The Inland Revenue Board (IRB) has recently uploaded the new Form CP58 and the Guide Notes on Filling Out Form CP58 [Pin.1/2013] on its website.

Size: px

Start display at page:

Download "The Inland Revenue Board (IRB) has recently uploaded the new Form CP58 and the Guide Notes on Filling Out Form CP58 [Pin.1/2013] on its website."

Esther Cole
5 years ago
Views:

1 RYTA TAXATION SERVICES SDN. BHD. (Company No T) Tax Update Issue 4, April 2013 Statement of Monetary and Non-Monetary Incentive Payment to An Agent, Dealer or Distributor Pursuant to Section 83A of the Income Tax Act 1967 [New Form CP58 and Guide Notes on Completion of Form CP58] The Inland Revenue Board (IRB) has recently uploaded the new Form CP58 and the Guide Notes on Filling Out Form CP58 [Pin.1/2013] on its website. Salient points of the new Form CP58 are as follows:- 1. Where a company has already issued or used the earlier version of Form CP58 (i.e. Form CP58 [2011] for the year ended 31 December 2012, it is not required to prepare fresh forms using the new Form (CP58 [Pin.1/2013]); 2. Effective from year ended 31 December 2012, a payer company is required to prepare and issue Form CP58 to an agent, dealer or distributor if the total value of monetary and nonmonetary incentives for the calendar year exceeds RM5,000; 3. No signature and company stamp is required in the Part D of the new form CP58. However, a payer company must furnish in full the particulars of recipients and incentive payments, including those of RM5,000 or less only if the IRB requires the company to do so. For detailed guide notes on Form CP58, please click the following link: Concession on use of Form CP58 In a recent meeting held on 21 March 2013 between IRB and the representatives of associations and corporate bodies regarding the use of Form CP58, the IRB has agreed to extend the concession given earlier that the payer companies need not issue Form CP58 for the calendar year of 2012 provided that the yearly statements (January 2012 to December 2012) issued to their agents, dealers or distributors consist of information regarding monetary and non-monetary incentive payments. Guideline on taxation of Electronic Commerce (E-commerce) The IRB has issued the above guidelines on 1 January 2013 and were uploaded to their website on 11 March The guidelines were issued to provide guidance on basic tax issues and income tax treatment in respect of e-commerce. The IRB adopts the principle of neutrality where e-commerce and conventional businesses are subject to the same tax treatment. IRB s announcement dated Guidelines on Taxation of Electronic Commerce dated Terminology 1. E-commerce means any commercial transactions conducted through electronic networks including the provision of information, promotion, marketing, supply, order or delivery of goods or services though payment and delivery relating to such transactions may be conducted off-line. 2. Server means a device (includes the computer hardware and its operating and basic application software) where e-commerce applications are sited or operated. 3. Website means a collection of information, which is linked together and available on the electronic networks that enable transactions to be conducted. Page 1

2 -Scope of Charge Para 3 and para 4 of the guidelines generally discuss the scope of charge of the income tax laws of Malaysia and the scope of tax liability for a business under the law. The salient points are:- 1. In general, income of a person accruing in or derived from Malaysia is subject to tax in Malaysia. 2. Where the business operations are carried on in Malaysia, the income of the person attributable to those business operations is deemed to be derived from Malaysia. Factors to be considered in determining the carrying on of business operations within Malaysia include performance of contractual obligations and location where contracts are formed / services are performed, or where goods are stored and arrangement was made for delivery of the products. 3. In the context of e-commerce, some determinant business activities that may be considered include sourcing of content, procurement of goods, promotions, advertisement, selling, updating and maintaining the website, uploading and downloading of contents, etc. 4. In the case where Double Taxation Agreement (DTA) is applicable, the test to determine whether Malaysia has taxing rights over the business income is based on the Permanent Establishment (PE) concept. -Treatment of server and website in determining the derivation of e-commerce income Para 5.1 states that although the server and website facilitate the performance of business activities, a server or website itself do not carry any meaning in determining derivation of income. Income from e-commerce would be considered as Malaysian income if the operation test shows that the person is carrying on a business in Malaysia. -Examination of business models Various basic models identified in this guidelines to determine whether income from e- commerce is derived from Malaysia and subject to Malaysian tax are summarised as follows:- R E S I D E N T N O N R E S I D E N T Business operations Website hosted Income from e-commerce In Malaysia Overseas In Malaysia overseas deemed derived from Malaysia? (refer example) Yes (6.1) Yes (6.2) Branch No (6.3) income of the company from operations in Malaysia taxable in Malaysia whilst the income derived from sales via the website that are attributable to the business operations of the branch outside Malaysia not deemed to be derived from Malaysia. No (6.4) No (6.5) Yes (6.6) Yes (6.7) No (6.8) Branch Yes. Income including e- commerce income that are attributable to the business operations of the branch in Malaysia (6.9) Branch No. Whilst income derived from the branch liable to tax in Malaysia (6.10) Page 2

3 General assumptions:- - Business either trading / manufacturing / services - Products either tangible / intangible - Website identify queries / order / payment / online delivery - Tangible products deliver by normal physical channel - Business activities include sourcing of contents / procurement of goods / promotion and advertisement / selling / arranging for delivery of products / maintaining website. - Withholding tax on Royalty Para 7 of the guidelines states that income from e-commerce of a non-resident is deemed not to be business income derived from Malaysia because the business operations is not carried on in Malaysia. If the payment to the non-resident is in the nature of royalty and deemed to be derived from Malaysia is subject to withholding tax. Royalty is defined under the Income Tax Act 1967 (the Act) as payments for the use of or the right to use copyrights, know-how or information concerning technical, industrial, commercial or scientific knowledge, experience or skill to a non-resident. Royalty is deemed to be derived from Malaysia if the payer is a resident, government, state government or a local authority and the royalty payment is charged as an outgoing or as an expense against any business in Malaysia. Para to provides examples for the types of payments falling within the definition of royalty under the Act. -Issues of double taxation and tax treaties A double taxation relief is available to a resident person whose income from e-commerce is subject to tax both in Malaysia and the foreign country, Para 8.3 of the guidelines cited that:- a. Unilateral tax credit is allowed under S 133 of the Act in accordance with Schedule 7 of the Act if there is no double taxation agreement (DTA) exists. b. Bilateral tax credit is allowed under S 132 of the Act in accordance with Schedule 7 of the Act if there is a DTA exists. Para 8.4 discusses the PE concept upon which the allocation of taxing rights over business income between countries which are partners to a DTA, is based. The following matters are discusses:- Para Subject Definition of PE and condition for a PE Implication of server constitutes a PE in Malaysia; (i.e. income arising from e-commerce through the server will be considered as derived from Malaysia) When would server constitute a PE, according to Organisation for Economic Cooperation and Development (OECD) commentary Examples of activities that would generally be regarded as auxiliary The general view where a server could constitute a PE For detail, please click the following links to view the guidebook:- ERCE.pdf Tax Incentives To Revive Abandoned Housing Project The following tax incentives for revival of abandoned housing project which announced during 2013 Budget have recently been gazetted by Ministerial Orders:- 1. Tax exemption on interest income received from the rescuing contractor / developer Pursuant to Income Tax (exemption)(no.9) Order 2013, the banking and financial institutions is given 100% tax exemption on interest income received from loans approved Income Tax (Exemption)(No.9) Order 2013 [P.U. (A)88/2013] Page 3

4 from 1 January 2013 to 31 December 2015 granted to a rescuing contractor who is reviving such abandoned housing projects. This exemption is applicable for 3 consecutive years of assessment (Y/A) from the year the loans were approved. Keeping of Record: The banking and financial institute must maintain a separate account for the tax exempt income. This is to ensure that only income derived from the business of giving loan to the rescuing contractor during the exempt period is exempted from income tax. Incomes from other business are subject to income tax. 2. Tax Incentives For Rescuing Contractor i. Pursuant to Income Tax (Deduction for Expenses In Relation To Interest and Incidental Cost in Acquiring Loan for Abandoned Projects) Rules 2013, the rescuing contractor is entitled to claim further deduction on interest expense and outgoing expenses involved in obtaining loans to revive the abandoned project. The further deduction shall only be claimed in the basis period for a year of assessment in which the abandoned project is completed. This Rule shall apply to a loan approved on or after 1 January 2013 but not later than 31 December ii. Pursuant to Stamp Duty (Exemption)(No.6) Order 2013, the contractor are also granted stamp duty exemption of all instruments of loan agreements to finance the revival of abandoned housing projects as well as on instruments of transferring revived residential properties in the abandoned housing project. Income Tax (Deduction For Expenses In Relation To Interest And Incidental Cost In Acquiring Loan For Abandoned Projects) Rules 2013 [P.U. (A)89/2013] Stamp Duty (Exemption)(No.6) Order 2013 [P.U. (A) 92/2013] The stamp duty exemptions granted to rescuing contractor are only applicable to the instruments executed from 1 January 2013 to 31 December Stamp Duty Exemption Given To Original House Purchaser In The Abandoned Project Pursuant to Stamp Duty (Exemption)(No.5) Order 2013, the original house purchasers in the abandoned housing project is granted stamp duty exemption on instruments of loan agreements for financing and instruments of transfer of the revived residential property. Stamp Duty (Exemption)(No.5) Order 2013 [P.U. (A) 91/2013] The stamp duty exemptions are only applicable to instruments executed by an original purchaser from 1 January 2013 to 31 December Printing Specifications For Income Tax Filing For Y/A 2012 Taxpayers are now permitted to use the PDF Forms to file tax returns for Y/A 2012 and the IRB has provided specifications for printing the tax returns. The PDF format of Forms E, BE, B, BT, M, MT, P, TP, TJ and TF printed from the IRB s website which did not meet the printing specifications will be rejected by the IRB. Please note that for tax return marked for reference only is not allowed for submission. For details information on the printing specification, please visit the IRB s website. Case law: Ketua Pengarah Hasil Dalam Negeri v. Metacorp Development Sdn. Bhd. (2013) Court level : Federal Court Facts: The taxpayer was a property developer. They had two parcels of its land acquired by the State Government of Malacca under s 16 of the Land Acquisition Act The taxpayer received the compensation but did not subject the compensation to income tax. As a result, the Revenue issued notice of additional assessment JA Form with penalty for years of assessment 2004 and The taxpayer did not appeal against the assessment to the Special Commissioners of Income Tax in accordance with Section 99 of the Income Tax Act Instead, the taxpayer filed for a judicial review from the High Court. Ketua Pengarah Hasil Dalam Negeri v Metacorp Development Sdn. Bhd. Page 4

5 Issues: Whether the gains arising from the compulsory for land acquisition were subject to income tax. Decision: The taxpayer appealed to the High Court arguing that a sale must be consensual. It must be based on one s own free will. Thus, the gains derived from compensation paid to the taxpayer were on the account of compulsory acquisition and it was not profit arising out of the taxpayers s business activity. As such, the compensation is not subject to income tax. Held: Allowed taxpayer s appeal The High Court allowed taxpayer s application for judicial review and ordered the following:- (i) A Declaration that the Revenue was bound by and shall give effect to the decisions of the Supreme Court in Lower Perak Co-operative Housing Society Berhad v Ketua Penagarah Hasil Dalam Negeri [1994] 3 CJL 541 and the Court of Appeal in Ketua Pengarah Hasil Dalam Negeri v Penang realty Sdn. Bhd. 2006] 2 CLJ 835, which held that the gains arising from the compensation for compulsory acquisition of land are not subject to income tax as the element of compulsion vitiates the intention to trade; and (ii) Order of Certiorari to quash the Revenue s decision and consequently the notice of additional assessment for the years of assessment 2004 and 2005 on the premise that the Revenue s decision is ultra vires, null and void. The decision of the High Court was unanimously affirmed by the Court of Appeal. The Revenue s application for leave to appeal to the Federal Court was unanimously dismissed by the Federal Court. Case law: Ketua Pengarah Hasil Dalam Negeri v. Tropiland Sdn. Bhd. (2012) Court level : Court of Appeal Ketua Pengarah Hasil Dalam Negeri v Tropiland Sdn. Bhd. Facts: The taxpayer carried on the business of car park operation. Taxpayer rent a piece of land from Penang Development Corporation for a period of 30 years under the condition whereby the taxpayer is required to build a multi-storey car park on the land. At the end of the lease, the car park and the land will be reverted back to the land owner. The Taxpayer has incurred RM10,064,676 on the construction of the multi-storey car park and claimed capital allowance on the cost of constructing the car park. In view that the car park is in the nature of a plant utilized primarily in producing the principal source of income for the company, hence should qualify for capital allowance under Schedule 3 of the Income Tax Act, 1967 (the Act). The Revenue has issued notices of additional assessment Form JA disallowing the taxpayer s capital allowance claim on the car park on the basis that the car park is not the means by which the business is carried on but merely a place on which the business is conducted. Thus, the taxpayer was not qualified for capital allowance. Issues: Whether the purpose built car park is a plant in the course of the taxpayer s business and thus, whether it qualifies for capital allowance. Decision: The Court of Appeal ruled that the multi-storey car park was an essential component of the taxpayer s business without which the taxpayer could not have generated its revenue. The Revenue had recently withdrawn its application for leave to the Federal Court to challenge the decision of the Court of Appeal. Page 5

6 Case law: Ketua Pengarah Hasil Dalam Negeri v. Pelangi Sdn. Bhd. (2012) Court level : Court of Appeal Ketua Pengarah Hasil Dalam Negeri v Pelangi Sdn. Bhd. Facts: The principal activities of taxpayer were property development and investment holding. The taxpayer owned 19 parcels of land in Johor Bahru and all were classified as stock in trade. In 2008, taxpayer received compensation for the all parcels were compulsorily acquired by the state authority. The taxpayer did not subject the compensation to income tax following the decisions of the Court of Appeal in KPHDN v Penang Realty Sdn Bhd and Lower Perak Cooperative Housing Society Berhad v KPHDN. The IRB disregarded the decisions in Penang Realty and Lower Perak and relied on its Decision Impact Statement and subjected the compensation to income tax. This prompts the taxpayer to file a judicial review in order to challenge the decision of the IRB in High Court. The High Court held that an order quashing the decision of the IRB since they were bound by the decisions in aforesaid cases that the gains arising from the compensation for compulsory acquisition of land were not subject to income tax. Furthermore, the High Court held that the taxpayer was entitled to interest at 4% accruing from taxes unlawfully collected by the IRB s decision to subject the said gains to income tax. Issue: Whether the High Court may award interest against the IRB? Decision: The High Court was vested with the discretion to award interest payment as compensation under Section 11 of Civil Law Act According to High Court, this position was affirmed in several of Federal Court decision. An award of interest is a remedy available to the aggrieved party when the use of his money has been unlawfully deprived by the other party. In the present case, the High Court ordered the IRB to pay interest to the taxpayer on the sum unlawfully retained by the IRB from the date of IRB s decision. The decision of High Court was unanimously affirmed by the Court of Appeal. The IRB s application for leave to appeal to the Federal Court was unanimously dismissed by the Federal Court. Case law: Ketua Pengarah Hasil Dalam Negeri v. Gracom Sdn. Bhd. (2013) Court Level: High Court Ketua Pengarah Hasil Dalam Negeri v Gracom Sdn. Bhd Facts: The principal activity of taxpayer was an investment holding company (IHC) since the company incorporated. Between years of 1989 and 1995, 2 parcels of agriculture land were purchased and sold off by taxpayer. In year 2000, the Inland Revenue Board (IRB) raised a notice of additional assessment for income tax (Form JA) in respect of Year of Assessment 1997 against the gains made from the disposal of two parcels of land. The tax consultant of taxpayer files a notice of appeal (Form Q) to the Special Commissioners against the aforesaid additional assessment. From the view of taxpayer, the intention and purpose of holding the two parcels of land (The Two Parcels) only as an investment from the time were purchased up till sold off which were evident and supported from the following reasons:- 1. The taxpayer had consistently held the Two Parcels were classified as property development expenditure item, i.e. non-current assets from the time the Two Parcels were purchased and sold. The Two Parcels should be held as current asset if the taxpayer had intended to develop them. Page 6

7 2. Although one of the taxpayer s principal activities was property development as stated in audited report, the taxpayer never undertook any such activity during the Two Parcels was held and even after the Two Parcels has been disposed of. 3. The taxpayer did not hold developer s licence and had no experience in property development. 4. In view of taxpayer that the land would be appreciated in value where it was strategically located near to coming infrastructure improvement and Government initiative with huge development project area. 5. The taxpayer did not take any level effort to develop or change the nature and character of the Two Parcels as make any application to convert the agriculture title or submit any plan to authorities from the time of purchased till sold off. 6. Due to group restructuring activity conducted by the ultimate holding company of the taxpayer in strengthening one of a related company s position for public listing purpose, the taxpayer was required to sell the Two Parcels. Besides that, it would be a good time to realise the investment since the Two Parcels has appreciated in value. Accordingly, the taxpayer contended that the gains arising from the disposal of the Two Parcels were not subject to income tax because of the Two Parcels were held as investment from the time it was purchased up until the time the Two Parcels were sold off. However, the IRB argued that the taxpayer was a property developer and they had profit seeking motive at the time of acquisition of the Two Parcels since it was foreseeable that various development project would be undertaken by the Government to develop the area. Thus, it meant that the gains from the disposal of the Two Parcels were business income. Issue: Whether the gains from the disposal of the Two Parcels were revenue receipts and subject to tax in accordance Section 4(a) of the Income Tax Act 1967 or capital receipts and taxable under the Real Property Gains Tax Act 1976? Decision: The Special Commissioners held that it was required to determine the intention with which the taxpayer purchased the Two Parcels during the time of the acquisition of the asset. It was also of critical factor to note that the intention must amount to an intention in law. According to the facts highlighted above, the Special Commissioners found that intention of taxpayer acquired the Two Parcels was for investment purposes based on the following:- a. The taxpayer acquired the Two Parcels because of its strategic location and the value of land was also projected to increase substantially in future due to coming infrastructure improvement in the surrounding area. b. The ultimate holding company of the taxpayer has intended to hold the Two Parcels as investment which is consistent with the taxpayer s principal activity as IHC as per Memorandum and Articles of Association. c. The Two Parcels were consistently held as non-current assets in audited accounts for almost 6 years before disposal. Furthermore, the taxpayer did not have any experience and expertise, finance and developer s licence to undertake property development activities. Apart from acquiring the Two Parcels and after their sold off, the taxpayer did not purchase any other land as well dealt in the business of real estate. This was further evidence of its intention to hold the Two Parcels for investment. d. The taxpayer did not alter or improve the character or quality of the Two Parcels in order to enhance its marketability on the day it was purchased and later sold. This was strong evidence of the taxpayer s intention of holding them for investment purposes. e. The disposal of the Two Parcels was triggered by way of group restructuring activity exercised by the taxpayer s ultimate holding company. Otherwise the Two Parcels would be retained in the taxpayer s account. Page 7

8 The High Court upheld The Special Commissioners decision and ordered the notice of additional assessment to be discharged. The IRB did not appeal to the Court of Appeal against the High Court s decision. The material contained in this newsletter is in the nature of general comment and information only and neither purports, nor is intended to be advice on any particular matter. Readers should not act or rely upon any matter or information contained in or implied by this publication without taking specific professional advice. Accordingly, RYTA Taxation Services Sdn. Bhd. assumes no responsibility for any loss whatsoever sustained by any person who relies on this publication. Should further information, clarification or advice be required on any of the contents stated herein, please contact our tax team. A fee quotation may be sent if specific advice is required on any particular matter which require considerable amount of time to be spent in order to render such advice. RYTA Taxation Services Sdn. Bhd. (Company No T) Wisma Goshen (3 rd Floor) No 60 & 62, Jalan SS 22/21 Damansara Jaya Petaling Jaya, Selangor Tel: Fax: info@ryta.com.my Page 8

Hyperlinks. April Advent Consulting Group Inland Revenue Board. References. PR No. 2/2013 Perquisites from Employment. PR No.

Hyperlinks. April Advent Consulting Group Inland Revenue Board. References. PR No. 2/2013 Perquisites from Employment. PR No. April 2013 Hyperlinks Advent Consulting Group Inland Revenue Board PR No. 2/2013 Perquisites from Employment The Inland Revenue Board [ IRB ] has recently issued the Public Ruling [ PR ] No. 2/2013 Perquisites