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45 Anti-avoidance, S140C Earnings Stripping Rules - Coggle Diagram
45 Anti-avoidance
DG
invoke
S140(1) or S140A
when
transactions
not being carried out at arm's length
relationship test, between
persons on of whom
has control over the other
ind
who are
relatives of each other
persons
who are
both under the control of some other person
S140(1)
HARE
DG
has reason to believe
that any
transaction produces effect
of
Altering
the incidence of tax (which would otherwise have been payable)
in line with
S44(5)
a
dormant Co
with
substantial changes in shareholding (>=50%)
will
NOT
be able
to
c/f loss + CA to subsequent YAs
Relieving
from a tax liability (which would otherwise have been arisen) to pay tax
Evading or Avoiding
tax (which would otherwise have arisen)
Hindering or Preventing
the operation of the Act
DG may
disregard
or vary such a transaction and
re-compute tax liab
of the taxpayer
X invoke S140 on transactions between
independent parties
dealing at arm's length
S140A
X need to proof HARE
DG believes the
price charged
on acq or supply of goods/services is
either
less than/ greater than arm's length price
he may
substitute arm's length price
for the transaction in determination of
gross Y
adj Y/loss
SI
total Y or
Chargeable Y
Tax avoidance = tax planning
structuring
transactions to
minimize tax liabilities
is
LEGAL
Tax evasion
is
ILLEGAL
reducing
tax liab through
concealment of Y
falsification of accounts
falsification of documents and return
time bar for transaction btw
associated persons
7 yrs
DG can
raise an assessment
during time bar period
Tax planning
max tax savings
legitimately achieved
by
CLOSACS
taxpayer has
choice
to adopt a tax advantage measure over another,
X necessarily mean taxpayer is evading tax
good and proper
legal form
that is enforced and enforceable
ie. X to form new Co to evade tax
transactions carried out in
ordinary course of biz
transactions is
not a SHAM transaction
devoid of any substance or purpose other than to avoid tax
transacted at
arm's length price
transaction proven to have
commercial substance
biz synergies
S140C Earnings Stripping Rules
shift of profiting
from one country to another country
(either high tax rate or low tax rate)
resulting in
base erosion and profit shifting
(BEPS)
ESR:
int dedn on loans
btw
related Co within same grp
-
limited to between 20% of the Co's earnings
or any
financial assistance
in a
controlled transaction
Controlled transaction
financial assistance
provided between
persons one of whom
has control over the other
persons
both
of whom are
controlled by some other person
Control
shholding >=20%
and
one party
depends on
proprietary rights
(patent, know-how, trademark) of the other person
has
biz activities
(sales, purchases) with the other person
is able to
appoint >1 directors
in the other Co
In ascertaining the adj Y of a person, from each of his
biz Y
for the BP of a YA
any
int exp
Exclude
Exp to
raise finance
(guarantee fee)
Int exp
disallowed
under ITA
Include
Int on
any debts
granted
directly / indirectly
to that person
which is
in excess of 20% of the Tax - EBITDA
is
NOT deductible
NOT apply
to
Individual
Int exp for the YA <= RM500,000
Computation of
restricted int
Tax EBITDA
=
A - Adj Y before S140C
add B - Double deduction exp
add C - Int exp under S140C
EBITDA X be -ve, has to be o
Int restriction under S140C must be
separately done
for each source of biz
Int exp disallowed (excess 20%) can be
c/f to subsequent YAs for dedn
subject to the applicable amt of 20% of EBITA in that YA
provided the
shholders
of the Co on the
1st day and the last day
of the BP for the YA following the year
in which such amt is ascertained are
substantially the same
Substantially the same
on
both dates
more than 50% of the pd up/allotted ordinary sh cap
of the Co
is held by or on behalf of the
same persons