CCT Internal e-Tax Update
6 April 2018
Table of Contents
- This Note is issued to provide guidance regarding withholding tax on income from digital advertising provided by a non-resident.
- The tax treatment on payment to non-residents in relation to digital advertising is dependent on the facts of each particular case where-
- The non-resident has no permanent establishment (PE) (where a Double Taxation Agreement applies) or where there is no business presence in Malaysia, payment is subject to withholding tax under –
- Section 109, Income Tax Act 1967 (the Act), if the payment received is a royalty income under the Act; or
- Section 109B of the Act, if the payment received is an income within the scope of paragraph 4A(ii) of this Act.
- If the non-resident has a PE or a business presence in Malaysia, payment received constitutes a business income which is derived from Malaysia and will be taxed under paragraph 4(a) of the Act.
- The main criteria that determine whether withholding tax under section 109 or 109B of the Act applies are as follows –
- Subject to section 109 of the Act, if it is for the purchase or use of (for example) an application (Apps) by the payer that allows the payer to create their own advertisement campaign; or
- Subject to section 109B of the Act, if it does not involve the purchase or use of an Apps but merely a provision of service by the non-resident. In this case, the payer solely relies on the service provider to deal with all aspects of digital advertising.
The Royal Malaysian Customs Department (RMCD) has released the revised Guide on Accounting Software Enhancement towards GST Compliance (8 March 2018) which replaces the Guide on Accounting Software Enhancement towards GST Compliance (5 February 2018) that has been withdrawn.
The salient amendments to the Guide include:
- Addition of new FAQs (FAQs 21 – 23) — Clarified the recent amendment to item 15 of GST-03 return where a taxpayer is now supposed to declare the total value of supplies.
- Addition of new email for inquiries — Taxpayers can contact the Accounting Software Unit at firstname.lastname@example.org or email@example.com.
- Updated Tax Code: IS — Removed the requirement to report the GST amount suspended the Approved Trader Scheme in item 15 of the GST-03 return as item 15 is now used to report total value of supplies.
- Updated the file format specifications for TAP file and TAP File example in Appendix 6.
Kindly visit the RMCD website for further details.
Source: RMCD website, 8 March 2018
The Special Commissioners of Income Tax (SCIT) allowed a logging subcontracting company’s appeal with against the Inland Revenue Board’s (IRB) assessments of its deduction claims in respect of monthly payments made to a tuai rumah and penghulu.
The company clarified that the payments were made to them for assisting the company to settle disputes that arose with the natives when the company unknowingly encroaching the natives’ occupation areas. The IRB disallowed the deductions as it regarded these payments as capital in nature, and raised additional assessments.
The company then filed in Notice of Appeal (Form Q) to appeal against the assessments to the SCIT. The SCIT decided by the majority to allow the company’s appeal.
Source: Borneo Post Online, 31 March 2018
The Second Finance Minister said that the Ministry is conducting a detailed study on taxing large technology companies such as Google and Facebook. The study aims to determine the best taxation mechanism and model, as well as to monitor the Organisation for Economic Cooperation and Development’s review of taxing online businesses.
Source: The Star Online, 20 March 2018
Airbnb’s collaboration with Malaysia indicates taxation on digital economy in near future, 22 March 2018
Airbnb Inc is working with the Malaysian authorities to apply a new tourism tax of RM10 per night to Airbnb members who rent out five rooms or more.
Aaron Bromley of EY Malaysia expects Malaysia to widen the scope of GST to include Airbnb arrangements. This is part of a regional trend to close loopholes and tax digital businesses.
Chan Wai Choong of PwC Malaysia said that officials are studying the tax model of registering overseas vendors, and predicts that the GST amendments will be issued in the next budget in October.
Source: New Straits Times Online, 21 March 2018
The European Union (EU) has unveiled proposals for a digital tax that targets US tech giants such as Facebook, Google and Amazon.
The proposal aims to combat tax avoidance strategies used by these tech companies even though they are legal and recover revenue from mainly US multinationals that shift earnings around Europe to pay lower tax rates. Revenue earned from this tax would be fairly distributed based on the level of activity in those countries, instead of the level of booked profit.
Under the EU law, firms can choose to book their income in any member state, hence low-tax nations are generally picked. It is estimated that digital businesses pay an average effective tax rate of 9.5%, compared to the 23.3% paid by traditional companies.
EU Economic Affairs Commissioner Pierre Moscovici said that the EU tax could generate at least €5b a year if tax is imposed at 3%. The EU tax plan will target mainly US companies with worldwide annual turnover above €750m. The European Commission said that the EU tax would affect revenue from digital advertising, paid subscriptions and from “sale of data generated from user-provided information.
Christian Borggreen of the Computer & Communications Industry Association said that the proposed tax is “discriminatory and ignores the global consensus that the so-called ‘digital economy’ should not be singled out”.
Source: New Straits Times Online, 21 March 2018
Malaysian media companies are calling for Google and Facebook to be taxed as they monopolise a large amount of digital advertising revenue despite a large portion of the content on their sites being generated by the media.
Marketing magazine publisher Harmandar Singh said taxing the advertising revenue of these digital firms would give a truer picture of online advertising pricing and hopes that the Finance Ministry will look into the relevant grey areas.
Malaysian Association of Tax Accountants president Datuk Abd Aziz Abu Bakar was more cautious — he said that foreign firms should be taxed but there must be valid reasons for the tax which also must be examined properly before implementation.
Google Malaysia stated that it has not been approached by Finance Ministry officials with regard to the proposal of taxing its advertisements.
Source: The Star Online, 15 March 2018
Saujana Triangle Sdn Bhd’s (subsidiary of MK Land Bhd) appeal against the decision of the High Court on the Inland Revenue Board’s (IRB) notices of assessment and additional assessments totalling RM80.77m has not been granted.
MK Land in a filing with Bursa Malaysia said that the High Court and Court of Appeal’s decision had been based on the availability of an alternative remedy via an appeal to the Special Commissioners of Income Tax which had been lodged by Saujana Triangle on 1 June 2017.
As such, the amount of RM80.77m is now due. However, it has been advised that there are reasonable grounds to challenge the validity of the said notices of assessment and additional assessment via its appeal to the Special Commissioners of Income Tax.
Source: The Star Online, 15 March 2018
IRB updates content on Common Reporting Standard (CRS) for the Automatic Exchange of Financial Account Information, 13 March 2018
The Inland Revenue Board (IRB) has updated its CRS to content to include guidance for the preparation of a CRS data file and a CRS XML file sample.
Kindly visit the IRB website for further details.
Source: IRB website, 9 March 2018
A director of Restoran Kapitan Sdn Bhd was fined RM24,000 for failing to submit the Form B for YAs 2012 to 2015. He faces two charges under s 77(1) and s 112(1) of the Income Tax Act 1967 (ITA 1967), as well as another two charges under s 78 and s 120(1) of the ITA 1967. He pleaded guilty to all charges.
He has been fined RM2,000 for each charge for YAs 2012 and 2013, as well as RM10,000 for YAs 2014 and 2015. If he fails to pay the fines, he will face a three-month imprisonment in respect of each charge.
Source: Inland Revenue Board website, 6 March 2018
|15 April 2018||Due date for PCB payments|
|15 April 2018||Due date for monthly instalments|
|15 April 2018||15 days grace period for Form E Submission via E 2017-filing only|
|30 April 2018||Tax estimates for companies with May year-end (31 May 2019)|
|30 April 2018||6th month revision of tax estimates for companies with October year-end (31 October 2018)|
|30 April 2018||9th month revision of tax estimates for companies with July year-end (31 July 2018)|
|15 May 2018||Due date for PCB payments|
|15 May 2018||Due date for monthly instalments|
|15 May 2018||15 days grace period for Form BE 2017 Submission via E-filing only|
|31 May 2018||Tax estimates for companies with June year-end (30 June 2019)|
|31 May 2018||6th month revision of tax estimates for companies with November year-end (30 November 2018)|
|31 May 2018||9th month revision of tax estimates for companies with August year-end (31 August 2018)|
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