Required: Advise Mr. Sighed on the issues that he needs to consider – advising on tax implications (on the law) supported with tax cases Presented By: Suzeiliana Binti Mohd Arshad

Operate biz. trading of glittering ornaments, decoration, collectible items & apparel & pay sroyalty MG (Max Glitter S/B Sparkle Pte Ltd Incorporated in Singapore Tinsel Ace Pte Ltd Hong Kong based Gold Dust Pte Ltd (GD) UP Company Pte Ltd Subsidiary to UP Co. Charge 10% commission on Internal audit, marketing and mgmnt accounts services Incorporated in USA superglitter

 The following consideration may be relevant when deciding whether a company is trading in or with Malaysia. - The place where the contracts of sales are made. - The place where the operations from which the profits arose are carried out - The place where payment made

INCOME Where the contract of Sales was concluded Business Operation / Trade Title of goods passes from the buyer to the seller Proceed of Sales Received It was held that the operations from which the profits arose took place in Hong Kong as the contract made in Hong Kong. The application for the purchase of the bill was made in Hong Kong and it was processed in Hong Kong. Bank Of India V CIR

INCOME Where the contract of Sales was concluded Business Operation / Trade Title of goods passes from the buyer to the seller Proceed of Sales Received CIR V Karsten Larssen & Co (HK) LTD CIR V Karsten Larssen & Co. (H.K) Ltd. Although some services were carried out overseas by an agent appointed by the taxpayer, the profit retained by the Hong Kong company was held to be derived from Hong Kong, based on the fact that there was an agreement identifying the taxpayer and the overseas agent and their share of the commission.

INCOME Where the contract of Sales was concluded Business Operation / Trade Title of goods passes from the buyer to the seller Proceed of Sales Received It was held that there are three conditions for a charge to arise : 1. The taxpayer must carry on a trade, profession or business in Hong Kong; 2. The profits to be charged must be “from such trade, profession or business” carried on in Hong Kong; and 3. The profits must be “profits arising in or derived from “ Hong Kong”. CIR V Euro Tech

INCOME Where the contract of Sales was concluded Business Operation / Trade Title of goods passes from the buyer to the seller Proceed of Sales Received The court ruled that it was the bridging operations done by the taxpayer between the UK companies and the two overseas buyer companies in Hong Kong that gave rise to the profit. The court said: “If a taxpayer has a principal place of business in Hong Kong, it is likely that it is in Hong Kong that he earns his profits. It will be difficult for such taxpayer to demonstrate that the profits were earned outside Hong Kong and therefore not chargeable to tax.” CIR V Euro Tech (Far East) Ltd

The tax implication Royalty Internal audit services, marketing services and centralised management accountant Overseas trip & Commission

ITA 1967 Royalty(Section 2) “royalty” includes a) Any sums paid as consideration for the use, or the right to use:- i) copyrights, artistic or scientific work,patents…..means of reproducrtion or to be used in M’sia or other like property or rights ii) Know how or information concerning technical, industrial, commercial, experience, knowledge or skill; iii) Income derived from the alienation of any property….

The taxpayer co. incorporated and resident in S’pore, received payment from Petronas Carigali Sdn Bhd (PCSB), a M’sian company under the contract for the provision of 3 rd party inspection and expediting services for a particular project. PCSB withheld 15% of the payments made to tax payer The question before court whether taxpayer entitled for a refund of tax witheld. The Special Commisioner agreed that 98% of the services rendered outside M’sia however SC viewed the payment were chargeable to the tax sec 4a SGSS (Pte.) Ltd. V Ketua Pengarah hasil dalam nNegeri DGIR vs Euromedical Industries Ltd Uk Co. Euromedical entered into agreement with M’sian co to set up EISB in Malaysia for the purpose of manufacturing catheres. The agreement provided inter alia, for Euromedical Industries Ltd to provide managerial & technical services to EISB. Fees were paid for the services rendered. The DGIR was the view that the fees constituted royalties under sec 2 and states that assessment treating the fees as royalty income falling to be assessed under sec 4. Euromedical argued that the fees should be treated as business income since it had no PE in Malaysia (under UK-Malaysia double taxation treaty such income was not subject to tax in Malaysia. Double tax agreement on royalty.

The issue: whether the sum of RM590,825 incurred and paid in 1985 to Alexander Proudfoot (M) Sdn Bhd by the appellant in respect of an inefficiency study to increase productivity and reduce costs in the appellant business is an expense wholly and exclusively incurred in the production of gross income and deductible under sec 33(1) Court held: there is no nexus or connection between the efficiency study and connection the subsequent liquidation of the company, and therefore the cost of efficiency study are allowable for tax deduction. * To be deductible, expenditure must not only be wholly and exclusively incurred but it must also incurred during that period. Ketua Pengarah Hasil Dalam Negeri v International Foods Sdn BHd

Allied Metalcraft Corporation vs Ketua Pengarah Hasil Dalam Negeri AMC involved business kitchen utensil to the public and assigned individual to sell n commission pay to them. Salesmen who achieved target were given free overseas trip. Initially IRB allowed for deduction but they disallowed fy assessment 1996 & But taxpayer contended that the expenses should be deductible pursuant to sec 33 (1). However Special Commission held the said expenses is not allowed for deductible as the taxpayer did not exercise control over the individual

INCOME Where the contract of Sales was concluded Business Operation / Trade Title of goods passes from the buyer to the seller Proceed of Sales Received CIR v Hong Kong Whampoa Dock Co. Ltd The court upheld the Board’s decision and held that the payment of services is of no importance in deciding the issue and because almost the entire services performed, which gave rise to the profits, were performed outside Hong Kong, the profit did not arise in or derive from Hong Kong. CIR V HK Whampoa Dock Co Ltd

 Tax audit is carried out by the tax authorities' personnel.  They will advise the taxpayers of the date and estimate of the duration of the audit.  The scope of audit will also be defined so that the taxpayer can adequately prepare the documentation required.  Public ruling 7/2000 spells out the responsibility of the taxpayer to provide reasonable facilities and assistance to the tax personnel while they are carrying on the tax audit.  If they fail to do this the taxpayer may be liable to a monetary penalty of RM1,000 to RM10,000 and imprisonment for one year or both.  The number of years of assessment subject to tax audit cannot exceed 6 years of assessment.