1. GLOBAL TAXATION TOWARDS COUNTRY DEVELOPMENT- Tax Planning
Assoc. Prof. Dr. Rizal Palil
Universiti Kebangsaan Malaysia

2. OUTLINE Global taxation Issues and challenges Tax planning
Adam Smith’s “Canon of Taxation”
New tax concepts/new tax introduced
Summary and discussions

3. Global Taxation 1 2 3 4 5 Involved:
Gain or profit from a business, for whatever of period of time 2
Gains or profit from employment 3
Dividends, interest or discounts 4
Rents, royalties or premiums
Pensions, annuities or other periodical payments not falling under any of the above 5

4. Issues and Challenges Literacy rates increase Borderless world
Unlimited information (although false)
Social media
Facebook
Instagram
WhatsApp
Weechat

5. Tax planning Introduction:
Tax planning is a series of measure taken by a taxpayer to manage his income sources with the objective of eliminating, minimizing or deferring tax, but within the ambit of tax legislation
Business income
Commencement
of business
Business source
Test to ascertain
commencement
Tax planning
Pre-commencement
business expenses
company
Cessation of business

6. Tax planning 1 2 3 4 5 Including: Transfer Pricing
Capital gain or business profit? 3
Transfer Pricing 4
Arm’s length transaction
Double taxation agreement 5

7. Tax planning Commencement of business Basis period:
- commencement date basis period for taxation
the basis period of a financial year of 12 month will be the basis year of assessment for taxation
A business operator is advised to close his account for a 12 month period in order to avoid tax adjustment due to overlapping profit
First year of taxation from the commencement date to 31 Dec
Expenses:
- revenue expenses that are wholly and exclusively incurred in the production of income will be tax deductible against the gross income.
expenses incurred prior to commencement will not be tax deductible

8. Tax planning The test to ascertain commencement of business income tax
Current year loss:
- upon commencement of business revenue expenses will be deductible as current year loss from aggregate income.
Disposal of assets:
- disposal of assets before the commencement of a business treated as a capital transaction
assets acquiring with intention to resell at profit
The test to ascertain commencement of business
income tax
Trading business open it’s door to the public
Service provider render his service
Manufacturing business first stage of manufacturing process

9. Incorporation expenses Number of business sources
Tax planning
Pre-commencement business expenses
Are not deductible as they incurred preparatory to produce income
Except the following pre-commencement expenses that are deductible:
Training expenses
Training potential employees – within the one year prior to commencement of business – not receiving training grant from the government
Incorporation expenses
Company capital no exceeding RM2.5 million can claim: cost of preparing and advertising prospectus, registering the company, drawing up the preliminary contracts, printing and stamping debenture and share certificates, sale of the company, underwriting commission
Number of business sources
For operators that have more than one trading business simultaneously and manufacturing businesses source – capital allowance of business 1 can not utilize against adjusted income of business 2
Capital allowance of the assets that use in both businesses will be divided among the businesses to a reasonable basis

10. Tax planning Cessation of business
When the operator disposes of planet, machinery, factory, office equipment
the business is said to have ceased
Text in here
1- Disposal of plant & machinery
2- Disposal of land/ shop house
Cessation of business
4- Tax implication of unabsorbed losses
3- Disposal of trading stuck
5- Disposal of trade debtors

11. The sale be less than 5 years holding 5% tax exceeded 5 years exempt
1- Disposal of plant, machinery and… will trigger off balancing adjustment
Qualifying expenditure xx
Less: initial allowance (x)
annual allowance (x)
Tax written down value xx
less: sales proceeds (xx) x
Balancing charge
Balancing allowance
As Malaysia income tax does not impose on capital gain the amount of balancing charge will be restricted to actual allowance(initial and annual)
2- property in Malaysia( land and shop house) gives rise to capital gain
The sale be less than 5 years holding % tax
exceeded 5 years exempt

12. Sales stock below market value
3- Disposal of trading stock liable to income tax at market price of such stuck
If the disposer permanently ceased to carry on the business
the acquirer will accept the trading stock in this business
there is a valuable consideration
Sales stock below market value
4- cessation of business distinct from liquidation as a company can have more than one business source
Surplus of cessation returned to shareholder (will be taxed)
Free from tax income company undertake a capital reduction scheme approved by court or if it undergoes liquidation (capital gain)
Unabsorbed loss set off against other business income

13. 5- trade debtors dispose book value or below it
The loss of disposing of trade debtors capital loss
To avoid loss and make it as deductible expense:
Provide support evidence for bad debts such as bankruptcy or liquidation

14. Aggressive Tax planning
Companies have to select between competing alternative and avoid pitfalls based of knowledge of the tax legislation
Commencement of business
Controlled
transfer
Disposal of
assets
Tax planning for companies
Distinction between business income and investment income
Financing
arrangement
Investment income
Investment in
a company
Interest restriction

15. Leasing Hire purchase Through loan Wholly in cash
Commencement of business:
Importance: determination for commencement date of a business
The test: refer to the essential activity of a company that relevant in determining business commenced
Financing arrangement:
for the asset acquisition cash flow tax payable
Leasing
Hire purchase
Through loan
Wholly in cash
Would be the most advantageous
Timing : full amount of lease rental is given
A revenue deduction in the year of incurred
Set off: the leasing charges would increase
the adjusted loss in current year
Utilization: the unabsorbed business losses
can be carried forward

16. Disposal of assets:
to avoid claw back capital allowance by tax authority:
Disposal of assets within 2 years of acquisition (2 years of ownership is required)
Assets generate balancing allowance dispose at year end in order to obtain balancing allowance to shelter adjusted income
Assets generate balancing charge postpone to the following year to defer tax liabilities
Controlled transfer:
Assets have been transfer at the tax written down value of the transferor
no balancing charge or balancing allowance would arise on the transferor
Transferee would only be entitled to claim annual allowance but restricted to tax written down value of assets transfer

17. Distinction between business income and investment income:
Advantage of business income
availability of capital allowance
availability of current year loss
carry forward and utilize of unabsorbed loss
flexible deduction of expense
Capital allowance available reduce taxable income from business income
Fully utilize the capital allowance within the company
Adjusted loss can adjust to business income unless:
Both companies be tax resident and be within the group for the past 12 month
Each company paid up capital be more than RM 2.5 million at beginning of the year

18. Taxpayer borrowed money producing business income
Investment interest expense
Borrowing
Tax planning to overcome interest restriction
Identification of investment from existing borrowing and direct allocation of the cost of borrowing to the investment
Review interest charges annually, source for cheaper financing
Arrange for subsidiary to borrow directly from the bank
Establish separate bank account to hold specific loan monies exclusively for business use
Create sufficient non-business income to absorb interest applicable to investment
Disposal of investment that are not profitable to pay off the borrowing with high cost of fund
Withdrawal of fixed deposit to settle the borrowing

19. Investment in company – equity or debt financing:
Share capital- when shareholders receive taxable dividend from a company they would receive the net dividend(after the company tax rate)
tax credit on dividend would be given as set off again the tax payable of the shareholders
Debt financing – receive full amount of interest income
If an investors borrow externally and then invest in the form of shares, the interest expense is only available to be set off against the dividend income from the investee company
No declare of dividends interest expense permanent loss
Loan invest full deductibility of interest expense from interest income

20. Adam Smith’s Canons of Taxation.
EQUALITY
CERTAINTY
CONVENIENCE

21. Introducing new taxes?

22. Thank You!