Malaysia until the taxes were paid or security furnished to the DG’s satisfaction. The taxpayer’spassportwasseizedinApril1982.

ThetaxpayerwrotetotheIRBproposingascheduleofpayment,andrequestingforthereturnofhispassport.TheIRBrejectedthis,notifying that theoutstanding tax liabilitywasRM39,581.48 andthat court proceedings will be initiated. The taxpayer then sent a personal cheque amounting to RM10,447.23 as settlement.

InMarch1986,theIRBinformedthetaxpayerthathestillowedthesumofRM29,134.25afterdeductingthesumofRM10,447.23.Hewastoldtomakethepaymentsothathispassportcanbereleasedtohim.Thetaxpayerfailedtomakethepayment.

InMay1986,aWritofSummonsandastatementofclaimforthesumofRM28,160.70wereissuedagainstthetaxpayer.

InMay1987,thetaxpayerpaidtothecourtthesumofRM28,200.74as security for the release of his passport pursuant to the order of theCourtmadeon24March1987.

The taxpayer subsequently filed an action for damages in the sum of RM2.9 million for the unlawful retention of his passport by the IRB. TheHighCourtawardedthe taxpayerdamagesofRM3million.

The appellants appealed against the High Court’s decision. Thetaxpayercross-appealedontheHighCourt’sdecisionnottoawardhis claim for loss of earning capacity and the quantum of general damages.

Issue

• WhethertheAssistantDGhadlawfullyissuedthecertificateunder Section 104 of the ITA.

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• Whetherthetaxpayerwasentitledtothedamagesclaimed.

Arguments

Appellant

The Assistant DG has not acted arbitrarily or unreasonably when the certificate was issued. The pre-requisites for the issue of the certificate were satisfied vide the ITA. That the respondent was verylikelytoleaveMalaysiawithoutpayingallthetaxpayablebyhim was evident from the facts and circumstances immediately preceding the issue of the certificate.

Respondent

The respondent filed the civil suit for alleged losses and damages suffered by him due to the wrongful acts done or neglect or default committed as follows:

1) the issuance of the certificate that the respondent has outstandingpersonalincometaxofRM22,778.70;

2) issuing a directive under Section 104 of the ITA that the respondent be prevented from leaving Malaysia until the said sum be paid or security be furnished to the satisfaction oftheDGofIRB;

3) theseizureoftherespondent’sBritishPassport;

4) the continuous refusal to withdraw the certificate/directive and to release his passport;

5) retainingtherespondent’spassportfor5,968daystherebywrongfully confining him to West Malaysia for that length of time.

Decision

Personalincometaxisapersonalliabilityofanindividualandnotaliability of an employer. It is the individual who has been assessed whomustmakethepayment.Section104oftheITAisaprovisionof the Act that facilitates recovery of tax from persons leaving Malaysia, whether upon cessation of employment or otherwise.

The certificate issued under Section 104(1) of the ITA to prevent the respondent from leaving Malaysia without paying all tax payable by him or furnishing security for the payment of the said tax was lawful. It was issued bona fide by the Assistant DG in the execution of his statutory duties and powers under the ITA.

The consequences arising from the certificate could have been easily avoided if the respondent had acted sensibly and rationally.

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The respondent’s claim in the civil suit are totally misconceived, exaggerated and ill perceived. The appellant was not liable for any damages to the respondent.

The appellant’s appeal was allowed with costs of RM5,000. The respondent’s cross appeal was dismissed.

13.0 KETUA PENGARAH HASIL DALAM NEGERI V LUXABUILT SDN BHD [(2010) MSTC 30-012] (HIGH COURT)

Facts

After a field audit conducted by the appellant, an additional assessment was raised on the respondent, disallowing the deduction for incentive payments to employees which were deemed to be bonus payments and subject to the restrictionunder the former Section 39(1)(h) of the ITA.

TherespondentappealedtotheSCIT,whereitwasheldthattheincentive payments did not constitute bonus payments as these were remuneration for extra services and duties.

TheIRBappealedtotheHighCourt.

Issues

Whether the appellant’s treatment of the incentive payments as bonus and disallowance of the same under the former Section 39(1)(h) of the ITA was correct.

Arguments

Appellant

TheSCIThaderredinlawandfactholdingthatthepaymentwasan incentive payment rather than a bonus paid by the taxpayer to its employees. The “incentive payments” were in actual fact bonus paid for doing and/or carrying their normal duties. Hence, thepayment was caught under Section 39(1)(h) of the ITA.

The term “bonus” is not defined by the ITA and therefore, the word should be accorded their usual and ordinary meaning (DGIR vHighlandMalayaPlantationLtd)[(1988)1MSTC3,032].

Respondent

Incentive payments cannot be regarded as bonus payment and were fully deductible under Section 33(1) of the ITA.

It is commonplace that bonus is a boon or gift over what is normally due as remuneration and therefore payment for additional workcan never be rightfully seen as a bonus (HEH Sdn Bhd v KetuaPengarahHasilDalamNegeri)[(1995)2MSTC2194].

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Decision

The appeal was dismissed.

In arriving at their conclusion, the SCIT has full recourse to allrelevant documents and information including employments contracts, detailed witness testimony of each recipient who describedwhatadditionalworktheydid,detailedworkingsontheexact quantum of the incentive payment for each recipient and the strategy, purpose andobject behind the incentivepaymentsasdescribedbythemanagement.Therefore,theSCITcannotbesaid to have reached a conclusion which is not supported by the evidence, or made a finding of facts which no reasonable person in the circumstances would have arrived at.

ThedecisionoftheSCITwasaffirmed.

14.0 KETUA PENGARAH HASIL DALAM NEGERI V CHAN LIAN YEN [(2010) MSTC 30-013] (HIGH COURT

Facts

The respondent had disposed of certain shares in a company (“CKSB”). The respondent and another held 100% of the fullyissuedandpaidupsharecapitalofCKSB.LessthanamonthafterCKSBenteredintoanagreementtopurchaseland,therespondentand the other entered into a share sale agreement.

The appellant, the IRB raised an assessment under the RealProperty Gains Tax Act 1976 (“RPGT Act”). The respondentappealedtotheSCIT.TheSCITfoundthatthedisposalpricewasthepurchasepriceof theshares. The IRBappealedtotheHighCourt.

Issues

Whatwasthedisposalpriceforthetransaction?

Arguments

Appellant

The appellant contended that the SCIT erred in law when, indetermining the disposal price of the shares which is contrary to theexpressprovisionsofParagraph34A(4)ofSchedule2of theRPGTAct.ThesaidParagraphdoesnotprovidethatthevalueofshares is determined by first deducting the liability of the company.

The appellant referred to the legislative intent for the enactment ofParagraph34AvideClause24oftheFinanceAct1988.Itstatedas follows:

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“Clause 24 seeks to introduce a new Paragraph 34A toSchedule 2 of the Act. The amendment is intended to ensure that individuals do not use companies to acquire land and then dispose of shares of such companies thereby avoiding payment for real property gains tax... Gains from disposalofsharesinsuchcompanies,whichwillbeknownas “real property companies”, will be liable to tax”.

Respondent

The shares are free of encumbrances or subsisting charge. It is submitted that the sale of the shares involves no ownership transfer of the lands as the lands are still owned by the company.

Decision


Based on the facts, the share sale transaction between therespondent and the company was the sale of a real property company made up of 500,000 shares held by the respondent and another.

The total consideration for the purchase of the CKSB sharescomprised the cash payment of the purchase price of the shares plus the purchase price of the land.

The purchase price of the land was a material consideration and was evidenced by the fact that the respondent had a right to terminate the share sale agreement if the company failed to pay the said sum.

Hence,thedisposalpriceshouldbetheactualpriceofthesharesplus the purchase price of the land.

15.0 KETUA PENGARAH HASIL DALAM NEGERI V ELI LILI (MALAYSIA) SDN BHD [(2010) MSTC 30-014] (HIGH COURT)

Facts

Therespondent(“EL”) isacompanyinthebusinessoftrading inpharmaceuticals and animal health products. The respondent’s products cannot be advertised in the local newspapers and there arestrictcontrolsoverthepromotionoftheseproducts.Hence,EL can only promote its products through doctors, pharmacistsand health care professionals. Sponsorship of doctors and speakerswerevitalinthemarketingchaintoensurethattheywereaware of the clinical data of the products.

ELhadincurredexpensesinsponsoringdoctorsandspeakerstovariouscongresses,symposiaandthe like. ELsoughttodeduct

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these expenses (“Congress Expenses”) under Section 33 of theITA.However,theIRBraiseditsassessmentanddisallowedtheseexpensesandELappealedtotheSCIT.TheSCITheldinfavourofEL.

TheIRBthenappealedtotheHighCourt.

Issues

Whether the Congress Expenses were deductible as expensesunder Section 33 of the ITA.

Arguments

Appellant

1) The expenses were not deductible under Section 33 of the ITA. The expenses were “entertainment” expenses under Section18oftheITAandarethereforecaughtbySection39(1)(l) of the ITA.

2) The expenses incurred by the Respondent in sponsoring the doctors, specialists, pharmacists, practitioners who were not its employees to attend the congresses, symposia and the like are not deductible. The expenseswere gratuitouswith no consideration and hence, there is no direct benefit to the respondent. There would only be consideration if these sponsored doctors were obliged to buy the respondent’s products.

Respondent

The expenses were wholly and exclusively incurred in the production of income under Section 33 of the ITA and the said expenses did notfallwithinthedefinitionof“entertainment”inSection18oftheITA.

The sponsored speakers had to present a paper on the specialfields. It was a service provided in exchange for the sponsorship i.e.costoftravelandlodgingandinexchange,boththespeakersand the respondent derived a practical advantage and a practical consideration is consideration in law (Fong Holdings Pte Ltd vComputerLibrary(S)PteLtd[1992]ISLR332);

The sponsored doctors who attended the congress, symposia and thelike,gavetheirtimetoELininvestingintimetoupgradetheirknowledgeandtechnologicaladvancesindrugsormedicine.

Onthepenalty,therespondentsubmittedthatthepenaltyunderSection 113(2) of the ITA may be imposed only if an incorrect return was filed. But in this case, the respondent gave a full

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disclosure of all facts and circumstances. It was also submitted thatpriortotheappealyears,theIRBallowedsuchexpenses.

Decision


Though the predominant purpose of the respondent is to promote its business, no purchases are required to be made by the sponsoreddoctorsorspeakersinreturnforthehospitality.Mereattendanceandparticipationandacquisitionofknowledgealoneis not sufficient to amount to a practical advantage.

The conclusion by SCIT that giving time to attend the congressamounts to consideration and acquiring new and updated knowledge amounts to a practical advantage is unsupported byauthority.

The expenses incurred to provide food, travel and accommodation were gratuitous. The expenses are entertainment within the definition of Section 18 and not allowable as deduction underSection 39(1)(l) of the ITA.

16.0 KETUA PENGARAH HASIL DALAM NEGERI V NV ALLIANCE SDN BHD [(2010) MSTC 30-015] (HIGH COURT)

Facts

The respondent,NV, filed an appeal to the SCIT against the taxassessmentsmadebytheIRBundertheITA.

NVincurredexpensesintheformof“incentives”forthepurposeof promoting the business and to motivate and reward the sales agents to achieve higher sales. The IRB argued thatthese incentives were “entertainment” expenses and thus non-deductible under Section 39 of the ITA. Assessments were raised and penalties under Section 113(2) were imposed.

TheSCITfoundfortherespondent.TheIRBappealedtotheHighCourt.

Issues

Whether the incentives were “entertainment” expenses and hence, non-deductible under Section 39 of the ITA.

Arguments

Appellant

The appellant contended that the payments made to the sales agents under the contests / competitions were “entertainment”

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expenses and not deductible as these expenses fell within the definitionof“entertainment”underSection18oftheITAandtheexplanationinthePublicRuling3/2004whichspecificallymentionsthat “recreation and hospitability would include gifts and give-aways”.

Respondent

The expenses incurred in the form of “incentives” were for the purpose of promoting the business and to motivate and reward the sales agents to achieve higher sales. If the sales agents do not workhard, no incentiveswill bepaid. The incentiveswerepaidfor work done and were not an act of hospitality and were not“entertainment”.

Decision

The incentives are paid through competitions or contests organised byNV.Therearerulesandregulations,therearespecifiedclosingdates, and winners will be announced and determined by the respondent. The incentives are paid as a reward for those sales agents who achieve sales targets. Therefore, apart from the commissions that the respondent is contractually bound to pay under agency agreements, the sales agents are rewarded for achievingtheirsalestargets.Hence,theincentiveswerenotpaidsolely for the purpose of promoting the respondent’s business.

The respondent also did not indicate these incentive payments in the income statement of each sales agent. This indicates that the incentives were not part of the contractual commissions paid under the agency agreements.

TheCourtheldthattheSCIThaderredwhenitconcludedthattheincentives did not come within the meaning of “entertainment”. The penalty imposed by the Director General in the exercise of discretion conferred by Section 113(2) of the ITA was correct.

17.0 KETUA PENGARAH HASIL DALAM NEGERI V SHAKLEE PRODUCTS (MALAYSIA) SDN BHD [(2010) MSTC 30-016] (HIGH COURT)

Facts

The IRB issued assessments in respect of the disallowance offranchise fees paid by the respondent to Shaklee Corporationunder a Franchise Agreement. The respondent argued that the franchise fees were a necessary part of its income earning process; if it did not pay the franchise fees, it would not be able to meet the continuous demands of its business.

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TherespondentappealedtotheSCITagainsttheseassessments.TheSCITruledinfavouroftherespondent.TheIRBthenappealedtotheHighCourt.

Issues

Whether the franchise fees paid under the Franchise Agreement were wholly and exclusively incurred by the respondent in the production of its gross income and deductible under Section 33(1) of the ITA.

Arguments

Appellant

TheSCIThaderred in lawby concluding that the franchise feeswere directly connected to the respondent’s business and must be incurred in order to generate sales income. The fees were capital in nature and thus not deductible under Section 33(1) of the ITA.

The mode of payment, whether lump sum or in instalments, does not change the underlying character of the franchise fees as capital expenses.

Respondent

The respondent contended that the franchise fees were directly connected to the business and incurred for the sole purpose of producing income.

The respondent contended that the franchise fees were not capital expenditure but revenue in nature based on the fact that:

a) the payment was recurring and not paid once and for all (Vallambrosa Rubber Co Ltd v Farmer [1910] 5 TC 529;OunsworthvVickersLtd[1915]3KB267);

b) The expenditure did not give rise to an enduring benefit (British Insulated andHelsbyCables vAtherton [1926] 10AC205);

c) The expenditure did not give rise to the acquisition of any identifiableasset(IRCvCarronCo[1968]45TC18).

Decision


The payment of franchise fees was held to be not solely incurred for the production of the respondent’s gross income. The Franchise Agreement stated that the payment of the franchise fee was the consideration for the grant of the right to the respondent to operate the business. Whether the payment is to be made in a

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lump sum or by instalments does not determine the nature and purpose of the payment of the franchise fee.

18.0 KERAJAAN MALAYSIA V SYARIKAT MULIAJAYA SDN BHD [(2010) MSTC 30-017] (HIGH COURT)

Facts

TheIRBsoughttorecoverfromtherespondentanunpaidportionof taxassessedvianotices issuedandsent for theYA1998and1999. The respondent denied that it had received the notices of assessment.

It was common ground between the parties that the said notices need only be sent by ordinary post to the registered office or to thelastknownaddressoftherespondenttobeincompliancewithspecific requirements of Section 145(2) of the ITA.

Issues

Whether it is incumbent upon the appellant to adduce direct proof that the notices had been positively identified to have been sent by ordinary post or whether it was sufficient to only show a system or process in place for the dispatch by post of such notices.

Arguments

Appellant

The appellant invoked the presumption in Section 114 of theEvidence Act 1950, that the evidence and witnesses submitted clearly established the procedure or process involved in posting of notices and that their official duties had been regularly performed in compliance with Section 145(2) of the ITA.

It would be too onerous a duty on a public authority like theLembagaHasilDalamNegeri to, in any event,maintain a list ofall letters posted (or returned) as a necessary measure to prove ordinary posting of notices.

Respondent

It was not sufficient to just show that there has been a ‘bulkposting’ of such notices but there has to be some underlying evidence that there has been an ordinary posting effected at the Post Office of the specific notices. Hence, Section 114 of theEvidence Act 1950 has no application.

Decision

TheCourtallowedtheapplication.

384


It is not reasonable at all to read into Section 145 a further requirementthattheappellantshouldkeepormaintainarecordor register of all notices sent out daily or of undelivered notices returned by the postal authorities before service of notices are accepted or deemed to have been validly affected.

TheCourtheldthatthenoticesissuedbytheappellantfortheYA1998and1999sentbyordinarypostweredeemedtobeservedasprovided for by Section 145(2) of the ITA.

19.0 KETUA PENGARAH HASIL DALAM NEGERI V TAN TEIK KIN [(2010) MSTC 30-018] (HIGH COURT)

Facts

The respondent (“TTK”) was a shareholder in a real propertycompany (“TM”) in which he owned 710 shares. In 1994, TM acquired a property and in 1998, TTK increased his ownershipof shares in TM upon acquiring 145 additional shares. In 1999, TTK and the other shareholder disposed 1,000 shares in theCompanywhereby855(i.e.710+145)shareswereownedbytherespondent.

Pursuant to the Sale and Purchase Agreement (“Agreement”),the consideration for the shares was only RM30,295. The Agreement also provided that a sum of RM969,705 shall be paid to the creditors of the company to discharge the liabilities of the company.

TheIRBimposedrealpropertygainstaxonthe145sharesdisposedbyTTK.TherespondentappealedagainstthesaidassessmenttotheSCIT.

TheSCITallowedTTK’sappealandtheIRBthenappealedtotheHighCourt.

Issues

Whether the SCIT was correct in law in its decision that thedisposal price of the shares in TM was RM30,295.

Arguments

Appellant

The appellant contended that the SCIT in stating that “the nettvalue of the company should represent the value of shares issued by the company and in determining the nett value of the company the liabilitieshadtobetaken intoaccount”,haderred in lawbynot providing a basis for this reasoning.

385


Secondly, the SCIT had erred in law in holding that “althoughthe settlement of the debt became part of the Agreement for the disposal of the shares, it does not change the fact that as the settlement of debt is part of the Agreement, it forms the consideration of the Agreement”.

Thirdly, the appellant maintained that the SCIT had erred indetermining that “the disposal price of the 1,000 shares is RM30,295”byfailingtotakeintoaccountthelawonrealpropertygains tax.

Finally,theSCIThadfailedtorecognisethatthecontractforsaleand purchase of shares depends on the consideration that the Purchasersettlesthecompany’sdebt.

Respondent

The respondent contended that the payment of RM969,705 was to discharge the liabilities of the company for and on behalf of the company to the creditor and it formed no part of the consideration for the purchase of the said shares.

Decision


There is no provision in the Real Property Gains Tax Act 1976(“RPGTAct”) inparticularparagraph34A that indetermining thevalue of the company, the liabilities of the company ought to be takenintoaccount.

The issue was whether the disposal price for 1,000 shares in TM was RM1 million being the value of the land, as the only asset of thecompany,orRM30,295beingtheamountreceivedbyTTKandthe other shareholder.

The acquisition of the said 145 shares by the respondent is an acquisition of a chargeable asset and its subsequent disposal constitutedadisposalofachargeableassetundertheRPGTAct.

From the facts and construction of the Agreement, the consideration given in the Agreement was RM1,000,000 and not RM30,295 as contendedbyTKKandasdecidedbytheSCIT.

386


THISPAGEISINTENTIONALLYLEFTBLANK

387


GAZETTE NOTIFICATIONSAMENDMENTS TO :

INCOME TAX ACT, 1967PROMOTION OF

INVESTMENT ACT, 1986STAMP ACT, 1949

REAL PROPERTY GAINS TAX ACT, 1976

THISPAGEISINTENTIONALLYLEFTBLANK

388

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ent Review 2011

NO TITLEREFER P.U.(A)

DATE OF GAZETTE NOTIFI- CATION

SUBJECTEFFECTIVE

DATE/PERIOD

1 Income Tax (Renovation or Refurbishment Expenditure) Rules 2010

20 28 January 2010

List of qualifying renovation or refurbishment expenditure for the purpose of paragraph 8B of Schedule 3.

YA 2009, YA 2010 and YA 2011

2 Income Tax (Deduction for Contribution to Retirement Fund) Rules 2010

31 4 February 2010

A deduction shall be allowed for a company in respect of contribution made to the retirement fund established under Retirement Fund Act 2007. This is in relation to a member of the public service who has been conferred with pensionable status and given the approval by the Public Service Department to be seconded to and serve in the company.

YA 2003 and subsequent YA

3 Income Tax (Exemption) (No. 5) (Revocation) Order 2010

72 11 March 2010

Revocation of Income Tax (Exemption) (No. 5) Order 1989, which exempts the income of a company resident in Malaysia derived from a construction project carried on by that company outside Malaysia.

YA 2004

Gazette Notification in 2010 (Jan 2010 to Dec 2010)- Income Tax Act, 1967 (all gazette orders)- Promotion of Investment Act, 1986 (only general gazette orders)- Stamp Act, 1949 (only general gazette orders)- Real Property Gains Tax Act, 1976 (only general gazette orders)

389

6 • G

azette Notifications – A

mendm

ents to : Income Tax Act 1967 …



SUBJECTEFFECTIVE

DATE/PERIOD

4 Double Taxation Relief (The Government of His Majesty The Sultan and Yang Di-Pertuan of Brunei Darussalam) Order 2010

78 18 March 2010

Agreement between the Government of Malaysia and the Government of His Majesty The Sultan and Yang Di-Pertuan of Brunei Darussalam for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

Will come into force upon ratification by

both countries

5 Income Tax (Exemption) (No.5) Order 2009

88 1 April 2010 Corrigendum to Income Tax (Exemption) (No.5) Order 2009 [P.U. (A) 411].

-



-



-


91 1 April 2010 Corrigendum to the national language text of Income Tax (Exemption) (No.9) Order 2009 [P.U. (A) 415].

-

9 Income Tax (Industrial Building Allowance) (Building under Privatisation Project and Private Financing Initiatives) Rules 2010

119 22 April 2010 Industrial Building Allowance for building under privatisation project and private financing initiative.

YA 2009

390

CPA

Tax & Investm

ent Review 2011



SUBJECTEFFECTIVE

DATE/PERIOD

10 Stamp Duty (Exemption) Order 2010

120 22 April 2010 Stamp duty exemption on instruments for purchase of a flat under the Program Perumahan Rakyat Majlis Tindakan Ekonomi Negara and Perumahan Awam Dewan Bandaraya Kuala Lumpur executed between 1 January 2010 until 31 December 2011.

1 Jan 2010

11 Double Taxation Relief (The Government of The Republic of Turkey) (Amendment) Order 2010

138 6 May 2010 Protocol amending the agreement between the Government of Malaysia and the Government of the Republic of Turkey for the avoidance of double taxation and the prevention of fiscal evasion with respect of taxes of income.


both countries

12 Double Taxation Relief (The Government of Republic of France) (Amendment) Order 2010

164 24 May 2010 Protocol amending the agreement between the Government of Malaysia and the Government of the Republic of France for the avoidance of double taxation and the prevention of fiscal evasion with respect of taxes of income.


both countries

391

6 • G


mendm




SUBJECTEFFECTIVE

DATE/PERIOD

13 Double Taxation Relief (The Government of Japan) (Amendment) Order 2010

165 24 May 2010 Protocol amending the agreement between the Government of Malaysia and the Government of Japan for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.


both countries

14 Double Taxation Relief (The Government of Belgium) (Amendment) Order 2010

166 24 May 2010 Protocol amending the agreement between the Government of Belgium and the Government of Malaysia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.


both countries

15 Double Taxation Relief (The Government of Ireland) (Amendment) Order 2010

167 24 May 2010 Protocol amending the agreement between the Government of Malaysia and the Government of Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.


both countries

392

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ent Review 2011



31 December 2012EFFECTIVE

DATE/PERIOD

16 Double Taxation Relief (The Government of Australia) (Amendment) Order 2010

168 24 May 2010 Third protocol amending the agreement between the Government of Malaysia and the Government of Australia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.


both countries

17 Income Tax (Exemption) Order 2010

169 24 May 2010 Income tax exemption on income derived from the sukuk ijarah.

YA 2010

18 Double Taxation Relief (The Government of the Republic of Senegal) Order 2010

176 25 May 2010 Agreement between the Government of Malaysia and the Government of the Republic of Senegal for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.


both countries

19 Double Taxation Relief (The Government of The Kingdom of The Netherlands) (Amendment) Order 2010

177 25 May 2010 Second protocol amending the agreement between the Government of the Kingdom of the Netherlands and the Government of Malaysia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.


both countries

393

6 • G


mendm




SUBJECTEFFECTIVE

DATE/PERIOD

20 Double Taxation Relief (The Federal Republic of Germany) Order 2010

193 8 June 2010 New agreement between Malaysia and the Federal Republic of Germany for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.


both countries


246 29 July 2010 Corrigendum to Income Tax (Exemption) (No.10) Order 2009 [P.U. (A) 473].

-

22 Double Taxation Relief (The Government of Republic of Seychelles) (Amendment) Order 2010

286 26 August 2010

Protocol amending the agreement between the Government of Malaysia and the Government of the Republic of Seychelles for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.


both countries

23 Double Taxation Relief (The Government of the State of Kuwait) (Amendment) Order 2010

287 26 August 2010

Protocol amending the agreement between the Government of Malaysia and the Government of the State of Kuwait for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and for fostering of economic relations.


both countries

394

CPA

Tax & Investm

ent Review 2011

394



SUBJECTEFFECTIVE

DATE/PERIOD

24 Income Tax (Special Treatment on Interest on Housing Loan) (Amendment) Regulations 2010

288 26 August 2010

Amendment made in regulation 5 of the Income Tax (Special Treatment on Interest on Housing Loan) Regulation 2009 [P.U. (A) 109/2009] on the conditions relating to individual to whom housing loan was granted.

YA 2009 and subsequence YA

25 Income Tax (Deduction for Promotion of Malaysia International Islamic Financial Centre) Rules 2009

293 30 August 2010

Corrigendum to Income Tax (Deduction for Promotion of Malaysia International Islamic Financial Centre) Rules 2009 [P.U. (A) 416].

-

26 Income Tax (Deduction for Investment in an Approved Consolidation of Management of Smallholding and Idle Land Project) Rules 2009

294 30 August 2010

Corrigendum to Income Tax (Deduction for Investment in an Approved Consolidation of Management of Smallholding and Idle Land Project) Rules 2009 [P.U. (A) 417].

-

27 Income Tax (Deduction for Expenditure on Issuance of Islamic Securities) Rules 2009

296 30 August 2010

Corrigendum to Income Tax (Deduction for Expenditure on Issuance of Islamic Securities) Rules 2009 [P.U. (A) 420].

-

395

6 • G


mendm




SUBJECTEFFECTIVE

DATE/PERIOD

28 Double Taxation Relief (The Government of the Republic of San Marino) Order 2010

302 2 September 2010

New agreement between the Government of Malaysia and the Government of the Republic of San Marino for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.


both countries

29 Double Taxation Relief (The Government of The United Kingdom of Great Britain and Northern Ireland) (Amendment) Order 2010

322 27 September

2010

Protocol amending the agreement between the Government of Malaysia and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.


both countries

30 Income Tax (Determination of Knowledge Worker, Qualified Activity and Specified Region) Rules 2010

344 7 October 2010

The Rules set out the qualifying conditions for a Knowledge Worker which would enjoy 15% concessional tax rate in the Iskandar Development Region.

YA 2010

396

CPA

Tax & Investm

ent Review 2011

396



SUBJECTEFFECTIVE

DATE/PERIOD

31 Stamp Duty (Remission) Order 2010

376 4 November 2010

Remission of stamp duty on any instrument pursuant to the change of scheme for financing an existing loan from conventional to Shariah. This Order also revokes the Stamp duty (Remission)(No.3) Order 2000.

32 Double Taxation Relief (The Government of The Lao People’s Democratic Republic) Order 2010

379 11 November 2010

New agreement between the Government of Malaysia and the Government of the Lao People’s Democratic Republic for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.


both countries

33 Stamp Duty (Remission) (No. 2) Order 2010

423 16 December 2010

Remission of 50% of stamp duty chargeable on any loan agreement to finance the purchase of only one unit residential property costing not more than RM350,000, applicable for Sale and Purchase Agreement executed from 1 January 2011 to 31 December 2012.

-

397

6 • G


mendm




SUBJECTEFFECTIVE

DATE/PERIOD

34 Income Tax (Deduction for Premium for Export Credit Insurance based on Takaful Concept) Rules 2010


A deduction shall be allowed in respect of an amount equivalent to premium incurred by a person for export credit insurance based on takaful concept.

YA 2011 till subsequence YA

35 Income Tax (Determination of Knowledge Worker, Qualified Activity and Specified Region) Rules 2010


Corrigendum to the national language text of Income Tax (Determination of Knowledge Worker, Qualified Activity and Specified Region) Rules 2010.

-



Remission of 50% of stamp duty chargeable on any instrument of transfer for purchase one unit of residential property not more than RM350,000, applicable for Sale and Purchase Agreement executed from 1 January 2011 to 31 December 2012.

-



Remission of stamp duty relating to any instrument of service agreement chargeable to duty executed on or after 1 January 2011.

1 January 2011

398

CPA

Tax & Investm

ent Review 2011

398



SUBJECTEFFECTIVE

DATE/PERIOD

38 Income Tax (Exemption) (No. 2) Order 2010


Income tax exemption on income received from the sale of certified emission reduction.

YA 2011 until YA 2012

399

6 • Gazette Notifications – Amendments to : Income Tax Act 1967 …

GUIDELINES FROM MINISTRY OF DOMESTIC

TRADE, CO-OPERATIVES AND CONSUMERISM, CENTRAL

BANK OF MALAYSIA, ROYAL MALAYSIAN CUSTOMS,

MINISTRY OF FINANCE AND MALAYSIAN INDUSTRIAL

DEVELOPMENT AUTHORITY

400

CPA

Tax & Investm

ent Review 2011

400400 Summary of Guidelines from Ministry of Domestic Trade, Co-operatives and Consumerism, Central Bank of Malaysia, Royal Malaysian Customs, Ministry of Finance and Malaysian Industrial Development Authority

No Subject Issue dateIssued

by*Objective

Application Forms

EffectiveDate

1 Guidelines on Foreign Participation in the Distributive Trade Services Malaysia (Revised)

MDTCC 1. This guideline seeks to:

• Ensure an orderly and fairdevelopmentoftheindustry,whileensuringthegrowthoflocal business;

• Encouragethemodernisationand increase the efficiencyof the industry and itscontinued contribution to the growth of the economy;and

• Increase Bumiputraparticipation in the economic sector, in line with theNational Development Policy.

Form WRT 1FormBAF3(application forfranchisor-franchiseebusinesses)

6 January 2010

401

1 • IRB (Inland Revenue Board) G

uidelines and Rulings

401

7 • Sum

mary of G

uidelines from A

uthorities

No Issue dateIssued

by*Objective

Application Forms

EffectiveDate

2. All proposals for foreigninvolvement in distributive trade shall obtain the approval ofMDTCC. These include:

•acquisitionofinterest;• mergers and/or takeovers byforeignparticipation;

• opening of new branches/outlets/chainstores;

• relocation of branches/outlets/chainstores;

• expansion of existingb ranches /ou t l e t s / cha instores;

• buying over/taking over ofoutlets of other operators;and

• purchase and sale ofproperties to operate distributive trade activities prior to obtaining the approval/licence fromlocal authorities and other agencies to operate distributive trade activities.

402

CPA

Tax & Investm

ent Review 2011


by*Objective

Application Forms

EffectiveDate

3. Any ancillary business carriedoutbyforeignbusinessoperatorsshallobtainthepriorapprovalofMDTCC.

4.Anyapprovalsundertherepealedguidelines shall continue to be in force and have the effect as ifsuch approvals had been made under the revised guidelines.

2. LiberalisationofForeignExchangeAdministrationRules

18August2010

BNM The Bank Negara has liberalisedthe following foreign exchangeadministration rules:

• A resident is able to undertakesettlement of internationaltrade in goods and services with a non-resident in ringgit,in addition to settlement using foreign currencies. Exportersandimportersaretherefore,freeto determine the currency ofsettlementforinternationaltradein goods and services which will facilitate the management of

18August2010

403

7 • Sum

mary of G

uidelines from A

uthorities

No SubjectIssued

by*Objective

Application Forms

EffectiveDate

currency mismatches and reduce currency conversion costs.

All settlements in ringgit by anon-resident will need to beconducted through the non-resident’s ringgit account maintained with licensed onshore banks. Non-residentscan convert and hedge foreigncurrency into ringgit with licensed onshore banks or with the appointed overseas branches of the same banking groups ofthe licensed onshore banks.

• A resident company is now freetoborrowanyamountinforeigncurrency from its non-residentnon-bank related company, inaddition to its non-residentnon-bank parent company.Thus, all limits on cross-borderforeign currency inter-companyborrowings are abolished. This is toprovidegreaterflexibilityon

404

CPA

Tax & Investm

ent Review 2011


by*Objective

Application Forms

EffectiveDate

sourcesofcompetitivefinancingfor the real sector as well asto enhance themanagement offinancial resources within thecorporate group.

• Thelimitonanticipatoryhedgingforcurrentaccounttransactionswith licensed onshore banks is alsoabolishedtofacilitatemoreeffective risk management byresidents.Withthisliberalisation,there will be no threshold limits on hedging for current accounttransactions by residents with the licensed onshore banks.

3 Guidelines on the ImplementationofServiceTaxImpositionbasedonthe2011BudgetAnnouncement

December 2010

Customs Thisguidelineexplains:

• The increase in the service taxratefrom5%to6%onalltaxableservices except for credit cardsandchargecards,and

• Impose service tax on paidtelevision broadcasting services.

CJP No 1 1 January 2011

405

7 • Sum

mary of G

uidelines from A

uthorities


by*Objective

Application Forms

EffectiveDate

4. LetterofStampDutyonServiceAgreementInstruments

30December

2010

MOF 1. Service agreements are subject to stamp duty at the ad valorem rateof0.1%.

2. If the service involves furthersub-contracting of work by themain service provider to other service providers (ie multi-tiers)the said service agreements will be subject to stamp duty at the ad valorem rate of 0.1% at onelevelonly.Theadvaloremrateof0.1%willbeimposedon:• the first-tier for serviceagreements executedbetween a private entity and theserviceprovider,or

• the second-tier for serviceagreements executedbetween an entity which has been exempted from thepayment of stamp duty (egtheGovernmentofMalaysia)and the first-tier serviceprovider.

1 January 2011

406

CPA

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ent Review 2011


by*Objective

Application Forms

EffectiveDate

3.The service agreement instruments executed for other tiers will besubject to stamp duty at the fixedrateofRM50andthestampduty in excess of RM50 will beremitted.

5 ApplicationofGrantundertheMalaysia-SingaporeThirdCountryBusinessDevelopmentFund (General Guidelines)

MIDA 1. Theobjectivesofthefundare:

• Toidentifyanddevelopareasofco-operationbetweentheprivate sectors and business associations in Malaysia and Singapore in third countries;

• To encourage the privatesectors of Malaysia andSingapore to jointly explorebusiness and investment opportunities in third countries including, butnot limited to, undertakingjoint investment feasibilitystudies,jointmarketresearchand organising joint missions tothirdcountriesto identifypotential business projects;

FormBDF1-2009FormBDF1A-2009

10 January 2009

407

7 • Sum

mary of G

uidelines from A

uthorities


by*Objective

Application Forms

EffectiveDate

• To encourage and developtradelinksbetweenMalaysia,Singapore and third countries;

• To identify businessopportunities in third countries for privateenterprises, drawing on theexpertise of the companiesfromMalaysiaandSingapore;and

• To enhance networking andexchange of informationbetween the private sectors and business associations of Malaysia and Singaporethereby fostering a betterunderstandingofeachother’scomplementary attributes as wellasthepotentialareasforco-operation.

408

CPA

Tax & Investm

ent Review 2011


by*Objective

Application Forms

EffectiveDate

2.Theformsofassistanceare:• JointFeasibilityStudy• JointMarketResearch• JointMission

3. The typeof investments,qualifyfor consideration under thisFund, are those which willprovide access to:• new technologies

or established and commercialised technologies;

• overseas markets throughestablishing new marketing channelsoracquiringexistingmarketing channels; and

• overseas resources, costlyor not easily available, insupportof theexpansionordiversification plans of thejoint-venture.

409

7 • Sum

mary of G

uidelines from A

uthorities


by*Objective

Application Forms

EffectiveDate

4. The grants are given to eligible enterprises undertaking joint feasibilitystudiesortobusinessassociations undertaking joint market research or to enterprises participating in approved joint missions including those in but not limited to the followingsectors:

• manufacturing• infrastructuredevelopment• tourism• construction• informationtechnology• trading• services

410

CPA

Tax & Investm

ent Review 2011


by*Objective

Application Forms

EffectiveDate

(a) SpecificGuidelines–JointFeasibility Studies

MIDA 1. Theformsofassistanceare:

(a) Target-Specific-Due-DiligenceStudies refer to cases wherethe applicants have a specificcompany or project which they would like to invest in and a consultant is engaged to conduct a thorough investigation or due diligence on the viability and business potential of thetargeted company or project.

The fund will cover up to50% of the eligible expensesof the studies (eg travelling,accommodation, subsistenceallowance, fees for patent andinformationsearch,consultant’sfees),butlimitedtoRM200,000.

b) Pro-Active Searches foroverseas investment or business opportunities refer to caseswhere the applicants have no specific target and a consultant

10 January 2009

411

7 • Sum

mary of G

uidelines from A

uthorities


by*Objective

Application Forms

EffectiveDate

is engaged to conduct a general search for investmentopportunities.

Thefundwillsupportupto50%of the expenses (eg travelling,accommodation, subsistenceallowance, fees for patent andinformationsearch,consultant’sfees) incurred in retaining anintermediary for a pro-activesearch for overseas investmentactivities, but limited toRM100,000.

(b) SpecificGuidelines–JointMarket Research

MIDA 1. Joint Market Research refers toa joint study commissioned by business associations to analyse and/or determine the businessenvironment, potential marketentry strategies and/or businessopportunities for a specificmarket and industry (eg analysis ofmarketopportunities,businessclimate, regulations,distributionchannels, market size, growth,competition,demographics).

10 January 2009

412

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*MDTCC–MinistryofDomesticTrade,Co-operativesandConsumerismBNM–BankNegaraMalaysia(CentralBankofMalaysia)Customs–RoyalMalaysianCustomsMOF–MinistryofFinanceMIDA–MalaysianIndustrialDevelopmentAuthority


by*Objective

Application Forms

EffectiveDate

2 The fund will cover up to 50%of the eligible expenses (egtravelling, accommodation,subsistence allowance of theappointed consultant and consultant’sfees),butlimitedtoRM100,000.

3 The joint market research canonlybeundertakenifthereisanofficial request by members ofthe business associations.

(c) Specific Guidelines – JointMission

MIDA The fund will cover up to 50% ofthe eligible expenses (eg air travel,accommodation and common cost) of all claims of participants, butlimitedtoRM200,000.

10 January 2009

INDIRECT TAXES - MICPA

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