WT and DTA Tutorial Questions

8/19/2019 WT and DTA Tutorial Questions

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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) Kiong Joo Ltd a company resident in !outh Korea sold a crane to "!K !dn #hd a

contractor in $ort %ic&son for 'M*****+ According to the terms of the purchase

agreement an additional sum of 'M,**** was payable by "!K !dn #hd to Kiong Joo

Ltd for technical services to install the crane+

(ii) A consultancy firm resident in ndia was engaged by ./0 !dn #hd a Malaysian

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 consultancy firm3s ban& in

"hennai ndia+

(iii) 1i&&ono Ltd a Japanese company rendered technical services to 0rend !etters !dn #hd

which is located in Ka4ang !elangor+ 1i&&ono Ltd issued an invoice for the value of

'M5**** which included reimbursements covering cost of accommodation charges of

'M6*** 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 with reasons whether the above payment of 'M**** to the 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!

List any si8 financial instruments on which interest payments made are not sub4ect 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

manufactured in Malaysia+ ;n August 6* the company was liable to pay royalty of

'M6***** to the Japanese company+ A sum of 'M5**** 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) 0emase& 0iles $te Ltd (00$ Ltd) a !ingapore based company is in the business of selling

floor and wall tiles+ 0he company has a website hosted in a server 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 allowed a Malaysian company 0emase& 0iles (Malaysia) !dn #hd to use its3

&now-how to ma&e and sell its tiles in Malaysia in return for royalty payment+

Required:

(i) 78plain the whether 0emase& 0iles $te Ltd is carrying on a business in Malaysia+

(ii) 78plain the ta8 treatment on the payment of royalty by 0emase& 0iles (Malaysia) !dn

#hd to 0emase& 0iles ($te) Ltd a !ingapore based company+

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 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

derives its business income by selling the branded clothes to boutiues and supermar&ets all over

"hina+ 0!%L promotes the recognition of its trademar& and the value of its contribution 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 be entitled to relief under the Malaysia-$'" %ouble 0a8 Agreement (%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 !tate unless the enterprise carries on business in the other "ontracting

!tate through a permanent establishment ($7) situated therein+ As 0!%L does not have a $7 in

Malaysia 'ussel /o asserts that the license fee should be payable without 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 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

Kenchana #erhad paid 'M6****** to /eavy Machine ncorporation for supplying and

installing machines in Kenchana premise in Malaysia+ ;f the total amount 6F is for theinstallation and commissioning the machines+

Required

Advise Kenchana3s accountants on the ta8 treatment of the payment made to /eavy Machine

nc+

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WT and DTA Tutorial Questions

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