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Deloitte TaxMax –
the 41st series
The Arena of Tax Unveiled –
The unknown operational
intricacies in business tax
and tax controversies
Moderator: Chow Kuo Seng
Speakers:
• Sivaram Nagappan, Malaysia Airlines Berhad
• Manvinder Singh, Felda Global Venture Holdings
Berhad
• Chee Pei Pei
Manvinder SinghFelda Global Venture Holdings Berhad
2© 2015 Deloitte Tax Services Sdn Bhd
Sivaram NagappanMalaysia Airlines Berhad
3© 2015 Deloitte Tax Services Sdn Bhd
Chee Pei PeiDeloitte Tax Services Sdn Bhd
4© 2015 Deloitte Tax Services Sdn Bhd
“Like all talk and no action, strategy is
useless without implementation.”
“By announcing our KPIs and targets, we
are now held responsible to keep to our
promises. I have often joked that it is akin to
being made pregnant with no other
alternative but to deliver!”
Idris JalaSource: Business News, The Star Online, 26 October 2015
5© 2015 Deloitte Tax Services Sdn Bhd
“My garden has a fence, the
earth, the sky, but the thoughts of
a taxman has no boundaries.”
Unknown
6© 2015 Deloitte Tax Services Sdn Bhd
Tax Planning
Tax Technology
7© 2015 Deloitte Tax Services Sdn Bhd
Tax Technology
Tax Compliance Solutions
© 2015 Deloitte Tax Services Sdn Bhd 8
Tax Compliance
Solutions
• Tax Computation • Expat Tax Filing
• E-Filing • Tax Equalisation
• Provisional Tax &
Estimated Tax
Payable
• Transfer /
Secondment
Management
• Deferred Tax • Payroll Management
• Customised Tax Reports • Customised Tax Reports
Corporate Tax Individual Tax
Tax Technology
Withholding Solutions
© 2015 Deloitte Tax Services Sdn Bhd 9
User PromptsType of
Payment to
Non-Resident?
Segregation of
value based on
payment type
Double
Taxation
Agreement?
Regrossing
Required for
Payment on
Behalf?
Permanent
Establishment?
Treaty
Benefits?
Criteria & Doc.
Required?
Withholding Tax
Royalty, Service, etc.?
Tax PlanningRealigning / Relooking
At Supply Chain
Activities
10© 2015 Deloitte Tax Services Sdn Bhd
Tax Planning
Realigning / Relooking at Supply Chain Activities
Google Starbucks Amazon
Turnover of £395m in the UK in
2011.
UK sales of £398m in 2011. UK sales of £3.35b in 2011.
Reported a loss after tax of
£24.1m
Reported losses for 14 out of 15 of the
previous years.
Stated profit of £74m.
Employs 1,500 in the UK. Employs 8,500 staff in UK. Employs 15,000 staff in UK.
Paid £6m in corporation tax. Paid no corporation tax. Paid £1.8m in corporation tax.
How did they ‘Allegedly’ do it?
Channelled non-US sales via
Ireland, an arrangement that
has allowed it to pay taxes at a
rate of 3.2% on non-US profits.
It also diverts some profits
through Bermuda.
Made royalty payments at 6% of gross
revenue to a sister company in the
Netherlands for the use of the brand.
Overall effective tax rate on royalties to its
Dutch subsidiary averaging 16 per cent,
well under the 25 per cent official Dutch
corporate tax rate.
Amazon reported European sales
through a Luxembourg-based unit
which allowed it to pay a rate of less
than 12% on foreign profits, less than
half the average corporate income
tax rate in its major markets.
Source : BBC News; the Guardian© 2015 Deloitte Tax Services Sdn Bhd
11
Tax Planning
Realigning / Relooking at Supply Chain Activities
For some companies especially MNCs, a product’s supply chain is typically not just in one
location, it is located internationally. How much should the various entities be remunerated
for the value adding activities along the supply chain?
Technology / Idea
R
Patent / Trademark
Manufacturer (Full Fledged / Semi / Toller)
Trader (Matching Agent
/ Full Fledged)
Example:
Supply Chain
BEPS issuesTransfer
pricing
Nationalistic
concerns
Business practicality
© 2015 Deloitte Tax Services Sdn Bhd
12
Tax Planning
Realigning / Relooking at Supply Chain Activities
13
Exit strategy
Business reasons vs. tax driven
factors
Substance vs. Form
BEPS issuesProfit
repatriation
Common
Issues in
M&A
Target company (tax
haven / operating
entity)
Holding company
structure
Withholding tax concerns
Double taxation treaty
(treaty benefit)
Beneficial ownership test
(look through provisions)
Look through provisions
(indirect disposal of shares)
Double taxation treaty (taxing
principles; taxing right; treaty
benefit; tax relief)
Practicality and
sustainability of
structure
Changing tax
environment
/landscape (look
through provisions /
beneficial ownership
test / treaty benefits)
Supply chain
Transfer pricing
Controlled Foreign
Corporation (CFC) rules
Permanent
establishment mitigation
(proper segregation of
functions and risk)
© 2015 Deloitte Tax Services Sdn Bhd
Question 1
14© 2015 Deloitte Tax Services Sdn Bhd
ShallowNot very familiar /
no utilisation of
tax IT solutions
ModerateEnough to
understand /
moderate
utilisation of tax IT
solutions
How do you rate yourself
in terms of your
understanding and your
company's utilisation of
information technology (IT)
solutions for tax
purposes? High Have good
understanding /
significant
utilisation of tax IT
solutions
Taxation of Malaysian
Employees
15© 2015 Deloitte Tax Services Sdn Bhd
© 2015 Deloitte Tax Services Sdn Bhd 16
Income accrued in or derived from
Malaysia, or received in
Malaysia from outside Malaysia would be taxed
Exemption on
foreign sourced
income
(Paragraph 28(1)
of Schedule 6 of
the Income Tax
Act, 1967)
Deemed derived
from Malaysia
(territorial scope)
…the employee
performs outside
Malaysia duties
incidental to the
exercise of the
employment in Malaysia
Taxation of employment income
Taxation of Malaysian Employees
Types of Malaysian employees exercising
employment overseas and its challenges faced
Taxation of Malaysian Employees
© 2015 Deloitte Tax Services Sdn Bhd 17
Short-term
assignees
Short-term
assignees
Long-term
assignees
Frequent
Business
Travellers
Frequent
Business
Travelers
Determination of incidental duties – PR1/2011
Taxation of Malaysian Employees
© 2015 Deloitte Tax Services Sdn Bhd 18
Exercise of the employment in Malaysia
• An employer-employee relationship exits.
• The employee exercised his employment (performed services)
with the employer in Malaysia prior to being seconded
overseas.
Nature of overseas duties
• Duties performed outside Malaysia are connected with or are
part of the employee’s regular duties in Malaysia.
Nature of overseas duties
Exercise of the employment in Malaysia
Determination of incidental duties – PR1/2011
Taxation of Malaysian Employees
© 2015 Deloitte Tax Services Sdn Bhd 19
• Duties carried out within the same employer-employee
relationship and to further the purpose of the employer in
Malaysia despite the duties in Malaysia and outside
Malaysia may not be the same.
• Where the employee resumes work in Malaysia after
completion of the overseas duties, the overseas duties are
considered temporary in nature and incidental to main
employment.
Purpose of Overseas Duties
Temporary Nature of Overseas Duties
Determination of incidental duties – PR1/2011
Taxation of Malaysian Employees
© 2015 Deloitte Tax Services Sdn Bhd 20
• Incidental if control and direction lies with the employer in
Malaysia.
Control means setting standards, measuring actual performance
and taking corrective action based on the reports received.
• Employer in Malaysia enjoys the benefits from the overseas
duties and bears the cost of the employee’s remuneration during
the overseas secondment.
Place from where the duties are directed and controlled
Payment for Services Performed
Determination of incidental duties – PR1/2011
Taxation of Malaysian Employees
© 2015 Deloitte Tax Services Sdn Bhd 21
• Employer in Malaysia bears the risk and directly enjoys the
economic benefits from the performance of the overseas
duties by the employee
Commercial Reality
© 2015 Deloitte Tax Services Sdn Bhd 22
Policy and Work Process Education and Awareness
Documentation
T
e
x
t
MAS
Challenges
MAS Challenges
Taxation of Malaysian Employees
Question 2
23© 2015 Deloitte Tax Services Sdn Bhd
ShallowNot familiar with
its implications
ModerateEnough to
understand what
are the impacts
How do you rate yourself
in terms of your
understanding on the tax
implications for
international bound
Malaysian employees?
High Have good
understanding of
the subject matter
Foreign Account Tax
Compliant Act
FATCA
24© 2015 Deloitte Tax Services Sdn Bhd
Overview
FATCA
© 2015 Deloitte Tax Services Sdn Bhd 25
• Requires foreign financial institutions (FFIs) to report to the US Internal Revenue
Service (IRS) information about financial accounts held by specified US persons or by
non-financial foreign entities (NFFEs) with substantial US owners.
• A 30% withholding tax on US-source payments made to:
• FFIs that do not enter into an agreement with the IRS
• NFFEs that do not disclose substantial US owners
• Recalcitrant account holders
• If an FFI Agreement is entered into, the FFI agrees to:
• Identify US account holders and report information to the IRS
• Apply the 30% withholding tax on certain payments of US source income and sales
proceeds paid on/after 1 January 2014
• Verify initial and on-going compliance
• Subject to applicable IGA
FATCA Implementation
Signed – Model 1 IGA
Signed – Model 2 IGA
Reached Agreement – Model 1 IGA
Reached Agreement –
Model 2 IGA
Armenia San Marino
Iraq Taiwan
Nicaragua Macau
Paraguay
3
Australia Denmark Italy Poland
Bahamas Estonia Jamaica Portugal
Barbados Finland Jersey Qatar
Belarus France Kosovo Romania
Belgium Georgia Kuwait Singapore
Brazil Germany Latvia Slovak Republic
British Virgin Islands Gibraltar Liechtenstein Slovenia
Bulgaria Guernsey Lithuania Spain
Canada Holy See Luxembourg South Africa
Cayman Islands Honduras Malta South Korea
Colombia Hungary Mauritius Sweden
Costa Rica Iceland Mexico Turkey
Croatia India Netherlands Turks and Caicos Islands
Curacao Ireland New Zealand United Arab Emirates
Cyprus Isle of Man Norway United Kingdom
Czech Republic Israel Philippines Uzbekistan
Algeria Dominican Republic Montserrat Trinidad and Tobago
Angola Greece Panama Tunisia
Anguilla Greenland Peru Turkmenistan
Antigua and Barbuda Grenada St. Kitts and Nevis Ukraine
Azerbaijan Guyana St. Lucia
Bahrain Haiti St. Vincent & the Grenadines
Cabo Verde Indonesia Saudi Arabia
Cambodia Kazakhstan Serbia
China Malaysia Seychelles
Dominica Montenegro Thailand
Austria Japan
Bermuda Moldova
Chile Switzerland
Hong Kong
© 2015 Deloitte Tax Services Sdn Bhd
FATCA timelines
Progress in Malaysia
© 2015 Deloitte Tax Services Sdn Bhd 27
2017201620152014
30 Jun 2016
Due diligence
procedures to be
completed for all
other pre-existing
accounts
1 Jan 2017
Withholding begins on
gross proceeds and
possibly on foreign
passthru payments
30 Jun 2015
Due diligence
procedures to
be completed
for pre-existing
high value
individual
accounts
1 Jul 2014
New individual
customer on-
boarding
started
31 Dec 2014
Reporting MYFIs
should have
registered and
obtained GIINs
11 Sep 2015
Release of Revised
Draft FATCA
Guidance Notes
1 Jan 2015
New entity
customer on-
boarding
started
30 Jun 2015
Original reporting
deadline for submission
of the reporting year
2014 FATCA return has
been delayed to 30 Jun
2016
15 Mar 2015
Release of Draft
FATCA Guidance for
public consultation
30 Jun 2014
Model 1 IGA
agreed in-
substance
between
Malaysia and
US
30 Jun 2016
Reporting
deadline for
submission of the
reporting year
2015 FATCA
return to IRBM
30 Jun 2017
Reporting
deadline for
submission of the
reporting year
2016 FATCA
return to IRBM
23 Oct 2015 – Budget 2016 Proposal
Amendment of S154 - The Government is empowered to
make rules implementing or facilitating mutual
administrative assistance arrangements under S132B.
Draft FATCA Guidance Notes will be finalised anytime
soon?
© 2015 Deloitte Tax Services Sdn Bhd 28
___________
1 AEOI: Automatic exchange of information 2 G5: France, Germany, Italy, Spain, and the United Kingdom 3 CAA: Competent Authority Agreement4 CRS: Common Reporting Standard
• Interpretation
of CAA and CRS
• Specification of rules
and provisions
• Should ensure
consistency in the local
application
2013
9 April 2013
G52 announced pilot
project for worldwide
FATCA
20 July 2013
G20 mandated OECD to
develop a worldwide
standard for AEOI
13 February 2014
Release of Model
CAA3 and CRS4
21 July 2014
Release of OECD
Commentaries and
reporting schema
29 October 2014
Multilateral
agreement signed by
51 jurisdictions at the
Global Forum
Meeting in Berlin6 May 2014
OECD members endorsed a
declaration committing to the AEOI
(including 13 non-members)
• Bilateral or multilateral
agreement between
jurisdictions consenting
to exchange
information
• Determination of mostly
administrative issues
relevant for
governments
• Due diligence and
reporting standard
relevant for Financial
Institutions
• Must be translated into
local regulations and
guidance
• Technical solution
• XML schema used for
data exchange
between governments
(and probably for
domestic reporting)
20152014
4 June 2015
Multilateral
agreement signed by
7 additional
jurisdictions at the
Global Forum
Meeting in Berlin
The way towards AEOIIntroduction to CRS
AEOI – How it works
29© 2015 Deloitte Tax Services Sdn Bhd
Overview – The Automatic Exchange of Information (AEOI) Requirement
• Aims to identify resident persons trying to avoid tax obligations in their countries of residence by holding
assets in structures and products located in other countries
Reporting Financial
Institutions
Domestic tax authorities
Foreign tax authorities
in countries of Account
Holders and Controlling
Persons
Reporting
Exchange of
information
Identification &
documentation1
2
3
Account Holders
Controlling Persons
AEOI implementation in Malaysia• All obligations of a Malaysia Financial Institution will be created and governed by Malaysia law and guidance.
• Practically financial institutions will need to identify the tax residency of all of their customers.
More than 90 countries to implement the Standard
2017
Signed (50)
Committed (7)
Anguilla Gibraltar Montserrat
Argentina Greece Netherlands
Belgium Guernsey Norway
Bermuda Hungary Poland
British Virgin Islands Iceland Portugal
Cayman Islands Ireland Romania
Colombia Isle OF Man San Marino
Croatia Italy Seychelles
Curacao India Slovak Republic
Cyprus Jersey Slovenia
Czech Republic Latvia South Africa
Denmark Liechtenstein South Korea
Estonia Lithuania Spain
Faroe Islands Luxembourg Sweden
Finland Malta Turks & Caicos Islands
France Mauritius United Kingdom
Germany Mexico
Barbados Niue
Bulgaria Trinidad and Tobago
Dominica Uruguay
Greenland
2018
Signed (12)
Committed (26)
Albania Costa Rica
Aruba El Salvador *
Australia Ghana
Austria Indonesia
Canada New Zealand
Chile Switzerland
*announcement of signing made – date not released.
Andorra Macau (China) Samoa
Antigua and Barbuda Malaysia Saudi Arabia
Bahamas Marshall Islands Singapore
Belize Monaco Turkey
Brazil Qatar United Arab Emirates
Brunei Darussalam Russia
China Saint Kitts and Nevis
Grenada Saint Lucia
Hong Kong (China) Saint Maarten
Israel
Japan
Saint Vincent and the
Grenadines
2© 2015 Deloitte Tax Services Sdn Bhd
© 2015 Deloitte Tax Services Sdn Bhd
FATCA and
CRS will
definitely be
implemented in
Malaysia, it is
just a matter of
time.
In your opinion, what
would be the direction
of FATCA and CRS
development in
Malaysia?
The Malaysian
government will
negotiate FATCA
and CRS away
from Malaysia.
FATCA and CRS
will not be fully
implemented in
Malaysia. It will be
somehow
embedded in the
current Malaysian
legal landscape.
Since Malaysia is
half way through in
implementing
FATCA, FATCA will
be implemented.
However, Malaysia
will not implement
CRS.
Question 3
Contact us
© 2015 Deloitte Tax Services Sdn Bhd
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