Further to our e-CTIM No.12/2013 dated 21 January 2013, please be informed that the Customs (Prohibition of Exports) (Amendment) (No.2) Order 2013 [P.U. (A) 235/2013] was gazetted on 22 July 2013 and comes into operation on 23 July 2013.
Amendment – Part I of the Third Schedule of the Customs (Prohibition of Exports) Order 2012 [P.U. (A) 491/2012] is amended by inserting (after item 37) a new item “Rubber and rubber products”.
Members may view the Order from the Attorney-General’s Chambers website for details of the item.
Tuesday 30 July 2013
Thursday 25 July 2013
Goods and Service Tax (GST) Guides
Further to our e-CTIM TECH 66/2013 dated 11 June 2013, please be informed that the Royal Malaysian Customs (RMC) has recently uploaded the following:-
1) GST Industry Guide on Money Lenders; and
2) GST Industry Guide on Pawn Broking.
You may write to the Institute at technical@ctim.org.my or secretariat@ctim.org.my in respect of any suggestions, concern or comments you may have on the Guides, so that we may raise it to the Customs.
Members may view the Guides on the Institute website or the official website of Malaysia Goods
and Service Tax (GST).
1) GST Industry Guide on Money Lenders; and
2) GST Industry Guide on Pawn Broking.
You may write to the Institute at technical@ctim.org.my or secretariat@ctim.org.my in respect of any suggestions, concern or comments you may have on the Guides, so that we may raise it to the Customs.
Members may view the Guides on the Institute website or the official website of Malaysia Goods
and Service Tax (GST).
Wednesday 24 July 2013
Provisional Anti-Dumping Duties on Tinplates from China and South Korea
Background
Following the petition by Perusahaan Sadur Timah Malaysia Bhd (Perstima) on behalf of the domestic industry producing tinplates, claiming that imports of electrolytic tinplate originating in or exported from China and South Korea are being imported into Malaysia at a much lower price than the price in the domestic market of the alleged countries, the government initiated an anti-dumping investigation on 20 February 2013 and has completed the preliminary investigation as provided under Section 23 of the Countervailing and Anti-Dumping Duties Act 1993.
The findings suggest that there is sufficient evidence to continue with further investigations on the importation of tinplates from the alleged countries. In its media release dated 19 July 2013, the Ministry of International Trade and Industry (MITI), announced that the government has decided to impose a provisional measure, which shall take the form of provisional anti-dumping duty duties ranging from Nil to 25 per cent on electrolytic tinplates imported, guaranteed by a security equal to the amount of the dumping margin determined through the preliminary investigation.
Pursuant to Section 24(2) of the Countervailing and Anti-Dumping Duties Act 1993 (Act 504) and Section 11(1) of the Customs Act 1967 (Act 235), the Minister made the Customs (Provisional Anti-Dumping Duties) Order 2013 [P.U. (A) 232/2013], which were gazetted on 19 July 2013. The Order shall have effect for the period from 20 July 2013 to 15 November 2013. The salient points to note are as follows:-
Provisional anti-dumping duties
Provisional anti-dumping duties shall be levied on and paid by the importers in respect of the goods specified in columns (2) and (3) of the Schedule exported from the countries specified in column (4) into Malaysia by the exporters or producers specified in column (5) at the rate specified in column (6).
Classification of goods
The classification of goods specified in the Schedule shall be governed by the Rules of Interpretation in the Customs Duties Order 2012 [P.U. (A) 275/2012].
Effect on import duties and sales tax
The imposition of provisional anti-dumping duties shall be without prejudice to the imposition and collection of –
(a) import duties under the Customs Act 1976; and
(b) sales tax under the Sales Tax Act 1972 [Act 64].
The legislation can be viewed from the Attorney-General’s Chambers website.
You may write to the Institute at technical@ctim.org.my or secretariat@ctim.org.my in respect of any concern or comments you may have on the Order.
Following the petition by Perusahaan Sadur Timah Malaysia Bhd (Perstima) on behalf of the domestic industry producing tinplates, claiming that imports of electrolytic tinplate originating in or exported from China and South Korea are being imported into Malaysia at a much lower price than the price in the domestic market of the alleged countries, the government initiated an anti-dumping investigation on 20 February 2013 and has completed the preliminary investigation as provided under Section 23 of the Countervailing and Anti-Dumping Duties Act 1993.
The findings suggest that there is sufficient evidence to continue with further investigations on the importation of tinplates from the alleged countries. In its media release dated 19 July 2013, the Ministry of International Trade and Industry (MITI), announced that the government has decided to impose a provisional measure, which shall take the form of provisional anti-dumping duty duties ranging from Nil to 25 per cent on electrolytic tinplates imported, guaranteed by a security equal to the amount of the dumping margin determined through the preliminary investigation.
Pursuant to Section 24(2) of the Countervailing and Anti-Dumping Duties Act 1993 (Act 504) and Section 11(1) of the Customs Act 1967 (Act 235), the Minister made the Customs (Provisional Anti-Dumping Duties) Order 2013 [P.U. (A) 232/2013], which were gazetted on 19 July 2013. The Order shall have effect for the period from 20 July 2013 to 15 November 2013. The salient points to note are as follows:-
Provisional anti-dumping duties
Provisional anti-dumping duties shall be levied on and paid by the importers in respect of the goods specified in columns (2) and (3) of the Schedule exported from the countries specified in column (4) into Malaysia by the exporters or producers specified in column (5) at the rate specified in column (6).
Classification of goods
The classification of goods specified in the Schedule shall be governed by the Rules of Interpretation in the Customs Duties Order 2012 [P.U. (A) 275/2012].
Effect on import duties and sales tax
The imposition of provisional anti-dumping duties shall be without prejudice to the imposition and collection of –
(a) import duties under the Customs Act 1976; and
(b) sales tax under the Sales Tax Act 1972 [Act 64].
The legislation can be viewed from the Attorney-General’s Chambers website.
You may write to the Institute at technical@ctim.org.my or secretariat@ctim.org.my in respect of any concern or comments you may have on the Order.
Tuesday 23 July 2013
Qualifying Expenditure for Reinvestment Allowance Claim
Ketua Pengarah Hasil Dalam Negeri v Success Electronics & Transformer Manufacturing Sdn Bhd (Civil Appeal No.: W-01-429-11)
On 12 July 2013, the Court of Appeal unanimously dismissed the appeal by the Director General of Inland Revenue (“DGIR”) in Ketua Pengarah Hasil Dalam Negeri v Success Electronics & Transformer Manufacturing Sdn Bhd (Civil Appeal No. : W-01-429-11) (“the SETM case”). Reinvestment allowance is a tax incentive provided under Schedule 7A of the Income Tax Act 1967. The SETM case is the first case of its kind that has reached the Court of Appeal. The written grounds of the Court of Appeal are yet to be made available.
In its oral judgment, the Court of Appeal affirmed the concurrent decisions of the Special Commissioners of Income Tax and the High Court in ruling that there is no legal basis for the DGIR to restrict the availability of reinvestment allowance to “production areas” only. Accordingly, the taxpayer was allowed to claim reinvestment allowance on the capital expenditure incurred on:
(a) the construction of surau, lift lobby, research and development (“R&D”) room, warehouse, “void area” for the installation of cranes, staircase, meeting rooms, office spaces and toilets;
(b) the plant and machinery used in the R&D room and warehouse; and
(c) the installation of electrical, lighting, telephone and air conditioning wiring in the surau, meeting rooms, office spaces, warehouse and R&D room.
The taxpayer was also allowed to claim reinvestment allowance on the capitalised interest expenditure during the construction of the factory.
The above case note is made available to us, courtesy of the legal firm, Lee Hishammuddin Allen & Gledhill. The Institute would like to thank, Lee Hishammuddin Allen & Gledhill for the permission to reproduce this case note in e-CTIM for the benefit of the members. The views and opinions of this case note are not to be imputed to be those of the firm, Lee Hishammuddin Allen & Gledhill, or CTIM. Members are reminded that this case note is intended for purposes of general information and academic discussion only. It should not be construed as legal advice or legal opinion on any fact or circumstances.
Reinvestment allowance is the most widely claimed tax incentive in Malaysia. The above decision has wide implications on the claim of reinvestment allowance. Members interested in further details of the case may refer to the High Court judgment on Ketua Pengarah Hasil Dalam Negeri v Success Electronics & Transformer Manufacturer Sdn Bhd, [Civil Appeal No R1-14-14-09] [(2012) MSTC ¶30-039] in Malaysia and Singapore Tax Cases. You may also view the High Court judgment online at the Resource Centre of the Institute during working hours.
On 12 July 2013, the Court of Appeal unanimously dismissed the appeal by the Director General of Inland Revenue (“DGIR”) in Ketua Pengarah Hasil Dalam Negeri v Success Electronics & Transformer Manufacturing Sdn Bhd (Civil Appeal No. : W-01-429-11) (“the SETM case”). Reinvestment allowance is a tax incentive provided under Schedule 7A of the Income Tax Act 1967. The SETM case is the first case of its kind that has reached the Court of Appeal. The written grounds of the Court of Appeal are yet to be made available.
In its oral judgment, the Court of Appeal affirmed the concurrent decisions of the Special Commissioners of Income Tax and the High Court in ruling that there is no legal basis for the DGIR to restrict the availability of reinvestment allowance to “production areas” only. Accordingly, the taxpayer was allowed to claim reinvestment allowance on the capital expenditure incurred on:
(a) the construction of surau, lift lobby, research and development (“R&D”) room, warehouse, “void area” for the installation of cranes, staircase, meeting rooms, office spaces and toilets;
(b) the plant and machinery used in the R&D room and warehouse; and
(c) the installation of electrical, lighting, telephone and air conditioning wiring in the surau, meeting rooms, office spaces, warehouse and R&D room.
The taxpayer was also allowed to claim reinvestment allowance on the capitalised interest expenditure during the construction of the factory.
The above case note is made available to us, courtesy of the legal firm, Lee Hishammuddin Allen & Gledhill. The Institute would like to thank, Lee Hishammuddin Allen & Gledhill for the permission to reproduce this case note in e-CTIM for the benefit of the members. The views and opinions of this case note are not to be imputed to be those of the firm, Lee Hishammuddin Allen & Gledhill, or CTIM. Members are reminded that this case note is intended for purposes of general information and academic discussion only. It should not be construed as legal advice or legal opinion on any fact or circumstances.
Reinvestment allowance is the most widely claimed tax incentive in Malaysia. The above decision has wide implications on the claim of reinvestment allowance. Members interested in further details of the case may refer to the High Court judgment on Ketua Pengarah Hasil Dalam Negeri v Success Electronics & Transformer Manufacturer Sdn Bhd, [Civil Appeal No R1-14-14-09] [(2012) MSTC ¶30-039] in Malaysia and Singapore Tax Cases. You may also view the High Court judgment online at the Resource Centre of the Institute during working hours.
Monday 22 July 2013
Customs-Private Sector Consultative Panel (CPSCP) Meeting No.1-2013
Representatives from the Institute’s Technical Committee-Indirect Tax (TC-IT) attended the Customs-Private Sector Consultative Panel (CPSCP) Meeting No.1-2013 held recently. We are pleased to update members on some of the issues discussed during the meeting:-
The meeting was informed that the practice of standard procedures of the Royal Malaysia Customs (RMC) varies from one customs station to another and sometimes among officers of the same Customs station. It was suggested the all procedures and compliance requirements be made transparent to the public and a special officer be assigned to attend to public enquiries on issues relating to the standard practice and procedures.
The RMC clarified that directions to all Customs officers have been issued through Customs Rulings, Administrative Circulars and Client Charter to ensure uniformity of implementation.
The Meeting decided that all compliance requirements and the format of form to be used in dealings with the RMC should be uniform in all Customs stations in the country and will be uploaded onto the RMC website. Standard Operating Procedure will be prepared for all Customs officers. The RMC will inform the coming Customs Directors Meeting No.72 of the issue and decision.
With the impending Goods and Services Tax (GST), the Customs has been stepping up the sales tax and service tax audits. The audit will generally cover a period of 3 years from the date of the audit and the licencees are normally given 14 days to submit their records and books of account.
CTIM has proposed that, to ease the audit process and avoid misunderstanding, an audit framework for sales tax and service tax audit should be drawn up by Customs with input from the practitioners and it should be made available to the public. Sales tax and service tax licencees need to know the areas that will be covered during the audits and how to prepare documentation and information that will be relevant to the audits.
The Customs has responded that, unlike for income tax where audit is separated from investigation, a sales tax and service tax audit is a hybrid of audit and investigation. There may be a situation when Customs may turn an audit into investigation without prior notice. Customs will prepare an Audit Framework for licencees’ reference and upload it to the Customs’ website in due course.
Generally, when a vendor purchases locally manufactured goods from a licensed manufacturer, he would have paid the sales tax. If he subsequently sells the goods to a licensed manufacturer who has the approval of the Director General through CJ5 to purchase the goods for manufacturing purpose, he may apply for a refund of the sales tax by submitting the relevant documents such as JKED2, licensed manufacturer CJ5, to prove that sales tax had previously been paid etc.
In practice, for reasons of confidentiality, the vendor is unable to produce the sales tax bimonthly return (CJP1) to prove that sales tax had previously been paid, as this document belongs to the licensed manufacturer who paid the sales tax.
CTIM has proposed that since the vendor has no authority over the bimonthly return (CJP1), it would be more appropriate for the Customs to verify the claims with the licensed manufacturer. It is suggested that perhaps the vendor needs to provide the customs with a copy of the invoice for further action by the Customs.
Customs is in agreement with CTIM’s view and informed that this might be an additional requirement requested by the state offices but not as instructed by the Customs’ head office. The vendor may write to the respective state Customs’ Director on the matter.
Presently a Sales Tax-licensed manufacturer is required to apply for CJ5 on a yearly basis or upon the expiry of the amount approved. It was proposed that a “one-time approval” be granted in respect of CJ5 at the time of issuance of the Sales Tax licence as the manufacturer is required to submit the list of raw materials upon application for the licence.
The Customs has responded that the existing procedure of granting approval for a period of 1 year only, will continue to be practised. The proposal for the “one-time approval” may not be implemented for the time being due to the impending GST implementation.
Currently there are separate Customs Stations at Northport, Westport, South Point and Free Zone, posing a constraint on deployment of Customs personnel. In addition, there are different standards for Bank Guarantees at Northport and Westport. It is proposed that all Customs’ declaration (K1, K2, K3 and K8) be made at one single location (One Stop Centre) in Port Klang.
The Meeting agreed with the proposal and will discuss with the Selangor Customs Director on the relevant Standard Operating Procedure.
For more information, members may view the Minutes of CPSCP Meeting No.1/2013 at our website.
1) The Practice of
Standard Procedures by Customs Officers
The meeting was informed that the practice of standard procedures of the Royal Malaysia Customs (RMC) varies from one customs station to another and sometimes among officers of the same Customs station. It was suggested the all procedures and compliance requirements be made transparent to the public and a special officer be assigned to attend to public enquiries on issues relating to the standard practice and procedures.
The RMC clarified that directions to all Customs officers have been issued through Customs Rulings, Administrative Circulars and Client Charter to ensure uniformity of implementation.
The Meeting decided that all compliance requirements and the format of form to be used in dealings with the RMC should be uniform in all Customs stations in the country and will be uploaded onto the RMC website. Standard Operating Procedure will be prepared for all Customs officers. The RMC will inform the coming Customs Directors Meeting No.72 of the issue and decision.
2) Sales Tax and
Service Tax Audit Framework
With the impending Goods and Services Tax (GST), the Customs has been stepping up the sales tax and service tax audits. The audit will generally cover a period of 3 years from the date of the audit and the licencees are normally given 14 days to submit their records and books of account.
CTIM has proposed that, to ease the audit process and avoid misunderstanding, an audit framework for sales tax and service tax audit should be drawn up by Customs with input from the practitioners and it should be made available to the public. Sales tax and service tax licencees need to know the areas that will be covered during the audits and how to prepare documentation and information that will be relevant to the audits.
The Customs has responded that, unlike for income tax where audit is separated from investigation, a sales tax and service tax audit is a hybrid of audit and investigation. There may be a situation when Customs may turn an audit into investigation without prior notice. Customs will prepare an Audit Framework for licencees’ reference and upload it to the Customs’ website in due course.
3) Vendor applying for refund under
Section 31 of Sales Tax Act, 1972
Generally, when a vendor purchases locally manufactured goods from a licensed manufacturer, he would have paid the sales tax. If he subsequently sells the goods to a licensed manufacturer who has the approval of the Director General through CJ5 to purchase the goods for manufacturing purpose, he may apply for a refund of the sales tax by submitting the relevant documents such as JKED2, licensed manufacturer CJ5, to prove that sales tax had previously been paid etc.
In practice, for reasons of confidentiality, the vendor is unable to produce the sales tax bimonthly return (CJP1) to prove that sales tax had previously been paid, as this document belongs to the licensed manufacturer who paid the sales tax.
CTIM has proposed that since the vendor has no authority over the bimonthly return (CJP1), it would be more appropriate for the Customs to verify the claims with the licensed manufacturer. It is suggested that perhaps the vendor needs to provide the customs with a copy of the invoice for further action by the Customs.
Customs is in agreement with CTIM’s view and informed that this might be an additional requirement requested by the state offices but not as instructed by the Customs’ head office. The vendor may write to the respective state Customs’ Director on the matter.
4) Application
for CJ5 under Sales Tax
Presently a Sales Tax-licensed manufacturer is required to apply for CJ5 on a yearly basis or upon the expiry of the amount approved. It was proposed that a “one-time approval” be granted in respect of CJ5 at the time of issuance of the Sales Tax licence as the manufacturer is required to submit the list of raw materials upon application for the licence.
The Customs has responded that the existing procedure of granting approval for a period of 1 year only, will continue to be practised. The proposal for the “one-time approval” may not be implemented for the time being due to the impending GST implementation.
5) One Stop
Centre for All Customs’ Declarations in Port Klang
Currently there are separate Customs Stations at Northport, Westport, South Point and Free Zone, posing a constraint on deployment of Customs personnel. In addition, there are different standards for Bank Guarantees at Northport and Westport. It is proposed that all Customs’ declaration (K1, K2, K3 and K8) be made at one single location (One Stop Centre) in Port Klang.
The Meeting agreed with the proposal and will discuss with the Selangor Customs Director on the relevant Standard Operating Procedure.
For more information, members may view the Minutes of CPSCP Meeting No.1/2013 at our website.
Friday 19 July 2013
IRB Announcement – E-Filing System Disruption
The Inland Revenue Board (IRB) has announced that all e-Filing systems will be disrupted during maintenance of the e-Filing systems, as scheduled below:
During the period all applications related to the Digital Certificate will not be accessible.
Members may view this Announcement at www.hasil.gov.my or alternatively at e-HASiL.
|
Date
|
Time
|
|
19 July 2013 (Friday)
|
3.00 p.m. – 6.00 p.m.
|
|
20 July 2013 (Saturday)
|
8.00 a.m. – 6.00 p.m.
|
During the period all applications related to the Digital Certificate will not be accessible.
Members may view this Announcement at www.hasil.gov.my or alternatively at e-HASiL.
Labuan Business Activity Tax (Forms) Regulations 2013 [P.U. (A) 224/2013]
Pursuant to S.21 of the Labuan Business Activity Tax 1990 (Act 445), the Minister makes the above Regulations, which were gazetted on 12 July 2013.
1. Effective date – These Regulations are deemed to have effect from 11 February 2010.
2. Revocation – The Labuan Offshore Business Activity Tax (Forms) Regulations 1991 [P.U. (A) 157/1991] are revoked.
3. Forms – The “Forms” to be used for the purposes of the Act shall be those appearing in the Schedule as summarized below:
You may write to the Institute at technical@ctim.org.my or secretariat@ctim.org.my in respect of any concern or comments you may have on the Regulations.
1. Effective date – These Regulations are deemed to have effect from 11 February 2010.
2. Revocation – The Labuan Offshore Business Activity Tax (Forms) Regulations 1991 [P.U. (A) 157/1991] are revoked.
3. Forms – The “Forms” to be used for the purposes of the Act shall be those appearing in the Schedule as summarized below:
|
Form
|
Details
|
|
Form 1
|
Return of Profits by a Labuan Entity (Section 5)
|
|
Form 2
|
Notice of
Assessment for a Labuan Entity (Section
6)
|
|
Form 3
|
Election by a Labuan Entity (Section 7)
|
|
Form 4
|
Notice of Demand to a Labuan Entity (Section 13)
|
|
Form 5
|
Statutory Declaration (Sections 5/7/8)
|
|
Form 6
|
Statutory Declaration (Section 10)
|
|
Form 7
|
Remittance Form - Payment of Tax for the Year of
Assessment 20……
|
|
Form 8
|
Election by A Labuan Entity (Section 3A)
|
|
Form 9
|
Application
for Advance Ruling (Section 17B)
|
New Definition of SMEs -- SME Corp Media Release
The Prime Minister, YAB Dato’ Sri Mohd Najib Tun Haji Abdul Razak announced on 11 July 2013 a re-definition of small and medium-sized enterprises (SMEs) for all economic sectors.
For more details, members may view the Media Release at the Institute website or SME Corp Malaysia website.
Effective from 1 January 2014, the qualifying threshold across the various sizes of business entities, namely micro, small and medium, will be raised to ensure that the definition remains relevant as the SME Masterplan is rolled out.
The new definition is adopted after considering the changes in the economy, including price inflation, structural shifts in the economy and changing business trends, since a common definition of SME was adopted in 2005. It is more comprehensive and covers more sectors of the economy, including construction, mining and quarrying.
The new qualifying thresholds for sales turnover and number of employees of SMEs are as follows:-
The new definition is adopted after considering the changes in the economy, including price inflation, structural shifts in the economy and changing business trends, since a common definition of SME was adopted in 2005. It is more comprehensive and covers more sectors of the economy, including construction, mining and quarrying.
The new qualifying thresholds for sales turnover and number of employees of SMEs are as follows:-
Category
|
MICRO
|
SMALL
|
MEDIUM
|
||
Manufacturing
|
·
Sales turnover of less than RM300,000 OR
·
Employees of less than 5
|
·
Sales turnover from RM300,000 to less than RM15
mil OR
·
Employees from 5 to less than 75
|
·
Sales turnover from
RM15 mil to not exceeding RM50 mil OR
·
Employees from 75 to not exceeding 200
|
||
Services and Other sectors
|
·
Sales turnover of less than RM300,000 OR
·
Employees of less than 5
|
·
Sales turnover from RM300,000 to less than RM3
mil OR
·
Employees from 5 to less than 30
|
·
Sales turnover from RM3 mil to not exceeding RM20
mil OR
·
Employees from 30 to not exceeding75
|
||
| Old definition for comparison | |||||
| Manufacturing, Manufacturing-Related Services and Agro-based industries | Annual Sales turnover of less than RM250,000 (USD83,300) OR Full time employees less than 5 |
Annual Sales turnover from RM250,000 (USD83,300) to less than RM10 mil (USD3.3mil) OR Full time employees from 5 to less than 50 |
Annual Sales turnover from RM10 mil (USD3.3 mil) to less than RM25 mil (USD8.3 mil) OR Full time employees between 50 and 150 |
||
| Services, Primary Agriculture and Information & Communication Technology (ICT) | Sales turnover of less than RM200,000 (USD62,500) OR Full time employees less than 5 |
Sales turnover from RM200,000 (USD62,500) to less than RM1 mil (USD312,500) OR Full time employees between 5 and 19. |
Sales turnover from RM1 mil (USD312,500) to less than RM5 mil (USD1.6 mil) OR Full time employees between 20 and 50 |
||
For more details, members may view the Media Release at the Institute website or SME Corp Malaysia website.
Thursday 18 July 2013
CPD Points Concession in respect of Renewal of Tax Agent Licence under Section 153 ITA
The Guidelines for Application for Approval as a Tax Agent under Subsection 153(3), Income Tax Act, 1967, set out under paragraph 3.1 Conditions for Renewal, inter alia, that:
Tax agents aged 60 years and above are given an exemption of half of the number of CPD/CPE points in respect of the application for renewal of their licences.
Information on the determination of the CPD/CPE points are found in Appendix B.
Members may view the Guidelines on the Ministry of Finance website at www.treasury.gov.my (Taxation > Tax Agent Approval > Tax Agent Approval Guidelines)
The Guidelines are available in Bahasa Malaysia (Percukaain > Kelulusan Ejen Cukai)
Tax agents aged 60 years and above are given an exemption of half of the number of CPD/CPE points in respect of the application for renewal of their licences.
Information on the determination of the CPD/CPE points are found in Appendix B.
Members may view the Guidelines on the Ministry of Finance website at www.treasury.gov.my (Taxation > Tax Agent Approval > Tax Agent Approval Guidelines)
The Guidelines are available in Bahasa Malaysia (Percukaain > Kelulusan Ejen Cukai)
Wednesday 17 July 2013
SPECIAL DEDUCTION FOR EXPENDITURE ON TREASURY SHARES -- PUBLIC RULING (PR) NO. 9/2013
The Inland Revenue Board (IRB) issued the above Public Ruling on 27 June 2013. The salient points in the PR are summarized below:-
Subject
|
Reference
|
Objective
· The PR explains the tax
treatment of cost incurred by companies in acquiring treasury shares (TS)
which are offered to employees under an employee share scheme (ESS).
|
Para 1
|
Background
The PR explains the
following as a prelude to the explanation on the special deduction:
· Employee share scheme – Meaning and general operation of ESS
· Treasury shares – the following circumstances giving rise to TS are listed in para 5:
i)
Repurchase or redemption
of companies’ shares which are not cancelled;
ii)
Holding company purchases
or redeems its own shares and transfers these TS to its subsidiaries to
fulfill obligations under ESS;
iii)
TS acquired by holding
company when TS of subsidiary are transferred to employees of the holding
company;
iv)
Shares acquired by a
Special Purpose Vehicle (SPV) or trust for distribution to employees of the
issuing company and its subsidiaries are not qualified as treasury
shares.
|
Para 4
Para 5.1 to 5.3
Para 5.4
|
Special deduction
· Prior to the year of assessment (YA) 2013 – The IRB is of the view that cost of acquiring
TS is not a deductible expense;
· From YA 2013 – a special deduction on cost of acquiring TS to fulfil obligations
under an ESS by a company having a business source, is allowed under s.34D of
the Income Tax Act 1967 (ITA)
· Cost of TS includes the
following:
a) brokerage charges, commission to broker and Central Depository
System charges;
b) stamp duty;
c) interest costs to finance the acquisition of TS to fulfil
obligations under an ESS.
|
Para 6.1
Para 6.2
Para 6.3
.
|
Computation and timing
· The amount deductible against gross income is
computed as follows:
Cost of acquiring TS transferred using First-in
First-out (FIFO) method XX
Less: Amount payable by the
employee for the shares XX
Amount allowable for
deduction XX
· If there is an excess of
the amount payable by an employee over the cost of TS, the excess is credited
to an account kept by the company and will be applied to reduce the cost of
subsequent TS which will be transferred to its employees. Any such excess is
not taxable on the company and no deduction is due to the company (See
Example 2).
· A company is allowed a
tax deduction for the cost of TS acquired when –
i. The cost incurred is for
TS applied for the benefit of employees;
ii. Employee exercised his rights to acquire TS;
iii. The company has transferred the TS held to the
employee; and
iv. The legal and beneficial
interest in the TS has been acquired by the employee. Examples 1, 3, 4, 5 and 6 illustrate the
timing of claim and computation of deduction under various scenarios.
|
Para 7.2 & 7.4
Para 7.6
See Example 2.
Para 7.3
|
Other points to note
· Non - Application of s.34D:
-
when new shares
are issued by a company, its holding or subsidiary company to its employees
to fulfil its obligations under an ESS;
-
when a company offers newly-issued
warrants or tradable warrants of its own, its holding or subsidiary
company to fulfil its obligations under an ESS.
· The difference between
the purchase cost and the fair value of TS (treatment in accordance with MFRS
2) upon transfer or disposal of these shares represents a gain or loss to the
company. Such gains or losses arising
from TS transferred under an ESS are disregarded for tax purposes. (See Example 7.)
· Supporting documents for
a claim for a deduction under s. 34D, including framework of the ESS, details
of cost of the TS based on the FIFO method, and amounts payable by employees
for shares transferred to them, must be furnished upon audit by the IRB.
|
Para 8
Para 9
Para 10
|
You may write to the Institute at technical@ctim.org.my or secretariat@ctim.org.my in respect of any concern or comments you may have on the Public Ruling.
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