EY Tax Alert. Malaysian developments. Vol Issue no February 2019

Transcription

1 EY Tax Alert Vol Issue no February 2019 Malaysian developments Case law on whether stamp duty exemption under section 15(1) is restricted to one instrument only Minimum income for the Special Voluntary Disclosure Program (SVDP) Overseas developments India s 2019/20 Interim Budget proposals: proposed changes to the personal tax system Hong Kong requires taxpayers to disclose transfer pricing information in income tax return Malaysian developments Case law on whether stamp duty exemption under section 15(1) is restricted to one instrument only In Cititower Sdn Bhd v Pemungut Duti Setem (2018) MSTC , the High Court (HC) delivered a judgment in favour of the taxpayer. The HC held that the exemption under section 15(1) of the Stamp Act 1949 (SA) is not restricted to one instrument. The HC rejected the Inland Revenue Board (IRB) s argument that in the case at hand, the sale of business agreement (SBA) being the primary agreement is exempt from stamp duty under section 15(1), but the Memorandum of Transfer (MOT) is not exempt. Instead, the HC held that where a document is exempt from stamp duty, all subsidiary documents accessory to the primary purpose are also exempt. Background The taxpayer entered into a SBA with AMSB, a related company, to acquire the business of AMSB. The business includes all of AMSB s assets and liabilities consisting of cash, receivables, liabilities, other assets and a plot of land bearing the title Geran No , Lot 167 (the Land). The taxpayer then executed a MOT pursuant to the SBA for the transfer of the land from AMSB to the taxpayer. 1

2 The IRB did not dispute the fact that the taxpayer was entitled to exemption from stamp duty pursuant to section 15(1) of the SA. The IRB however contended that the SBA (the primary instrument) was exempted but the MOT (the subsidiary instrument) was not exempted. The IRB thus assessed the taxpayer with ad valorem duty on the MOT under Item 32 Schedule 1. The HC held that where a document is exempt from stamp duty, all subsidiary documents accessory to the primary purpose are also exempt (see Cheah Choon Gan v Registrar of Titles, Kedah (1973) 1 MLH 107). There is no basis to imply anything into the provision (i.e. Section 15(1)) or read anything else other than looking at the language used. Section 15(1) does not restrict the stamp duty exemption to one instrument only. The exemption applies to any instrument liable to stamp duty under Item 32(a) or (b) in the First Schedule. This clearly envisages one or more instruments, whether the principal or secondary instrument. If Parliament had intended the exemption to apply to only one instrument or a specific instrument, then Parliament would have specified this clearly in section 15(1). It must be noted that the MOT was not a stand-alone instrument as it was executed pursuant to the SBA. The HC therefore held that there was no basis in law for the MOT to be assessed with ad valorem duty pursuant to Item 32 Schedule 1. Minimum income for the Special Voluntary Disclosure Program (SVDP) in the past. The SVDP is effective from 3 November 2018 until 30 June The IRB has sent letters and s to taxpayers and has also made media statements and run advertisements, to raise awareness to the SVDP. In a recent media release dated 3 February 2019, the IRB clarified that the following persons who have received letters or s regarding the SVDP should register as a taxpayer and declare the relevant income to the IRB: Individual Person carrying on a business other than a private limited company Monthly employment income of RM4,000 and above Annual income of RM48,000 (or RM4,000 a month) after deducting approved operational expenses and capital allowances It is important to note that this media release was issued by the IRB in the context of the SVDP and does not absolve taxpayers of their general tax filing and payment obligations. With the implementation of the Automatic Exchange of Information (AEOI) initiative by the Organisation for Economic Cooperation and Development (OECD), the IRB will be receiving financial information of Malaysian taxpayers from foreign tax authorities. Therefore, taxpayers who have offshore bank accounts connected to Malaysian-sourced income which is liable to tax but has yet to be declared, should come forward to declare such income. The Special Voluntary Disclosure Program (SVDP) announced during Budget 2019 is offered to encourage taxpayers to voluntarily declare any unreported income, including income which is maintained in offshore accounts (see Special Tax Alert Highlights of Budget 2019 Part I, Tax Alert No. 23/2018 and Special Tax Alert No. 2/2019). The SVDP provides the opportunity for taxpayers to report their correct income and rectify errors made 2

3 EY Tax Alert Vol. 22 Issue no January 2019 Overseas developments Taxation of residential properties India s 2019/20 Interim Budget proposals: proposed changes to the personal tax system The Finance Minister of India presented the 2019 Finance Bill (the Bill) in the Indian Parliament on 1 February There are no proposed changes to tax bands or rates for individual taxpayers. However, there are some proposed changes to the personal tax system which will apply from the 2019/20 fiscal year. These include the following: The standard deduction of INR 40,000 (USD 555) will be increased to INR 50,000 (USD 694), resulting in maximum tax savings of INR 3,588 (USD 50) for taxpayers in the highest tax bracket (35.88%). A tax rebate of INR 12,500 (USD 174) or the actual tax payable, whichever is lower, will be provided to taxpayers whose taxable income is equal to or less than INR 500,000 (USD 6,944). No notional rental value will be attributed to taxpayers who own up to two residential properties where these are not let out by the taxpayer. This was previously limited to one property only. A one-off exemption for the reinvestment of capital gains from the sale of a residential property, which can be reinvested in up to two residential properties in India, compared to only one previously. Budget proposals impacting individual taxpayers An increase in the standard deduction Taxpayers who own two residential properties which are not let out, were required to impute notional rental income to one of the properties, with the other taken to have a notional rental income of zero. The Bill proposes to allow a notional rental value of zero for up to two residential properties. The Bill also proposes to restrict the deduction available on interest paid on mortgages to INR 200,000 (USD 2,777) for both residential properties. Previously the INR 200,000 (USD 2,777) applied against a single owner-occupied property, so the limit remains at the same level but will now be applied across both properties on an aggregate basis. Number of residential properties owned by the Existing provision taxpayer and not let out 1 No notional rent to be determined 2 Residential property 1 no notional rent Residential property 2 - Notional rent to be determined and taxed Proposed provision No notional rent to be determined No notional rent to be determined for both properties The Bill proposes an increase in the standard deduction of INR 40,000 (USD 555) to INR 50,000 (USD 694). The standard deduction is provided to taxpayers without a requirement to provide any evidence for claiming such a deduction. 3 Residential property 1 no notional rent Residential properties 2 and 3 - Notional rent to be Properties 1 and 2 - No notional rent to be determined Property 3 3

4 Number of residential properties owned by the taxpayer and not let out Capital gains Existing provision determined and taxed Proposed provision Notional rent to be determined At present, capital gains earned from the sale of a residential property are exempt if reinvested in another residential property in India. The Bill proposes to provide a one-off exemption if the capital gains are reinvested in up to two residential properties in India instead of just one. To make use of this exemption, the capital gain cannot exceed INR 20,000,000 (USD 277,777). Tax audits The Finance Minister has reiterated that further digitization and enhancements to the taxpayer experience will be carried out in the next couple of years. This is in keeping with the changes announced in the last few years. Next steps The provisions of the Bill will not become law until they are approved by both houses of the Indian Parliament and receive the assent of the President of India. Once approved, the provisions will apply to the 2019/20 Indian fiscal year (1 April March 2020). Taxpayers and employers should review the proposed provisions and make changes to their payroll systems, expecting that the proposed provisions will be finalized. It is worth noting that the Bill was presented in an interim budget and a final budget will be presented at a later date. Rebate Currently a tax rebate of INR 2,500 (USD 35) is provided to Indian resident taxpayers whose taxable income is less than INR 350,000 (USD 4,861). The Bill proposes to extend the tax rebate to taxpayers whose taxable income is less than INR 500,000 (USD 6,944) and increase the tax rebate to INR 12,500 (USD 174). This effectively means that income up to INR 500,000 is exempt from tax. Tax Deducted at Source (TDS) At present, taxpayers who earn interest on bank deposits and post office savings are subject to withholding taxes, if the interest exceeds INR 10,000 (USD 139). The Bill proposes to increase the limit for withholding taxes to INR 40,000 (USD 555). Hong Kong requires taxpayers to disclose transfer pricing information in income tax return The Hong Kong Inland Revenue Department (IRD) announced on 23 January 2019 that, effective from the taxable year 2018, Hong Kong taxpayers are required to disclose certain related-party information and confirm their compliance with transfer pricing documentation requirements in their profits tax return. The information which needs to be disclosed includes: Indication of Hong Kong Standard Industrial Classification Code Confirmation of the following: 4

5 EY Tax Alert Vol. 22 Issue no January 2019 Whether there have been any transactions with non-resident associated persons during the taxable year Whether an advance pricing arrangement (APA) has been concluded for this taxable year Whether the taxpayer belongs to a multinational enterprise group that has a Country-by-Country Reporting (CbCR) filing obligation in Hong Kong or elsewhere during the taxable year If any of the above three conditions are affirmed by the taxpayer, the taxpayer is also required to provide the following information: The residence of non-resident associated persons involved in related party-transactions with the taxpayer Whether the taxpayer is required to prepare a master file and local file Detailed information on the APA concluded, including APA reference number; whether the taxpayer has relied on the APA in preparing the tax return; whether there is any material change in the APA controlled transaction(s); and the total transaction amount relevant to the APA CbCR obligation, including whether notification has been made to the IRD by the taxpayer or its affiliated company in Hong Kong, and information on the ultimate parent entity or surrogate parent entity for CbCR purposes 5

6 Contact details Principal Tax Yeo Eng Ping (ASEAN Tax Leader) Amarjeet Singh (Malaysia Tax Leader) People Advisory Services Tan Lay Keng Irene Ang Christopher Lim Business Tax Services Amarjeet Singh Farah Rosley Robert Yoon Wong Chow Yang Global Compliance and Reporting Simon Yeoh Julian Wong Datuk Goh Chee San (based in Sabah) Janice Wong Julie Thong Lee Li Ming (based in Johor) Liew Ai Leng Koh Leh Kien Mark Liow (based in Penang) Linda Kuang (based in Kuching)

7 Contact details Transaction Tax Services Yeo Eng Ping Sharon Yong International Tax Services Anil Kumar Puri Indirect Tax Yeoh Cheng Guan Aaron Bromley Financial Services Bernard Yap Asaithamby Perumal Transfer Pricing Sockalingam Murugesan Vinay Nichani Hisham Halim

8 Important dates 15 February 2019 Due date for monthly instalments 28 February th month revision of tax estimates for companies with August year-end 28 February th month revision of tax estimates for companies with May year-end 28 February 2019 Statutory deadline for filing of 2018 tax returns for companies with July year-end 15 March 2019 Due date for monthly instalments 31 March th month revision of tax estimates for companies with September year-end 31 March th month revision of tax estimates for companies with June year-end 31 March 2019 Statutory deadline for filing of 2018 tax returns for companies with August year-end EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com Ernst & Young Tax Consultants Sdn. Bhd. All Rights Reserved. APAC no ED None. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com Publisher: Ernst & Young Tax Consultants Sdn. Bhd. Level 23A Menara Milenium Jalan Damanlela, Pusat Bandar Damansara Kuala Lumpur Tel: Fax:

9 Are you ready for the Malaysian Business Reporting System (MBRS)? Last year, Suruhanjaya Syarikat Malaysia (SSM) launched the Malaysian Business Reporting System (MBRS), a digital submission platform based on the extensible Business Reporting Language (XBRL) format. The launch was officiated by YB Tuan Chong Chieng Jen, Deputy Minister of Domestic Trade and Consumer Affairs (KPHDNHEP). With the launch of the MBRS, all Malaysian incorporated companies and foreign companies registered under the Companies Act 2016, will need to get themselves prepared to file a full set of financial statements in XBRL format, unless otherwise exempted. Currently, all submissions are voluntary, and registered companies have been encouraged by SSM to use MBRS before the mandatory enforcement. SSM has set out various schedules with implementation dates for the various Zones and states pertaining to mandatory implementation for Annual Returns, Certificates for Exempt Private Companies and Unaudited Financial Statements. However, mandatory implementation for Financial Statements will be advised at a later date. Arising from the above and in the event you wish to understand more or do not have adequate resources to prepare your financial statements in accordance with MBRS requirements, our EY team of professionals is able to assist you in terms of: MBRS training MBRS outsourcing services Our EY team members are experienced professionals who are SSM-certified trainers for MBRS, and are ready to help you get ready for the above. Our workshops are as follows:- MBRS for Preparers Financial Statements Dates (2-day course) Venue Time Contact 20 & 21 February & 13 March & 18 April 2019 Ilmiah Room, Menara Milenium, Kuala Lumpur 9:00 a.m. 5:00 p.m. Lim Xin Tong: Shalene Gan: acr.seminar@my.ey.com 9