Friday 28 January 2011

CIRCULAR MF4/2011: AUDITORS' REPORTING PURSUANT TO BURSA MALAYSIA SECURITIES BERHAD LISTING REQUIREMENTS ON DISCLOSURE

CIRCULAR MF4/2011: AUDITORS' REPORTING PURSUANT TO BURSA MALAYSIA SECURITIES BERHAD LISTING REQUIREMENTS ON DISCLOSURE OF REALISED AND UNREALISED PROFITS/LOSSES IN THE NOTES TO THE QUARTERLY REPORT AND ANNUAL AUDITED FINANCIAL STATEMENTS

28 Jan 2011 Circular MF4/2011

TO ALL MEMBER FIRMS

AUDITORS' REPORTING PURSUANT TO BURSA MALAYSIA SECURITIES BERHAD LISTING REQUIREMENTS ON DISCLOSURE OF REALISED AND UNREALISED PROFITS/LOSSES IN THE NOTES TO THE QUARTERLY REPORT AND ANNUAL AUDITED FINANCIAL STATEMENTS


Bursa Malaysia Securities Berhad (“Bursa Malaysia”) issued a directive on 20 December 2010, requiring all listed corporations to disclose the breakdown of unappropriated profits or accumulated losses into realised and unrealised on group and company basis, as the case may be, in the notes to the quarterly reports and annual audited financial statements (hereafter referred to as “Bursa Malaysia Disclosure”).

International Standard on Auditing (“ISA”) 700, Forming an Opinion and Reporting on Financial Statements, governs the forming and reporting on financial statements by external auditors. In forming an opinion and reporting on the financial statements, ISA 700 requires auditors to form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. ISA 700 is written in the context of a complete set of general purpose financial statements, i.e. financial statements that are prepared in accordance with an applicable financial reporting framework.

In Malaysia, the applicable financial reporting framework refers to the approved accounting standards issued by the Malaysian Accounting Standards Board (“MASB”). The MASB standards do not deal with the distinction of profits and losses into realised and unrealised, nor do they require the disclosure of such distinction. Accordingly, the Bursa Malaysia Disclosure is construed as supplementary information that is not required by the applicable financial reporting framework to be disclosed in the financial statements.

Arising from its communication with the regulators, the Institute takes cognizance that Bursa Malaysia expects auditors to provide assurance on the Bursa Malaysia Disclosure as supplementary information to the annual audited financial statements. The auditor may address this reporting responsibility within the auditor’s report on the financial statements under a separate sub-title of “Other Reporting Responsibilities” to clearly distinguish this from the auditor’s responsibility under ISA 700 to report on the general purpose financial statements.

The directors of the listed corporations are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants (“MIA Guidance”) and the directive of Bursa Malaysia Securities Berhad.

The auditor may report whether the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad. The auditor shall not include a statement, whether explicitly or implicitly, that the Bursa Malaysia Disclosure achieves a true and fair presentation in the context of general purpose financial statements.

As a guide, the auditors may consider using the following wording in the report:

Other Reporting Responsibilities

The supplementary information set out in Note XX is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants ("MIA Guidance") and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad.

Please be guided accordingly.

Wednesday 26 January 2011

Utilisation of income tax credit for set-off

The IRB has issued Operational Guidelines No.2/2010 on 30 December 2010 detailing the order and procedures for set-off. It states that a tax credit for a year of assessment arises from -

(i) excess payment on the date the assessment is deemed issued or the formal assessment is raised,

(ii) tax discharged,

(iii) tax credit arising under section 110 of the Income Tax Act 196 or Section 51 of the Finance Act 2007.

Members may view the operational guidelines at http://www.hasil.gov.my/pdf/pdfam/GPHDN2_2010ENG.pdf

Issuance of income tax return forms (ITRFs) for year of assessment 2010

The IRB has issued a press release on 11 January 2011 on the above. Taxpayers will receive the 2010 ITRFs latest by the middle of February 2011. However, ITRFs will not be issued to taxpayers who e-filed for the year of assessment 2009 and those with employment income of less than RM26,000 in the year 2009.

The following taxpayers will need to e-file their ITRFs:

(i) Taxpayers with employment income of more than RM26,000 in 2010,

(ii) Taxpayers requesting for a refund of excess payments under Section 51 of Finance Act 2007 or Section 110 of Income Tax Act 1967,

(iii) Taxpayers who are not taxable but have been paying taxes through the Schedular Tax Deduction.

The IRB has indicated that only the original ITRFs 2010 or PDF forms obtained from the IRB branches will be accepted. Member may view the press release statement on the website of the IRB at http://www.hasil.gov.my/pdf/pdfam/IssuanceofTaxReturn2010.pdf.

Grace period for filing of income tax returns in calendar year 2011

Members are reminded that income tax returns which are due for filing on or after 1 January 2011 and received by the Inland Revenue Board (IRB) within 3 days of such due date will be treated as having been received on the due date of filing. The grace period is applicable to all manual filings, whether by hand or by post, but is not applicable to e-filing. The grace period is also applicable to payment of the balance of income tax under Section 103(1) of the Income Tax Act 1967. Any application for an extension of time to pay the balance of tax payable will not be considered.

Members may refer to the IRB’s letter dated 16 August 2010 as below:-

/cms/file/IRB's%20letter%20(160810)%20-%20Grace%20Period%20for%202011.pdf

Wednesday 19 January 2011

Did you know non-executive directors are a special group of taxpayers?


COMPANY non-executive directors are a special breed of taxpayers under our tax laws.
They are treated differently from their position recognised in contract law. Directors are not employees; they do not have a master-servant relationship with the company of which they are directors. They have what is commonly known as a contract “for” service with the company. This is distinct from an employee's contract, a master-servant relationship evidenced by a contract “of” service.
If this sounds confusing, it is. An eminent judge in Britain drew the difference between a ship's master, a chauffeur and a reporter on the staff of a newspaper all being employed under a contract of service whereas a ship's pilot, a taximan and a newspaper contributor are employed under a contract for services.
Directors are holders of “office” for a term, which is not defined in the tax legislation and is said to be of “indefinite context”. However, under most tax laws, including ours, directors are included in the definition of “employees” and the term “employment” includes the holding of an “office”.
What is the significance of this rather convoluted tax treatment? Well, the reason is not difficult to guess: to garner more taxes for our tax collectors.
Without this extended definition, directors pay tax on their fees and other cash benefits such as attendance allowances and nothing else.
Their treatment as employees means that they are taxed on “perquisites” and “benefits-in-kind”, which they receive as directors of the company that pays them.
The home utilities costs incurred by a director, if paid for by the company, would be a “perquisite”. The value of accommodation provided to a director would be a “benefit-in-kind”.
The law on the taxability of “benefits-in-kind” derives from the English common law, i.e. the judicial pronouncement of courts in England.
In a landmark case, the House of Lords took the view that a benefit which is not convertible into money would not constitute income and should not be taxable on the employee receiving it. The case involved a bank manager who was allowed to occupy the upper floor of the said bank premises. The tax authorities sought to regard the value of the living accommodation as income to the employee. The court took the view that since the manager could not convert the benefit into money by say, assigning his occupying right to another person for cash, the benefit was not income to him. This decision became a general principle, that a benefit would only be taxable if it is capable of being converted into money or money's worth.
Our tax laws, in light of this principle, contain a specific provision to tax a housing benefit provided to an employee, thus effectively nullifying the general rule.
No similar specific provision has been enacted to tax benefits such as the use of a car. Thus, a director who has been provided the use of a car might argue that this benefit is not convertible into money and he should pay no tax on it.
He would find his claim thwarted by the fact that specific words have been added to the taxing provision to tax a benefit (not being a benefit convertible into money).
These words are clearly designed to put our present day non-executive director (and all employees as well) receiving non-monetary benefits on quite a distinct fiscal path from that of our legendary bank manager.
So non-executive directors should be in no doubt that the tax man would seek to tax many, if not all the benefits which they receive as directors. The benefits are becoming more varied, with levels of remuneration packages increasing.
This is in part due to the recognition by companies, particularly public companies, that directors' responsibilities and the risks associated with them have increased substantially in recent years.
A recent study of directors' remuneration of financial institutions made a strong case that fees and other payments should be trending upwards if talented and experienced individuals are to fill a depleting pool of qualified directors.
Public companies generally make payments to their non-executive directors in some of the following forms:
Director fees. These are generally fixed to motivate responsibility.
Meeting fees are paid to encourage participation.
Both fees are taxable in full. A recent change in the law allows the fees to be taxed in the year they are received rather than in the year for which they are paid.
Fees received from a foreign tax resident company are not taxable on the basis of it being foreign income. Exceptionally a Malaysian incorporated company can be tax resident outside Malaysia if it is managed and controlled from outside the country.
Ex-post and ex-gratia payments are made to recognise long service and substantial contributions.
These are taxable in full unless they meet the criteria of “retirement gratuities”.
Stock awards paid to cultivate a longer-term perspective and sense of belonging are taxable on the market value of the stocks.
In certain instances, the use of a personal service company of the director to receive the fees could be used to benefit from the lower 20% rate.
However care should be taken in structuring this to avoid challenge as a tax avoidance arrangement.
The question often arises as to whether the expenses of travelling to attend board meetings could be deductible against the fees received where such costs have to be borne by the director.
The general principle is that travelling from home to office is not deductible and the tax authority will apply this rule to disallow such a claim.

  • Kang Beng Hoe is an executive director of Taxand Malaysia Sdn Bhd, a member firm of the Taxand global organisation of independent tax firms. The views expressed do not necessarily represent those of the firm. Readers should seek specific professional advice before acting on the views.










  • Thursday 13 January 2011

    Stamp Duty (Remission) (No.3) Order 2010 [P.U.(A) 475/2010]

    Fifty per cent of stamp duty chargeable on any instrument of transfer for the purchase of only one unit residential property (i.e. a house, a condominium unit, an apartment or a flat unit built as a dwelling house), costing not more than RM350,000 by a Malaysian citizen shall be remitted provided that
    (i)            the sale and purchase agreement is executed between 1 January 2011 and 31 December 2012, both days inclusive;
    (ii)           the Malaysian citizen does not own any other residential property at the date of execution of that sale and purchase agreement;
    The application for remission may only be made once and is also applicable to co-purchasers.

    Stamp Duty (Remission) (No.2) Order 2010 [P.U.(A) 423/2010]

    Fifty per cent of stamp duty chargeable on any loan agreement executed between a Malaysian citizen purchaser and a financier to finance a purchase of one unit residential property (i.e. a house, a condominium unit, an apartment or a flat unit built as a dwelling house), costing not more than RM350,000 shall be remitted provided that
    (i)            the sale and purchase agreement is executed between 1 January 2011 and 31 December 2012, both days inclusive;
    (ii)           the purchaser does not own any other residential property at the date of execution of that sale and purchase agreement;
    The application for remission may only be made once and is also applicable to co-purchasers.
    “financier” means
    (a)  a bank,
    (b)  a financial institution,
    (c)  an insurance company registered under the Insurance Act 1996 [Act 553],
    (d)  a co-operative society registered under the Co-operative Societies Act 1993 [Act 502], or
    (e)  an employer under an employee housing loan scheme.

    Policy on stamp duty on service agreements and Stamp Duty (Remission) (No.4) Order 2010 [P.U.(A) 476/2010]

    The Tax Analysis Division of the Ministry of Finance has issued the above policy statement on 30 December 2010.  It stipulates that service agreements executed on or after 1 January 2011 will be subject to ad valorem duty of 0.1%.  For multi-tier service agreements, ad valorem duty of 0.1% will be imposed on the first tier only. The ad valorem duty of 0.1% will be imposed on:
    a)    the first tier for service agreements executed between a private entity and the service provider; or
    b)    the second tier for service agreements executed between an entity which is exempted from payment of stamp duty (eg. the Government of Malaysia) and the service provider.  
    The service agreements executed for other tiers will be subject to stamp duty at a fixed rate of RM50 and the excess duty will be remitted.
    Following from the policy statement, the Stamp Duty (Remission) (No.4) Order 2010 [P.U.(A) 476/2010] was gazetted on 31 December 2010 to remit the stamp duty collected in excess of RM50.  

    Income Tax (Exemption) (No.2) Order 2010 [P.U.(A) 478/2010]

    The Minister exempts a locally incorporated resident company from payment of income tax on income received from the sale of certified emission reduction, i.e. gross income from the sale less expenditure, not being capital expenditure, incurred by the company for the purposes of obtaining certified emission reduction.  The expenditure shall be deemed to be incurred in the basis period for a year of assessment in which the income from the sale of certified emission reduction is received.  The company shall maintain a separate record for the income so exempted.
    certified emission reduction” means a Kyoto Protocol unit equal to one metric tonne of carbon dioxide equivalent, calculated in accordance with Kyoto rules and is issued for gas emission reductions from an activity of clean development mechanism project (i.e. a project of clean development mechanism approved by the Ministry of Natural Resources and Environment).

    Income Tax (Deduction for Premium for Export Credit Insurance Based on Takaful Concept) Rules 2010 [P.U.(A) 428/2010]

    The Rules stipulate that effective from year of assessment 2011, premiums incurred for export credit insurance based on takaful concept and paid to a company approved by the Minister shall be allowed a double deduction in arriving at the adjusted income of the business.

    Labuan International Business and Financial Centre (Labuan IBFC)

    The following legislations relating to the Labuan IBFC are effective from 15 December 2010.
    a)  Labuan Financial Services Authority (Processing and Approval Fees)(Labuan Financial Institutions) Order 2010 [P.U.(A) 413/2010]
    b)           Labuan Companies Regulations 2010 [P.U.(A) 414/2010]
    c)           Labuan Trusts Regulations 2010 [P.U.(A) 415/2010]
    d)           Labuan Financial Services and Securities Regulations 2010 [P.U.(A) 416/2010]
    e)  Labuan Islamic Financial Services and Securities Regulations 2010 [P.U.(A) 417/2010]
    f)   Labuan Foundations Regulations 2010 [P.U.(A) 418/2010]
    g)  Labuan Limited Partnerships and Limited Liability Partnerships Regulations 2010 [P.U.(A) 419/2010]

    Monday 3 January 2011

    Extension of time for filing of Form CP204

    This is to inform that the Inland Revenue Board has agreed to grant a special extension of time to 5 January, 2011 for filing Form CP204.  The extension of time is not applicable to Form CP204A.
    For companies with May 2010 year end, extension of time to file the Forms C & R by 7 January 2011 is still applicable.

    CCS Group's Official Website

    We are thrilled to announce that CCS Group has launched a new website at www.ccs-co.com Some of the great new features of this newly designe...