FMAccounting

TRANSFER PRICING IS AN IMPENDING MAJOR TAX CHALLENGE FOR COMPANIES ESPECIALLY MULTINATIONALS

slang — Mon, 02 Nov 2009 08:41:25 +0000

Recently, one of the big four international accounting firm Ernst & Young has conducted a survey on transfer pricing

According to the survey,

There is a dramatic increase in the scope of Transfer Pricing documentation required by governments with penalties imposed more frequently and at higher levels when multinationals get it wrong.
Governments are constantly searching for tax revenues from conducting transfer pricing investigation so as to offset growing budget deficits. Hence, we can see the growing focus on compliance, enforcement and legislations.

For Malaysia, we see:

The introduction of the new Sections 140A and 138C of the Income Tax Act 1967 relating to TP, which referred to the price charged by one part of an organisation for products and services it provides to another.
The local Inland Revenue Board (IRB) has set up a dedicated Multinational Tax Department to focus its efforts and resources on TP matters such as TP audit, compliance, policy and advance pricing arrangement.The specialist resources consist of accountants, economists and those with business and finance backgrounds, and the dedicated resources are expected to increase significantly.

For those accountants who are somehow involve in the transfer pricing system, perhaps it would the right time to review and revamp any loop holes in your company’s transfer pricing methodology otherwise it might come as a surprise to you when Inland Revenue knocks at your door.

Always bear in mind that when implementing transfer pricing system, we should always be consistent in our documentation vide corporate policy or other documentations like other competitors prices,budgets from related companies and others. However, as transfer pricing is pertaining to trade related matters, try alway to adopt a practical approach to what you are doing say for example if you deviate from your present transfer pricing system and give a very much better discount to your related company, try to justify it from the practical customer-supplier standpoint.

MALAYSIA TAX BUDGET 2010: TOP PERSONAL TAX RATE REDUCED BY 1%

slang — Wed, 28 Oct 2009 10:39:39 +0000

Beginning from year of assessment 2010, under the proposed legislation, the top personal tax rate has reduced by 1% (i.e. from 27% in YA 2009 to 26% effective from YA 2010). This means that, in respect of chargeable income above RM100,000, for every RM1,000 a person earns, he will be paying RM10 less in taxes.

MALAYSIA TAX BUDGET 2010: PERSONAL TAX INCENTIVE FOR BROADBAND EXPENSES

slang — Wed, 28 Oct 2009 10:38:16 +0000

An individual can claim a maximum of RM500 of the monthly Internet broadband bills issued under his name in his tax return.

In the current self-assessment taxation system, he will be required to maintain receipts for such expenses paid for up to seven years in the event of an audit by the Inland Revenue Board.

In the event that the broadband expense was reimbursed by the employer, this is an exempt employment income hence not taxable on the employee income. Therefore he is not eligible to claim the tax relief in his annual personal tax return.

MALAYSIA TAX BUDGET 2010: ENHANCED TAX INCENTIVES FOR HEALTHCARE COMPANY.

slang — Wed, 28 Oct 2009 10:36:53 +0000

It is proposed that 100% of the value of increase in exports would be exempted from tax in respect of services provided to foreign clients in Malaysia. The value of the increase in exports is taken to mean the difference of the value of the qualifying services exported in the current period and that of the immediately preceding period.

For the purpose of this incentive, foreign clients are defined as:

i) a company, partnership, an organisation or a cooperative society incorporated or registered outside Malaysia;

ii) non-Malaysian citizens who do not hold Malaysian work permits; or

iii) Malaysian citizens who are considered as non-residents living abroad.

The proposal is effective for a five-year period from 2010 to 2014.

ACCOUNTING FRAUD UPDATE: MEMS TECHNOLOGY BHD (MEMS)

slang — Wed, 28 Oct 2009 05:57:22 +0000

It is quite shocking to hear that MEMS Technology Bhd, despite being publicly reprimanded and fined heavily for the breach of Listing Rule (see below paragraph) in October 2008 has still not complied with the requirements of the SC. The Securities Commission (SC) has for the second time this year instructed microelectronics maker MEMS Technology Bhd (MEMS) to comply with the applicable financial reporting standards by adjusting its reissued financial statements dated October 7 2009.

Now, SC is giving the ACE Market-listed company 14 days to do so.

What is this all about:

The statements to be ADJUSTED are MEMS’ financial years ended July 31 2007 and July 31 2008 as well as the quarterly report for the six months ended January 31 2009.
MEMS is also required to announce to Bursa Malaysia the adjustments made, reasons for the adjustments and their detailed effects on the company’s financial statements.
The decision came after MEMS’ admission in its reissued financial statements that they were not in compliance with the financial reporting standards, FRS118 “Revenue”. The SC viewed MEMS’ non-compliance with the FRS118 “Revenue” “very seriously”.
On August 4 2009, the SC directed MEMS to rectify and reissue its accounts for the financial years ended 2007 and 2008. MEMS was also to rectify and announce to Bursa Malaysia its unaudited condensed consolidated income statements for the six months ended January 31 2009.MEMS was to rectify the financial statements by excluding RM49.183 million from its revenue for all the three financial statements.

Accounting fraud:

Rational for the adjustments instructed by the SC:

Investigations by the SC revealed that the group’s revenue of RM53.699 million reported in the 2007 financial statement contained bogus sales of RM13.007 million, while the revenue of RM71.994 million reported in 2008 contained RM24.161 million sales which did not take place.
For the six months ended January 31 2009, MEMS reported revenue of RM37.366 million, of which RM12.015 million sales had not been transacted.
These sales were recorded in the financial statements of MEMS’ wholly-owned subsidiary, Senzpak (M) Sdn Bhd.

Earlier news about MEM Technology Bhd (ACE –ex Mesdaq company):-

Extracted from the Bursa Saham’s website dated 6/10/08, MEM Technology Bhd (Mesdaq) has been publicly reprimanded for the breach of Rules 9.22(1), 9.23(1), 9.24 and 9.16(1)(a) of the MMLR and were imposed fines on the following directors of MEMS in respect of the Company’s breaches of Rules 9.22(1), 9.24 and 9.16(1)(a) of the MMLR aforesaid :-

No.	Director	Penalty Imposed
1	Dato’ Ahmad Kabeer bin Mohamed Nagoor Non-Independent and Non-Executive Chairman	Public Reprimand and Fine of RM89,000
2	Kathirgamasundaram Sooriakumar Chief Executive Officer	Public Reprimand and Fine of RM197,500
3	Tan Yeow Teck Executive Director / Chief Financial Officer	Public Reprimand and Fine of RM197,500
4	Bryan Keith Patmon Executive Director	Public Reprimand and Fine of RM89,000
5	Ooi Boon Leong Non-Independent and Non-Executive Director Audit Committee Member	Public Reprimand and Fine of RM89,000
6	Lim Eng Thong Non-Independent and Non-Executive Director (Alternate Director to Ooi Boon Leong)	Public Reprimand and Fine of RM89,000

Besides the public reprimand, Bursa Securities also insists that MEMS is required to carry out a limited review on the Company’s quarterly report submission. The limited review must be performed by the Company’s external auditors for four quarters commencing from the quarter subsequent to the date hereof. The quarterly report announcements must state that it has been reviewed by the Company’s external auditors.

1.0 According to SC, MEMS had breached the following:

Rule 9.24 of the MMLR for failure to submit Company’s annual audited accounts and annual report for the financial year ended 31 July 2007 (“AAA 2007” and “AR 2007”)) on or before 30 November 2007 and 31 January 2008 respectively. The AAA 2007 and AR 2007 were only submitted on 23 April 2008 and 2 May 2008 respectively. Further, the external auditors, KPMG had expressed a disclaimer opinion in the AAA 2007 (“the Disclaimer”) and MEMS was classified as a Guidance Note No. 3/2006 company on 28 April 2008 based on the Disclaimer;
Rule 9.22(1) of the MMLR for failure to submit Company’s quarterly report for the financial period ended 31 October 2007 (“QR 1/2008”) and 31 January 2008 (“QR 2/2008”) on or before 31 December 2007 and 31 March 2008 respectively. The QR 1/2008 and QR 2/2008 were only submitted on 28 April 2008;
Rule 9.23(1) of the MMLR for failure to submit Company’s research report for the financial period ended 31 January 2008 (“RR 31/1/08”) on or before 31 March 2008. The RR 31/1/08 was only submitted on 27 June 2008; and
Rule 9.16(1)(a) of the MMLR in respect of the Company’s announcement dated 27 September 2007 on the fourth quarterly report for the financial year ended 31 December 2007 (“QR 4/2007”) which failed to take into account the adjustments as stated in the Company’s announcement dated 28 April 2008.

MEMS had reported an unaudited profit after taxation of RM21.473 million in the QR 4/2007 (“Unaudited Results”) which was announced on 27 September 2007. However, the Company had on 23 April 2008 reported an audited profit after taxation of RM13.110 million in the AAA 2007 (“Audited Results”). The decrease in the profit after taxation between the Unaudited Results and the Audited Results for the financial year ended 31 July 2007 of RM8.363 million represents a deviation of approximately 38.95% (“the Deviation”).The Deviation was mainly due to the reversal of RM19.72 million revenue arising from the Board of Directors’ decision not to recognize the revenue after KPMG has expressed its concerns as announced on 27 November 2007.

2. All Of the aforesaid directors were found to be in breach of Rule 16.11(b) of the MMLR for permitting either knowingly or where they had reasonable means of obtaining such knowledge the Company to commit the breaches of Rules 9.24, 9.22(1) and 9.16(1)(a) of the MMLR aforesaid.

3. Bursa Securities views the above contraventions seriously and hereby cautions MEMS and its Board of Directors on their responsibility to maintain appropriate standards of corporate responsibility and accountability in order to achieve greater disclosure and transparency to its shareholders and the investing public.

MALAYSIA TAX BUDGET 2010: TAX INCENTIVE IN RELATION TO THE GREEN BUILDING INDEX (GBI)

slang — Tue, 27 Oct 2009 15:30:55 +0000

Green Building Index was developed by Pertubuhan Akitek Malaysia and the Association of Consulting Engineers Malaysia. It was launched on May 21, 2009

Under the GBI assessment framework:

points will be awarded for achieving and incorporating environment-friendly features which are above current industry practice.
Two different sets of GBIs have been developed for both commercial and residential properties.
The assessment criteria include:

(a) Energy and water efficiency

(b) Indoor environmental quality

(d) Usage recyclable and environment friendly materials and resources

(e) Adoption of new technologies

As a measure to encourage the construction of buildings using green technology, it is proposed that the owners of buildings awarded the GBI certificate be given exemption equivalent to 100% of the additional capital expenditure incurred to obtain the GBI certificate.

This incentive is applicable on new buildings and upgrading of existing buildings.

The proposal is effective for buildings awarded with GBI certificate from Oct 24, 2009 until Dec 31, 2014.

Further details on GBI can be viewed at http://www.greenbuildingindex.org.

MALAYSIA TAX BUDGET 2010: EXEMPTION FROM STAMP DUTY ON THE PURCHASE OF BUILDING THAT INCORPORATE WITH “GREEN TECHNOLOGY”

slang — Tue, 27 Oct 2009 15:29:20 +0000

In the Budget 2010, stamp duty exemption would be available for buyers of buildings and residential properties that have been issued a Green Building Index (GBI) certificate.

Details:

The GBI is a rating index for environmentally-friendly buildings.
The stamp duty exemption would only apply to buildings or residential properties bought directly from real property developers and the exemption is only given once to the first owner of the building.
It may not apply to existing buildings that have subsequently been granted the GBI certificate.
The amount of the stamp duty exemption is given only on the additional cost incurred by the property developer to obtain the GBI certificate, and not on the full value of the building.
The exemption will apply for sales and purchases agreements executed from Oct 24 2009 until Dec 31, 2014.

MALAYSIA TAX BUDGET 2010: EXPENSES INCURRED ON THE REGISTRATION OF TRADEMARKS IN MALAYSIA WILL BE ALLOWED AS TAX DEDUCTION FOR PURPOSES OF INCOME TAX COMPUTATION.

slang — Tue, 27 Oct 2009 15:27:37 +0000

The proposed tax deduction on the expenses incurred on the registration of trademarks will only apply to companies which have a paid-up capital in respect of ordinary shares of RM2.5mil and less at the beginning of the taxable period.

Details:

The company should not be related to a company which has a paid-up capital in respect of ordinary shares of more that RM2.5mil at the beginning of the taxable period.
In addition, the company should not have full-time employees exceeding 150 persons nor annual sales turnover exceeding RM25mil respectively.
The registration expenses include fees or payments made to trademark agents registered under the Trade Marks Act 1976.
This deduction is essentially targeted for small and medium enterprises. This proposal is effective from Year of Assessment 2010 to 2014.

MALAYSIA TAX BUDGET 2010: PERSONAL INCOME TAX INCENTIVES FOR THOSE WORKING IN THE ISKANDAR REGION.

slang — Tue, 27 Oct 2009 15:24:53 +0000

If a person apply and commence his or her employment in Iskandar Malaysia between Oct 24, 2009 and Dec 31, 2015, provided that he or she is qualify as a Malaysian tax resident, his/her employment income will be taxed at the flat rate of 15%.

This could be substantially lower compared to the effective tax rate of a Malaysian tax resident.

What Is An Effective Transfer Pricing System In A Divisional Organization

slang — Tue, 27 Oct 2009 10:00:12 +0000

An effective transfer pricing system in the context of a divisional organization has to satisfy several basic criteria. The challenge is presently no transfer pricing system has been perfect. However, for an effective system of transfer pricing, some of the basic criteria need to be satisfied:

it should encourage divisional managers to actin the best interests of the organization as a whole eg maximise the wealth of the shareholders and achieve goal congruence
facilitate the assessment of management performance by ensuring that one division is not subsidizing another division
support divisional autonomy eg managers should be abl to purchase from the cheapest supplier
the transfer pricing should be deemed to be fair
the system should be clear and understood by all concerned
if appropriate, the system should aim to minimize the tax liability of the company.