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43 Double Tax Agreement (DTA) - Coggle Diagram
43 Double Tax Agreement (DTA)
Principles of DTA
does NOT
itself imposed a liability to tax,
only domestic laws (ie. ITA) can impose taxes on Y
only provide relief
in respect of tax especially where
double tax occurs
does NOT
form
part of the domestic law
of the contracting countries
IF
CONFLICT
b/w
provisions of DTA & provisions of domestic law
DTA will applies
to relied
double tax burden
Permanent Establishment (PE)
Principles of Permanent Establishment (PE)
on biz profits
biz of an enterprise is
only taxable in foreign country
only taxable on biz profits that is
attributable to that PE
IF the enterprise carries on biz in foreign country
through a PE situated there
IF PE
does X exist in Msia
,
no taxes (except withholding tax) on biz Y will be imposed on foreign enterprise
a
fixed place of biz
which biz of an enterprise is wholly or partly carried on
PE tests
The Premise Test
: Existence of Premise
A place of management
A branch (B)
An office (O)
A workshop (W)
A mine, oil well, quarry or other place of extraction of natural resources
A building site/installation/construction/assembly project
A farm/plantation
A place of extraction of timber/forest produce
PE
exclude
facilities
used solely for
storage, display or delivery of goods
belonging to the enterprise
the
maintenance of a stock
of the enterprise
solely
for the purpose of
storage, display or delivery of goods
the
maintenance of a stock
of the enterprise
solely
for the purpose of
processing by another enterprise
the
maintenance of a fixed place
of the biz
solely
for
purchasing goods of merchandise/of collecting information
for the enterprise
the
maintenance of a fixed place
of the biz
solely
for
any activity of a preparatory/auxiliary character
The Activity Test
: Existence of Service
supervisory activities
carried out
which is related to
construction, installation or assembly project
in that territory for
> 6 mths
substantial equipment is used/installed
The Agency Test
: Existence of Dependent Agent
a person
acting
in one of the territories
on behalf of the the enterprise
,
shall
deemed to be a PE
IF
has an
authority to habitually conclude contracts
habitually maintains a stock of goods
belonging to the enterprise
regularly fills orders
on behalf of the enterprise
in so acting, he
manufactures/processes
any goods for the enterprise in that territory
is/NOT PE
Independent agent NOT a PE
IF transactions
were not made under arm's length
IF it is
merely carries on biz
in that other state through
a broker
general commission agent
any independent agent
such person are acting in the
ordinary course of their biz
Dependent or qualifying agents
is a PE
regularly fills order
for Msian customers
maintain the stocks
belonging to the foreign enterprise
regularly conclude contracts
of sale in Msia
on behalf of the foreign enterprise
NOT a PE
transmit orders
from Msia customers to
foreign principal for approval and conclusion of contracts
deliver goods
to Msian customers out of
stocks belongings to the foreign principal
held in Msia
Related Co NOT a PE
a Co which R of one of the territories
controls/is controlled
by
a Co which is R in other territory/carries on biz in that other territory (whether through PE or otherwise)
Sales assistance centre NOT a PE
technical staff give
after sales service
to customers of foreign enterprise
X sales concluded
by center in Msia
Scientific research centre
is a PE
IF it is
only a research centre of auxiliary nature only
NOT a PE
IF it
sells the results of its research to other parties
- to be in the biz of
selling "know-how"
Goods stored in Msia NOT a PE
maintain stocks of good in Msia for sale or delivery
imperative (very crucial) to ensure
the contract is
not signed in Msia
must be
concluded
in the place where the
foreign principal resides
although the goods can be stored and delivered in Msia
taxpayer has
a PE in
foreign
country
a PE in
home
country, taxable on biz Y
double tax
will arise
can be
avoided
by claiming
double tax relief
(DTR) in his
home country
S12(1)(a)
when
much
of gross Y from a biz
NOT attributable
to the biz operations
carried out
outside Msia
it is
deemed
to be
derived from Msia
S12(3)
Y of a person from a biz that is
attributable to a place of biz in Msia
shall deemed to be the
gross Y
of that person
derived from Msia
from the biz
Advantages of DTA
Elimination
of double taxation
primary purpose
of DTA
achieved through
the use of
PE test
granting of
exemptions for special items of Y
(ie. rents, int, div) - same item X taxed in both countries
Mitigation
of double taxation
Bilateral credit (DTR)
given to tax borne in the overseas country
Determine tax residence status
DTA contain
rules
to determine
single residence status
of the person concerned
situation arise in which
an ind/enterprise can be R in 2 countries at the same time
Modification of Withholding Tax applied
many withholding taxed in Msia apply to payments made to
NR
DTA often
modify the appl of withholding tax
by a
lower rate or a complete exemption
Avoid conflict on Transfer Pricing
contains
specific rules
to
avoid conflict over transfer pricing issues
avoid double taxation
those rules
take precedence
over Msian guidelines
Double Taxation
Arise when a person who is a
tax R
of one country
derives Y from
another country
and both countries
impose tax
on that
same Y
Solution: Credit System
country of
residence
will grant
tax credit
in respect of any
foreign tax
suffered
in the country of source on the same Y
Bilateral Credit (DTR)
IF DTA exists
Principles
must
NOT exceed
Msian tax payable on foreign Y
total DTR
for any YA must
NOT exceed
the total Msian tax payable on chargeable Y
only given
once
even IF the foreign Y is taxed > once in the foreign country or in Msia
can claim by a
R person
in the
country of residence
- X claim from host country
excess DTR
X c/f, X refund, is a permanent loss
have to be claimed
within 2 yrs after the end of that YA
ie. YA2019 - 31.12.2019 + 2 yrs: 31.12.2021
deducted from Msian tax payable
DTR Amount
Lower of
Foreign Tax Suffered on Foreign Y
Msian Tax Payable x (Statutory Foreign Y/Total Y)