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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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