In this issue:
1. New Transfer Pricing Rules Gazetted
2. IRB Clarifies on CP58 (Payments to agents, distributors and agents)
3. Beware of Tax and EPF Scams
4. Draft GST Registration Guide Release
5. Recognised Certification Bodies for Quality Systems and Halal
In particular, please note the latest gazette orders on Transfer Pricing Rules for intra-group services, cost sharing arrangements, intangibles and financial assistance. These are common transactions in cross-country groups and can easily lead to onerous tax assessment in the event of tax audits.
There are also updates to completing your CP 58 forms.
New Transfer Pricing Rules Gazetted
The Income Tax (Transfer Pricing) Rules 2012 and Income Tax (Advance Pricing Arrangement) Rules 2012 were gazetted on 11 May 2012 and are deemed to have retrospective effect from 1 January 2009.
The Income Tax (Transfer Pricing) Rules 2012 are applicable to controlled transactions for the acquisition or supply of property or services and how to determine the arms length price. http://malaysiantax.com/attachments/PUA-132-IT-Transfer-Pricing-Rules_50963.pdf
The Income Tax (Advance Pricing Arrangement) Rules 2012 are applicable to taxpayers who carry out cross-border transactions and may apply to the Director-General for an advance pricing arrangement (APA). http://malaysiantax.com/attachments/PUA-133-IT-Advance-Pricing-Arrangement-Rules_53804.pdf
Commentary on new Transfer Pricing Rules:
The recently gazetted transfer pricing rules confers legislative powers to IRB’s ongoing practices to determine “Arms length pricing” for the following intergroup transactions:
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Intra-group services
- Arms length price for services are justified based on the economic benefit or commercial value to the Malaysia business.
- Certain instances of intra-group services are specifically disallowed.
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Cost contribution arrangement
- Where associated persons enter into a joint arrangement to acquire property/services, any payment for entry, withdrawal or termination of arrangement shall be at an arms length price that would have been made by independent persons.
- Associated persons are defined as if one person has control over the other, two persons under common control, or if they are relatives.
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Intangible property
- Where in a controlled transaction intangible property is sold or licensed out, the owner ot licensee shall charge an arm’s length price.
- The value of the intangible property shall be the benefit (not cost) the intangible is expected to generate.
- Intangible property includes patent, invention, formula, process design, plan, trade secret, know-how or marketing intangible
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Interest on financial assistance
- Interest shall be charged at an arm’s length interest rate
- Financial assistance includes loan, interest bearing trade credit, advance, debt, or provision of any security or guarantee
- Interest includes finance charges, discount, premium and others
- Note that it implies that even if no interest is charged, a deemed interest income can be assessed on the provider of financial assistance.
Please refer to the gazette order for further information. If any of the above applies to your business, it is critically important that contemporaneous transfer pricing documentation is prepared and retained. It may be advisable to seek expert consultation on the matter.
Inland Revenue Board (IRB) Clarifies On Preparation of CP 58
IRB has on 10 April 2012 provided clarification pertaining to Section 83A of the Act for the purpose of preparing Form CP 58 [2011] and Income Tax Return Form (ITRF) for year 2011.
The announcement comprises the following:
For companies paying cash and non-cash incentives in year 2011 to an agent, dealer or distributor, the Form CP 58 shall be furnished to the agent, dealer or distributor not later than 31 May 2012. However, concession are granted to the paying companies for not furnishing the Form CP 58 for year 2011 provided that such information on both cash and non-cash incentives are duly declared in the annual statement issued to the agent, dealer or distributor.
Commencing from year ending 31 December 2012 and years onwards, the paying companies are required to prepare and furnish Form CP 58 to an agent, dealer or distributor, in respect of cash and non-cash incentives in excess of RM5,000.
For non-cash incentives, the amount disclosed shall be equivalent to the value/actual amount expended by the paying companies. As such, Items No. 2a and 2b of Part C in Guide Notes on Filling Out Form CP 58 are deleted.
Cash and non-cash incentives received by an agent, dealer or distributor are business income. As such, an agent, dealer or distributor is required to declare the incentives received for year 2011 in his/her 2011 Income Tax Return
To view the announcement, please refer to the IRB’s website at the following link: http://www.hasil.gov.my/pdf/pdfam/PENGUMUMANSEK83A_1.pdf
Beware of fake EPF and IRB agents scams
EPF Scams
The Employees Provident Fund (EPF), in its press release statement issued on 6 April 2012, cautioned the public and its members to be wary of unscrupulous individuals impersonating as EPF agents in order to obtain confidential information and thumbprints of EPF members. This was carried out in the pretext that such information was required for updating the members’ personal particulars in the EPF database.
Members who had been approached by these individuals were urged to lodge a complaint through the EPF Anti-Fraud Hotline at 603-2616 2121 with operating hours from 8.15am to 5.15pm, Monday to Friday.
Tax Scams
The Inland Revenue Board (IRB) issued a press release statement on 6 April 2012 to remind fellow taxpayers to be more cautious with fake syndicates actively collecting taxes.
As of 6 April 2012 that there were two reported cases in Seremban, Negeri Sembilan and Kota Baru, Kelantan of fake tax collection syndicate members posing as IRB officials in telephone calls demanding for outstanding amount due. The taxpayers, having been convinced that the instructions came directly from the IRB headquarters in Kuala Lumpur, were asked to prepare the cash immediately to be collected the next day at their premises so as to enjoy a 50% rebate. The IRB viewed this issue seriously and had lodged a police report for further investigations.
The IRB cautioned all Malaysians, especially taxpayers, to be mindful when they received any calls, emails, letters or text messages from those claiming to be IRB officials and quickly sought verification with the IRB on such suspicious requests as the IRB had never collected money from taxpayers’ premises. All payments were to be made online or by cheque in the name of the IRB Director General at IRB payment counters or at selected banks.
Draft GST Registration Guide released
Royal Malaysian Customs has issued the draft GST Registration Guide. This guide provides information pertaining to the requirement and procedure for registration under the Goods and Services Tax Act (GST).
Please refer to http://www.gst.customs.gov.my/FindOutAbout/download?fileName=GST%20Registration%20Guide%20.pdf&fileId=712.
For other information on the draft GST legislation, please refer to www.gst.customs.gov.my
Recognised certification bodies for quality systems (e.g. ISO) and halal – to claim deductions.
Under the Income Tax Act 1967, a company can claim as a deduction any expenditure incurred for the purposes of obtaining recognized quality systems and standards and halal certification.
The claim shall be proven with a certificate issued by an agency or a certification body determined by the Minister of Finance.
Thus, expenses incurred to obtain certification for recognized quality systems and standards and halal certification from these certification bodies and agencies only are allowable as a deduction.
Please refer to the guidelines on the following link: http://www.hasil.org.my/pdf/pdfam/CertBodies9April2012.pdf.