WT and DTA Tutorial Questions

 

WITHHOLDING TAXES AND DOUBLE TAXATION AGREEMENT TUTORIAL QUESTIONS

Question 1

Assuming that you are an accountant in private practice and clients have approached you with information on payments made by the following Malaysian resident companies to non-residents: (i)

Ki Kion ong g Joo Joo Ltd Ltd a compa company ny resi reside dent nt in in !out !outh Korea Korea sol sold d a cr cran anee to "!K "!K !dn #hd #hd a contractor in $ort %ic&son for 'M*****+ According to the terms of the purchase agreement agreem ent an additional additional sum of 'M,**** was payable by "!K !dn #hd to Kiong Joo Ltd for technical services to install the crane+

(ii) ii)

A cons consult ultancy ancy firm firm resi reside dent nt in ndi ndiaa was was en enga gage ged d by ./0 !dn !dn #hd #hd a Mal alay aysi sian an company to give advice in negotiating and preparing a bid for a contract from the 0amil  1adu !tate .overnment+ 0he services of the consultancy firm were performed in "hennai++ ./0 !dn #hd credited a sum of 'M2**** to the consultan "hennai consultancy cy firm3s firm3s ban& in "hennai ndia+

(ii (iii) i)

1i&&on 1i&&ono o Ltd a Japane Japanese se company company render rendered ed techni technical cal servi services ces to 0ren 0rend d !etters !etters !dn !dn #hd which is located in Ka4ang !elangor+ 1i&&ono Ltd issued an invoice for the value of  'M5**** 'M5*** * which included reimbursements reimbursements covering cost of accommodatio accommodation n charges charges of  'M6*** incurred by the company3s consultants in Malaysia+ 0hese reimbursements were classified as hotel charges in the profit and loss account of 0rend !etters !dn #hd+

Required:

78plain with reasons whether each of the above payments made to the non-residents are sub4ect to withholding ta8 under the ncome 0a8 Act 9,2 (as amended)+ Also compute the withholding ta8 if any applicable to those payments. Question 

0an and #ong $artners made payments to a legal firm resident in Ja&arta to give advice in negotiating and preparing a legal document with the ndonesian $etrochemical #oard+

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0he services offered by the legal firm were performed in Ja&arta+ 0he 0an and #ong $artners  paid the firm a sum of 'M**** to the legal firm located in Ja&arta ndonesia+ Required!

;utline ;utli ne with reasons reasons whether the above payment of 'M**** 'M**** to the ndonesian ndonesian legal firm is sub4ect to withholding ta8 under the Malaysian ncome 0a8 Act 9,2+ "ompute the withholding ta8 if applicable+ Question "

0he government promotes the development of the capital mar&et in Malaysia+ n this regard interest payments derived from numerous financial instruments are not sub4ect to withholding ta8 under the Malaysian ncome 0a8 Act 9,2+ Required!

Listt any si8 financial Lis financial instrume instruments nts on which which intere interest st paymen payments ts made made are not sub4ec sub4ectt to the withholding ta8 provisions+ Question #

"hin #eng Motors !dn #hd (the company) pays a royalty to a Japanese company for the use of a  proprietary patent in the manufacture of a special bra&ing system for its motor vehicles manufa man ufactu ctured red in Malays Malaysia+ ia+ ;n  August August 6* 6* the company company was lia liable ble to pay royalty royalty of  'M6***** to the Japanese company+ A sum of 'M5**** being royalty net of withholding ta8 of 'M6**** was paid to the Japanese company and the withholding ta8 inclusive of the late  payment increase was paid to the '# on 2 %ecember 6*+ Required! 78plain the ta8 treatment on the payment of royalty to the Japanese company and whether "hin #eng Motors !dn #hd would be entitled for a deduction in year of assessment 6* in respect of  the royalty paid+ Question $

(a)

0emas 0emase& e& 0il 0iles es $te $te Ltd Ltd (00$ (00$ Ltd) Ltd) a !ing !ingapor aporee based based compa company ny is in the the busin business ess of sell selling ing floor and wall tiles+ tiles+ 0he company has a website hosted in a sserver erver in Malaysia+ /owever 

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the business activities of the company such as selling mar&eting and delivery are all carried out in !ingapore+ (b)

00$ Ltd has allo allowed wed a Mala Malays ysian ian comp company any 0em 0emase ase& & 0iles 0iles (Malay (Malaysia sia)) !dn #hd #hd to to use its its33 &now-how to ma&e and sell its tiles in Malaysia in return for royalty payment+

Required:

(i) (i)

78pl 78plai ain n the whe wheth ther er 0e 0emase mase& & 0ile 0iless $te $te Ltd Ltd is car carry ryin ing g on a busi busine ness ss in in Mala Malays ysia ia++

(i (ii) i)

78pl 78plai ain n the the ta8 trea treatm tmen entt on the the paym paymen entt of roya royalt lty y by 0emase mase& & 0ile 0iless (Mala (Malay ysi sia) a) !dn #hd to 0emase& 0iles 0iles ($te) Ltd a !ingapore based company+ compan y+

Question %

/ow does double ta8ation arise< Question &

=hat is the purpose of concluding a double ta8 agreement< Question '

78plain how bilateral relief is made and how does this differ from a unilateral relief< Question (

=hat is the norm or framewor& within which a double ta8 agreement is based< Question 1)

/ow does one determine whether an economic activity has ta&en place in one of the affected ta8  4urisdictions to determine the ta8ability of income income derived therefrom< Question 11

0rend !etter %esigns Ltd (hereafter referred to as 0!%L) speciali>es in producing branded clothes in the $eoples3 'epublic of "hina ($'")+ 0he "ompany 0!%L owns the brand ? Trendy  Designs@@ for sale of designer clothes+ At all material times 0!%L is a ta8 resident of $'" and  Designs derives its business income by selling the branded clothes to boutiues and supermar&ets all over  "hina+ 0!%L promotes the recognition of its trademar& and the value of its contribution co ntribution to agents  by continuous 'B% activities active participation in trade e8hibitions and advertising+

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n March 6* 0!%L is considering to sell designer clothes in Malaysia through Carrah %esigns #hd for a license fee of 'M million for the use of its brand+ =hile negotiations were ta&ing  place it was agreed that 0!%L will not have a business presence in Malaysia+ 0he agreement would be finali>ed soon but there is one outstanding matter pertaining to ta8ation of the royalty fee+ n this regard Ms+ "omel who is the "hartered Accountant of Carrah %esigns informs 'ussel /o the financial controller of 0!%L that Carah %esigns will have to deduct withholding ta8 under the provisions of the Malaysian ncome 0a8 Act 9,2 at a rate of * percent upon the gross amount of the royalty fee being paid or credited to 0!%L+ 'ussel disagrees as he is of the view that 0!%L is the business of designing sewing and selling clothes hence the profits are sub4ect to income ta8 in $'"+ 'ussel further urges that 0!%L should sho uld be entitl entitled ed to relief relief under under the Malays Malaysiaia-$'" $'" %oub %ouble le 0a8 Agreeme Agreement nt (%0A) (%0A) and emphasi>es that the right of ta8ing the license fee payable by Carrah %esigns lies with the "hinese .overnment+ According to 'ussel it is e8pressly stipulated in Article D of the %0A that the industrial or commercial profits of an enterprise of a "ontracting !tate shall be sub4ect to ta8 only in that "ontracting "ontracting !tate unless the enterprise enterprise carries on business business in the other "ontracting "ontracting !tate through a permanent permanent establishment establishment ($7) situated situated therein+ therein+ As 0!%L does not have a $7 in Malays Mal aysia ia 'ussel 'ussel /o assert assertss that that the licens licensee fee should should be payabl payablee without without deducting deducting any Malaysian ta8+ 'ussel would be formally discussing the ta8 issues with Ms+ "omel soon and he is in a hurry to &now whether wh ether there is a legal basis to support his views+ Required!

Eou are to advice 'ussel /o based on the e8isting Malaysian ta8 provisions+ 'elevant case law could be used to support your answer+ Question 1

Kenchan Ken chanaa #erhad #erhad paid paid 'M6*** 'M6***** *** * to /eavy /eavy Machin Machinee ncorp ncorpora oratio tion n for supply supplying ing and installing machines in Kenchana premise in Malaysia+ ;f the total amount 6F is for the installation and commissioning the machines+ Required

Advise Kenchana3s accountants on the ta8 treatment of the payment made to /eavy Machine nc+ 4

 

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