Professional Documents
Culture Documents
a) Holding Company
Charging of management fees – at arm’s length
S. 140A Anti avoidance provision for related companies
– IRB can improve MV on the supply of goods and services between
related companies
Advantages of charging management fees at market rate
– Companies may no longer be an IHC, then management fees are
business income then expenses fully deductible
– IHC – section 60F applies – restriction of deductions for expenses to
maximum 25%
b) Payment of dividends
Interest expense on loans used to buy shares would be disregarded as
dividends are exempt
Sch 6 Para 12 – non deductibility of expenses against exempt dividends
d) Reinvestment allowance
Qualifying project – automation, expansion, modernization
Financing options under RA
Transfer the investment in subs co 2 from subs co 1 to the holding company
so that shareholders can enjoy tax free dividends from RA incentive enjoyed
by the subs co 2
H Co
100% H Co
Sub Co 1
100% 100%
100%
Sub Co 2 Sub Co 1 Sub Co 2
e) For profitable company and loss making company (look for matching companies
manufacturing similar products)
Do not transfer operation from profit making company to loss making
company as loss making company has no unabsorbed losses
i) Situation: A subsidiary company has paid up share capital of RM 2.0m and needs
funds. Should the holding company give a loan (interest free or at market rate) or
take up additional shares in the subsidiary?
Option – Equity
1. Dividends
Result: Holding Company – higher dividends
Subs company – dividend payment not deductible
2. Is subsidiary company an SME?
Incentives for SMEs
– Lower tax rates: On first RM 500,000 @ 18%, balance @ 24%
– No restriction on the allowances claimed on small value assets (others:
RM 13,000 maximum claim on SMA)
3. Subsidiary company is not an SME even though paid up capital is less than RM
2.5m for an SME
SME conditions
– Paid up capital of RM 2.5 m or less
– Not more than 50% of the paid up OSC is owned by a related company
where the related has more than RM 2.5m paid up OSC
So subsidiary is taxed at the normal 24% and claim for Small Value Assets
restriction to RM 13,000
1. Interest free loans with no terms for repayment is not a loan. It is a grant.
2. How is the grant used?
If grant is used to pay off trade debts and staff costs (deductible expense), then the
grant received is taxable.
3. Only grants from government are exempt
4. Loan from the holding company is considered a grant which is taxable.
Option – Loan with interest charged at market rate (interest becomes payable a
few years later)
1. Allowable loss
2. Built a structure which was washed away (permitted expenses, insurance
compensation). See Tutorial 4 Q6 (construction and destruction of a showroom
building); RPGT computation
3. Legal cost in DEFENDING title
4. Disposal in 6th year (tax rate: 0% / 5%)
5. Definition of disposal: sale, conveyance, transfer
6. Exchanging land for another land is also a disposal
Disposal date
Where disposal requires approval of State Government, date of disposal is the
date of approval from the Government
Even though the agreement to exchange will be signed later, the date of
disposal will be the date approval is received from the Government
7. Exchange land for another land is also a disposal
Disposal price
Sch 2 Para 13: where an asset is disposed in exchange for another asset
The MV of the asset received shall be the consideration for the disposal
Does not matter if the asset is a chargeable asset or not (e.g. foreign land)
So the disposal is the MV of the other asset (the foreign land)
k) Tax incentives
Conditions:
Resident Company engaged in manufacturing a consumer product
Consistently achieves at least 30% of value added
Has export sales, and expects to increase its export sales every year
Does not enjoy any other tax incentive in the YA.
RM
Export Sales – Year 1 2,000,000
Increase in Export Sales – Year 2 (20%) 400,000
AIE (10% × RM 400,000) 40,000
ALLOWANCE FOR INCREASED EXPORTS
3. Pioneer Status
1. Tax Evasion: not deducting rental income, claiming for deduction of non-
existence of expense (coming up with fake invoices)