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Topics
Juridical double taxation and how the Malaysian tax authority mitigates this issue. Harmful transfer pricing and Guidelines established to counteract.
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Taiko Sdn Bhd would like to pay RM200,000 of fees owed to P&C Ltd (a tax resident company incorporated in Hong Kong) in respect of technical services on the design of Taiko Sdn Bhds CRM system. Services were provided by a panel of consultants of P&C Ltd, who came to Malaysia for 2 weeks, in the management office of Taiko Sdn Bhd at Subang. The service fee is business income to P&C Ltd. Discuss the income tax and withholding tax implications on P&C Ltd.
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Income tax implication: Is the service fee subject to income tax liable to P&C Ltd as business income in Malaysia? Article 7 of Malaysia-Hong Kong DTA states that profits of an enterprise of a Contracting Party shall be taxable only in that Party unless the enterprise carries on business in the other Contracting Party through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other Party but only so much of them as is attributable to that permanent establishment. So, what do you think?
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Withholding tax implication - recap Where any person is liable to make payments to a non-resident in respect of: s.4A [special classes of income]
under ss (ii) amounts paid in consideration of technical advice, assistance or services rendered in connection with technical management; and
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Withholding tax implication - recap:
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Withholding tax at 10% ?? Article 13 [Fess for Technical Services] of DTA
Para 1: Fees for technical services arising in a Contracting Party and paid to a resident of the other Contracting Party may be taxed in that other Party. Para 2: However, such fees for technical services may also be taxed in the Contracting Party in which they arise and according to the laws of that Party, but if the beneficial owner of the fees for technical services is a resident of the other Contracting Party, the tax so charged shall not exceed five (5) per cent of the gross amount of the fees for technical services.
Juridical Double Taxation Issues in Malaysia Three methods of relieving the burden of double taxation: Para 28, Sch 6 (effective YA 2004); Bilateral relief [s.132]; Unilateral relief [s.133].
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Or
ii) Foreign tax payable in respect of that foreign income
Whichever is lower (shall not exceed a sum equal to so much of the Malaysian tax payable for that year).
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Or
ii) of the foreign tax payable in respect of that foreign income
Whichever is lower (shall not exceed a sum equal to so much of the Malaysian tax payable for that year).
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Unilateral credit for a YA has to be claimed within 2 years after the end of that YA. The claim to the DG must be made in writing.
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Transfer Pricing
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What should be done if the tax rate of the country where the Sales Centre resides is 15%? Tax haven? Next lecture!
Source of the diagram: http://www.scdigest.com/images/AFTERTAX.jpg For Class Use Only
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Other Method
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A
Selling price
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