Asia Tax Bulletin Summer 2020 - Mayer Brown
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Asia Tax Bulletin Summer 2020
In This Edition
We are pleased to present the Summer 2020 edition
of our firm’s Asia Tax Bulletin.
Dear Reader, Singapore, Hong Kong and Malaysia
have expressed their respective views on
We hope you are well and in good health.
whether the current travel restrictions
In this pandemic year, four months have passed has consequences for tax residency or
during which most of Asia has been working permanent establishment risks. These are
SAN FRANCISCO CHICAGO
from home. The focus is almost exclusively onNEW YORK
just some of the topics discussed in this
BEIJING
the virus. As in the previous edition of this WASHINGTON DCTax Bulletin.
edition of the Asia
PALO ALTO TOKYO
bulletin, this edition covers tax news aboutCHARLOTTE
LOS ANGELES
measures taken by Asian countries HOUSTON
in relation
We hope you will enjoy reading it and as always
SHANGHAI
we value your input. Please do not hesitate to
to COVID-19.
contact us for any assistance needed. DUBAI HONG KONG
There were also other HANOI
MEXICO CITYdevelopments worth Please be safe and stay healthy!
noting, such as Hong Kong’s new ship leasing
regime (zero tax if the very reasonable BANGKOK HO CHI MINH CITY
conditions are met) and India’s recent Advance
AMERICAS
Ruling Authority decisions denying tax treaty
With kind regards,
SINGAPORE
protection under the Mauritian tax treaty in Pieter de Ridder
respect of an indirect transfer of shares of an
Indian company.
There was quite some action in the digital
BRASÍLIA*
space: India’s expansion of the Equalization RIO DE JANEIRO*
Levy (which is a tax on digital transactions), *
SÃO PAULO
Pieter de Ridder
Indonesia’s introduction of a VAT liability on
Partner, Mayer Brown LLP
overseas tech companies selling digital goods
or services to customers in Indonesia and both *TAUIL +65 6327 0250
& CHEQUER OFFICE
pieter.deridder@mayerbrown.com
Thailand and the Philippines proposing a
withholding tax or VAT on digital transactions.
2 | Asia Tax Bulletin MAYER BROWN | 3
Contents
China Indonesia Philippines Thailand
6 Qualifying Donations Including 15 COVID-19 28 COVID-19 38 Withholding Tax Reduction for Domestic
Healthcare Goods Tax Deductible Payment
17 Further Tax Incentives in Relation to 29 Donations in the Philippines
7 COVID-19 VAT Small Scale Taxpayers
COVID-19 39 COVID-19
30 Digital Economy Taxation
7 Preferential Enterprise Income Tax
39
Policy Extended for Western Regions 18 VAT on Import of Digital Goods Value-Added Tax
and Services
31 BIR Requires Online Sellers to Register
7 Exemption and Reduction of Employer Businesses 39 Additional Deduction for Cost Incurred in
Contributions to Social Security
Insurances 18 Advance Pricing Agreements Bio-Plastic Packaging
31 International Tax Developments
8 Vehicle Purchase Tax Exemption for 19 International Tax Developments 39 Deduction and VAT Exemption for
New Energy Cars
Singapore Donations Made by Taxpayers
8 International Tax Developments
Japan 32 Supplementary Tax Stimulus in Relation
40 Digital Taxation
Hong Kong 20 COVID-19 to COVID-19 40 COVID-19
32 Tax Residency and Permanent 40
9 Tax Incentive in SEZs
Amendment Stamp Duty
Korea Establishments due to Non-Travel
9 COVID-19 40 Additional Deduction for
22 Plans to Impose Tax on 33 Tax Losses Extended Machinery Acquisition
10 Ship Leasing Tax Incentive Cryptocurrency Transactions
34 Waiver of Penalties on Errors Relating to
10 Financial Instruments and Foreign
22 International Tax Developments Reverse Charge Vietnam
Exchange Differences
10 International Tax Developments 34 Digital Tokens 42 Deductibility of Related Party
Malaysia 34
Interest Expenses Relaxed
India Property Tax Rebate
42 Foreign E-Com Business with Vietnam
23 COVID-19
35 International Tax Developments
11 E-Com Business with Indian Customers 42 New Draft TP Decree for
25 Advance Pricing Arrangement Treatment Public Consultation
11 Permanent Establishment
25 Tax Treatment of Service Income Taiwan 43 Mutual Administrative Assistance
in Tax Matters
13 Indirect Transfer of Indian Company
25
Shares
International Tax Matters due to Travel
Restrictions
36 COVID-19
43 COVID-19 Pandemic: Vietnam
Approves 30% Corporate Income
14 COVID-19 26 Public Ruling on Tax Incentives for Tax Rate Reduction
Bionexus Status Companies
14 International Tax Developments
43 International Tax Developments
MAYER BROWN | 5
Qualifying Donations The following principles apply to the amount of also applies to three areas outside the Western
deductible donation costs: (1) for donation of Regions, i.e. Xiangxi Miao minority autonomous
Including Healthcare monetary assets, the donation cost is the amount prefecture in Hunan province, Yanbian Korean
Goods Tax Deductible actually received; (2) for donation of non-monetary
assets, the donation cost is the fair value of the
autonomous prefecture in Jiling province and
Ganzhou municipality in Jiangxi province.
assets supported by evidence.
Announcement [2020] No. 27, which was The extension was announced in the Ministry of
jointly released on 13 May 2020 by the On February 6, 2020, the MOF and STA issued Finance Circular [2020] No. 23 and applies from 1
Ministry of Finance (MOF), the State Bulletin 9 to provide that donations of anti- January 2021. On the same date, Circular [2011] No.
JURISDICTION: epidemic goods directly to hospitals or through 58 and Circular [2013] No. 4 concerning the same
Taxation Administration (STA) and the
Ministry of Civil Affairs (“MCA”), stipulates public welfare organisations or government preferential tax treatment will be abolished.
China (PRC) the requirements in order to qualify for tax authorities is exempted from VAT, consumption tax,
urban maintenance and construction tax, education
relief for charitable donations made by
either enterprises or individuals through surcharge and local surcharges.
Exemption and Reduction of
public welfare charitable organisations. Employer Contributions to
Enterprises or individuals who make
donations through public welfare social
COVID-19 VAT Small Social Security Insurances
organisations, people’s governments at or Scale Taxpayers
above the county level and other state On 22 June 2020, the Ministry of Human Resource
agencies for charitable activities that and Social Security extended the period of
Announcement [2020] No. 24 jointly released by
comply with the law are allowed to deduct exemption and reduction of employers’
the MOF and the SAT 2020-04-30 2020-04-30
the donation costs for income tax purposes. contributions for three social security insurances,
extends the expiration date of preferential tax
i.e. employer’s contribution to old-age pension
Charitable organisations and other social policies stipulated in Announcement [2020] No. 13
insurance, unemployment insurance and work-
organisations (hereinafter referred to as (i.e., reduction of VAT levy rate applicable to
related injury insurance.
“Social Organisations”) registered as public small-scale VAT payers and prepayment rate from
welfare social organisations with the civil 3% to 1%) till December 31, 2020, in order to Under Public Notice [2020] No. 49, the period of
affairs department must satisfy the support the business of small-scale VAT payers exemption of social security contributions for small
following conditions in order to allow during the epidemic period. and medium-sized enterprises will be extended to
relevant donations to be tax-deductible for the end of December 2020 and the period of
income tax purposes:
Preferential Enterprise 50% reduction of social security contributions for
large enterprises will be extended to the end of
• If they are Social Organisations with
public fundraising qualifications: (1) the
Income Tax Policy Extended June 2020.
annual expenditure for public welfare for Western Regions The exemption for contributions payable by large
charity spent in the previous two years enterprises that are located in the Hubei Province
should not be less than 70% of the total will remain until the end of June 2020.
China has extended the application of the current
income of the previous year; and (2) the
preferential tax rate of 15% for enterprises in the Furthermore, other enterprises that are adversely
annual management expenses spent in
Western Region up to 31 December 2030. The rate affected by COVID-19 may defer the contributions
the previous two years should not
is reduced from the statutory rate of 25% and payable to social security insurances to the end of
exceed 10% of the total expenditure
applies to enterprises located in the Western December 2020 without penalty. It is also provided
incurred in that year.
Regions the main business of which is listed in the that the lower limit of the individual payment base
• If they are Social Organisations without “Catalogue of Encouraged Industries in the of social security insurance in the year 2019 can be
public fundraising qualifications: (1) the Western Regions” (the main business means 60% of used for the year 2020.
annual expenditure for public welfare the business carried out by the enterprise).
charity in the two previous years must
The Western Regions include Inner Mongolia
not be less than 8% of the net assets as
autonomous region, Guangxi autonomous region,
at the end of the previous year and (2)
Chongqing municipality, Sichuan province, Guizhou
the annual management expenses
province, Yunnan province, Tibet autonomous
incurred in the previous two years
region, Shanxi province, Gansu province, Qinghai
should not exceed 12% of the total
province, Ningxia autonomous region and Xinjiang
expenditure in that year.
autonomous region. The preferential rate of 15%
CHINA (PRC) MAYER BROWN | 7
Vehicle Purchase Tax Amendment
Exemption for New Stamp Duty
Energy Cars
On 15 May 2020, the Hong Kong
government published the Stamp Duty
The exemption from vehicle purchase tax for the
Ordinance (Amendment of Schedule 8)
purchase of new energy cars has been further
Regulation 2020 in the Gazette. The
extended to 31 December 2022 as a measure to
JURISDICTION: Regulation seeks to amend Schedule 8 to
stimulate the use of new energy cars and car
the Stamp Duty Ordinance (Cap. 117) to
purchases in general. The tax relief amounts to 10%
Hong Kong
waive the stamp duty on stock transfers
of the taxable price (normally the purchase price
involving the activities of exchange traded
excluding VAT).
fund (ETF) market makers in the course of
The exemption was first announced under Circular allotting and redeeming ETF units listed in
[2017] No. 172 and was due to expire on 31 Hong Kong. The Regulation was tabled
December 2020. The extension of the exemption before the Legislative Council for negative
was announced in Circular [2020] No. 21 which was vetting on 20 May and will come into effect
jointly issued by the Ministry of Finance, the State on 1 August 2020.
Taxation Administration and the Ministry of Industry
and Information Technology on 16 April 2020. The
2020 circular applies from 1 January 2021.
COVID-19
For the purposes of the 2020 circular, new energy The Exemption from Salaries Tax and Profits
cars are defined as full electric cars, hybrid plug-in Tax (Anti-epidemic Fund) Order has taken
cars and fuel cell cars. The vehicles eligible for the effect on 29 May. The Order seeks to
exemption are listed in the “Catalogue of Vehicle implement tax exemption from the year of
Purchase Tax Exempt Types of Vehicles” issued assessment (YA) 2019-20 to most of the
jointly by the Ministry of Industry and Information financial assistance or relief under the
Technology and the State Taxation Administration. Anti-epidemic Fund (AEF) provided to
businesses or individuals. “In view of the
International unprecedented challenges arising from the
coronavirus disease 2019 epidemic, the
Tax Developments Government has established the AEF and
two rounds of relief measures have been
MACAO rolled out. Apart from certain measures
that have no tax consequences in respect of
On 14 May 2020, the amending protocol, signed on the sums received under the AEF, other
28 November 2019, to the Tax Arrangement measures entail tax liabilities under the
between China (PRC) and Macao, as amended by Inland Revenue Ordinance.
the 2010, 2011 and 2016 protocols, entered into
force. The protocol generally applies from 14 May “To enable businesses and individuals to
2020 in respect of article 6 of the protocol and from fully benefit from the assistance under the
1 January 2020 in respect of the other articles. AEF, the beneficiaries shall be exempt from
Details of the protocol will be reported the payment of profits tax and salaries tax
subsequently. in respect of the assistance unless the sums
are paid for general business activities and
are not paid in a matching arrangement,” a
Government spokesman said.
8 | Asia Tax Bulletin CHINA (PRC) HONG KONG
A summary of the proposed tax treatment for the
Financial Instruments E-Com Business with
two rounds of measures under the AEF is in the
Annex. The Government will adopt the same and Foreign Exchange Indian Customers
principles to provide tax exemption as and when
further relief measures are rolled out under Differences The government has expanded the scope
the AEF. of the existing Equalisation Levy to
On 12 June 2020, the Inland Revenue Department introduce a new 2% levy on non-residents
As most taxpayers are starting to file tax returns for
has updated the Departmental Interpretation selling goods or providing services in India
YA 2019-20, commencement of the Order upon
and Practice Notes No. 42 clarifying the taxation JURISDICTION: through digital platforms. The scope of
gazettal provides clarity and certainty of the tax
on financial instruments and foreign the new levy, which came into effect on
treatment. Employers and employees need not
India
exchange differences. 1 April 2020, is very broad and may cover
report the sums exempted in tax returns upon
commencement of the Order. Businesses or a wide spectrum of business models.
It contains:
individuals that have already filed their tax returns
• an overview of the tax treatment of gains or
can furnish the Inland Revenue Department with a
losses in respect of financial instruments to Permanent
written notification to amend relevant information.
Employers should file a revised Employer’s Return
which Hong Kong Financial Reporting Standard
9 Financial Instruments applies;
Establishment
for the relevant employee(s).
• an introduction of accounting treatment of Courtesy Nishith Desai Associates, the
financial instruments;
Ship Leasing Tax Incentive following case was brought to our attention.
Recently in Union of India v. U.A.E.
• realisation basis and fair value basis for profits
Exchange Centre, the Supreme Court held
On 19 June 2020, the Hong Kong government tax assessment on the taxable profits from
on 5 May that an Indian liaison office of a
published the Inland Revenue (Amendment) (Ship financial instruments;
United Arab Emirates (‘UAE’) company
Leasing Tax Concessions) Ordinance 2020 • conditions for adopting fair value basis and engaged in fund remittance services did
providing tax concessions to qualifying ship lessors assessment measures; not constitute a permanent establishment
and ship leasing managers. (‘PE’) in India.
• the accounting treatment of foreign currency
The Ordinance, which incorporates anti-abuse transactions carried out in Hong Kong; and U.A.E Exchange Centre (‘Taxpayer’),
provisions to safeguard the integrity of the tax a company incorporated in the UAE is
system and comply with the latest international tax • tax treatment of unrealised
engaged inter alia in providing to
rules, takes retrospective effect from 1 April 2020. exchange differences.
non-resident Indians (‘NRIs’) in UAE
The Ordinance provides tax exemption for the service of remitting funds to India.
qualifying profits derived from ship leasing International For its India-centric business, the Taxpayer
had set up four liaison offices in India after
activities in relation to operating leases and finance
leases carried out by ship lessors. At the same time,
Tax Developments obtaining prior approval from the Reserve
to facilitate the operation of ship lessors, qualifying Bank of India (‘RBI’) under the Foreign
profits derived from ship leasing management INDONESIA Exchange Regulation, Act 1973 (‘FERA’)
activities (e.g. setting up or managing a special (now replaced by FEMA). The business
On 4 July 2020, the multilateral free trade
purpose vehicle for owning a leased ship, arranging model is such where funds collected from
agreement (FTA) and the Investment Protection
for the procurement or leasing of ships, and the NRI remitter are remitted to India by
Agreement between the Association of Southeast
managing leases) carried out by ship leasing either of the following two modes:
Asian Nations (ASEAN) member states (Brunei,
managers for ship lessors can generally enjoy Cambodia, Indonesia, Laos, Malaysia, Myanmar, (i) Telegraphic transfer (‘Mode A’):
half-tax concession (i.e. a tax rate of 8.25 %). The Philippines, Singapore, Thailand and Vietnam) and where the amount is remitted
Ordinance has built in anti-abuse provisions to Hong Kong, signed on 12 November 2017, will telegraphically by transferring directly
safeguard the integrity of the tax system and enter into force in relations between Hong Kong from UAE through normal banking
comply with the latest international tax rules. and Indonesia. channels to the beneficiaries in India.
Under this mode, the liaison offices
have no role to play except attending
to complaints regarding fraud etc.
10 | Asia Tax Bulletin HONG KONG
(ii) Physical dispatch of instruments (‘Mode B’): The Taxpayer challenged the AAR order by way of The SC noted that as per the nature of activities activities performed in the fixed place of business
where on request from the NRI remitter, the a writ petition in the Delhi High Court (‘High allowed for under the RBI permission, the liaison form an essential and significant part of the
Taxpayer sends instruments such as cheques/ Court’). The High Court noted that the AAR’s offices were only allowed to provide service of and enterprise as a whole, (ii) whether the activities
drafts through its liaison offices to beneficiaries discussions and findings on the ‘business incidental to delivery of cheques/drafts drawn on performed in the fixed place of business form part
in India. Under this mode, the liaison offices connection’ test under domestic law were bank in India. They were not allowed to perform of the core business activities of the enterprise.
download the particulars of remittance (while unnecessary considering the scope of section 90 of business activities such as (i) entering into a However, none of these precedents have the
staying connected to the server in UAE), the Tax Act, which allows for tax treaties to override contract with any party in India; (ii) rendering blessing of being a Supreme Court judgment yet.
print and courier the instruments to domestic law provisions. Accordingly, the High consultancy or any other service directly or The closest SC judgement on this aspect is DIT v.
beneficiaries in India. Court restricted its own analysis to the applicable indirectly with or without consideration to anyone Morgan Stanley, which also leaves scope of being
provisions of the India–UAE Tax Treaty, i.e. Articles in India; (iii) borrowing or lending any money from distinguished on the ground that it dealt with the
Importantly, the contract pursuant to which the
5 and 7. Specifically, the High Court held that or to any person in India without RBI’s permission. question of stewardship activities and Service PE,
funds are remitted to India is entered between the
although a liaison office comes within the inclusive Thus, it was amply clear that the liaison offices in whereas the exclusion of ‘preparatory and auxiliary’
Taxpayer and NRI remitter in UAE. Also, the funds
list of fixed places of business under Article 5(2)(c), India were not to undertake any other activity of applies only to fixed place PE. Accordingly, an SC
for remittance as well as the commission are
it is subject to exclusions under Article 5(3), trading (commercial or industrial) or enter into any judgment which sets out guidelines for the
collected in the U.A.E.
including fixed places of business maintained solely business contracts in its own name in India. On this application of the ‘preparatory and auxiliary’
Since assessment year (‘AY’) 1998-99 until 2003-04, for carrying out activities which are ‘preparatory basis, the SC concluded that the nature of activities test would have been helpful.
the Taxpayer was filing NIL returns in India on the and auxiliary’ in nature. While relying on the conducted by the liaison offices as circumscribed
In the present case however, owing to the fact that
basis that no income had accrued or deemed to common meaning of the terms of ‘preparatory and by the RBI constituted ‘preparatory and auxiliary’
this was not a regular appeal (but an SLP), the SC
have accrued in India under the Income Tax Act, auxiliary’ under Black’s law dictionary (i.e. activities in character, and hence outside the purview of PE.
has limited its judgment to affirming the conclusion
1961 (‘Tax Act’) or India–UAE Double Taxation which aid/support the main activity) the High Court
Additionally, the SC noted that that through the of the High Court. Thus, the judgment may not
Avoidance Agreement (‘India–UAE Tax Treaty’). concluded that the activities performed under
liaison offices, the Taxpayer was not carrying on any serve as one with guiding principles for the
However, owing to some doubt expressed by the Mode B were merely ‘preparatory and auxiliary’ in
business activity in India, but only dispensing with application of the test of ‘preparatory and auxiliary’.
Revenue, the Taxpayer filed an application for nature. It observed that the error committed by the
the remittances by downloading the information However, one important takeaway from this
advance ruling before the Authority for Advance AAR was to read the test of ‘preparatory and
from the UAE server and printing the cheques/ judgment is that when it comes to questions of
Rulings (‘AAR’) in 2003 seeking a ruling on ‘whether auxiliary’ which permits making a value judgment
drafts. The liaison offices could not even charge PE by way of branch offices, liaison offices etc.
any income is accrued/deemed to be accrued in on whether the transaction would or would not
commission/fee for its services. Therefore, no where RBI permission is needed, the nature of
India from the activities carried out by the have been completed without the activities of the
income actually accrued to the liaison offices under the permission may be taken into account for
Company in India’. liaison offices and were therefore significant
section 2(24) of the Tax Act. Further, the RBI conducting the analysis.
activities. The High Court indicated that the test of
The AAR ruled that income of the Taxpayer was permission clearly provided that the liaison offices
‘preparatory and auxiliary’ is not a function only of
deemed to have accrued in India on the basis that had to steer away from engaging in any business
it had a ‘business connection’ in terms of section
whether the activities under consideration led to
activity in India. For all these reasons, the SC also Indirect Transfer of Indian
completion of the transaction.
9(1) of the Tax Act in so far as activities set out in concluded that the Taxpayer was not carrying on Company Shares
Mode B are concerned. The AAR observed that In arriving at its conclusion, the High Court applied any business in India and hence the deeming
without the activities of the Indian liaison office, the the judgment of the Supreme Court in DIT v. provisions under sections 5 and 9 of the Tax Act
The Authority for Advance Rulings (AAR) recently
transaction of remittance would not be complete. Morgan Stanley and accorded a liberal and wide could not be invoked to begin with.
rejected applications made by three Mauritian
Further, the commission earned by the Taxpayer interpretation to the exclusionary clause of PE. The
The UAE Exchange Centre case has been a entities on the taxability of capital gains on indirect
covers not only the activities carried out in UAE but reason for this was that by invoking clauses of PE,
significant case in the domain of interpretation of transfer of an Indian company’s shares, under the
also the activities carried out by the liaison offices income which otherwise neither accrues/arises in
PE, specifically with respect to the ‘preparatory and India-Mauritius Double Taxation Avoidance
in India. The AAR also held that the ‘preparatory India become taxable in India by virtue of a
auxiliary’ exclusion. The High Court ruling came out Agreement (Tax Treaty). The AAR held that the
and auxiliary’ exception to formation of a PE under ‘deeming fiction.’
in 2009 and since then, the SC ruling on appeal was transaction was prima facie designed for tax
the India–US Treaty would not be applicable in
The Revenue challenged the High Court ruling eagerly awaited. With the SC affirming the avoidance and that even otherwise, the benefit
respect of Mode B. The basis for this also was that
before the Supreme Court (‘SC’) by way of a special conclusion of the High Court, the ratio in this case of the Tax Treaty cannot be allowed in this case.
transaction for remittance would not be completed
leave petition (SLP). In confirming the finding of the has become the law of the land.
without the activities of the Indian liaison office.
High Court that the activities conducted by the
Specifically, the AAR noted that the role of the Owing to its subjective nature, the test of
liaison offices were ‘preparatory and auxiliary’ and
liaison offices in Mode B is ‘nothing short of ‘preparatory and auxiliary’ becomes very difficult
hence excludable from the purview of PE, the SC
performing the contract of remitting the amounts to apply. As of now, there are precedents which
went one step further. It referred to the limited
at least in part.’ provide guidelines for the ‘preparatory and
permission granted by the RBI under FERA to the
auxiliary’ test such as (i) to check whether the
Taxpayer regarding the activities to be conducted
by the liaison offices.
12 | Asia Tax Bulletin INDIA INDIA MAYER BROWN | 13
While this is certainly an important advance ruling, >> however, there will be no reduction in rates COVID-191
it is important to note that the view taken by the of TDS or TCS, where the tax is required to
AAR is attributable to specific facts in the present be deducted or collected at a higher rate To further lighten the adverse effects of the
case, such as extensive influence of a US resident due to non-furnishing of PAN/Aadhar. COVID-19 pandemic, the tax incentives
on the decision making and overall control and offered under Minister of Finance
All pending refunds to charitable trusts and non-
management of the Mauritian companies involved, Regulation No. 23/PMK.03/2020 (“MoF-23”)
corporate businesses and professions, including
coupled with lack of independence of the local have been expanded under MoF Regulation
proprietorship, partnership, LLP and co-operatives,
directors of the Mauritian entities. No. 44/PMK.03/2020 (“MoF-44”) to include
will be issued immediately.
JURISDICTION: a greater number of taxpayers.
This ruling further touches upon the aspect of
The due dates for all income tax returns for FY
whether indirect transfers of Indian assets are
MoF-44, issued on 27 April 2020, also
Indonesia
2019-20 will be extended from 31 July 2020 and 31
exempt under India–Mauritius Tax Treaty. Notably,
October 2020 to 30 November 2020. provides an additional incentive for small
the view in the professional fraternity till date has
and medium enterprises. DGT Circular
been that ‘indirect transfers’ of Indian assets are The due date for tax audits will be extended from
LetterSE-29/PJ/2020, issued on 30 April
exempt from Indian capital gains tax under India– 30 September 2020 to 31 October 2020.
2020, provides further guidance on the
Mauritius Tax Treaty. Case law in the past has also
The final date for opting for Vivad Se Vishwas procedures and reporting requirements
upheld the eligibility to claim Tax Treaty exemption
without paying additional amounts will be of MoF-44.
in respect of indirect transfers. However, in this
extended from 30 June 2020 to 31 December
ruling, the AAR has ruled that the benefit under The incentives under MoF-44 are
2020.
India–Mauritius Tax Treaty does not apply to an essentially the same as under MoF-23,
‘indirect transfer’ of an Indian company’s shares The date of income tax assessments being barred with one addition:
because the Mauritian companies sold shares in a will be extended from 30 September 2020 to 31
Singapore intermediary holding company which December 2020; those being barred on 31 March • Article 21 Employee Income Tax:
owned the Indian shares. 2021 will be extended to 30 September 2021. Employee income tax payable on
the regular and fixed income received
by employees who earn less than
COVID-19 International Tax IDR 200 million annually is borne
In a press conference of 13 May 2020, the Finance
Developments by the government.
Minister presented Part 1 of the INR 20 lakh crore • Final income tax of 0.5% for taxpayers
AUSTRIA with annual gross income of no more
(INR 20 trillion – equivalent to 10% of India’s GDP)
stimulus package to make the country self-reliant On 1 May 2020, the amending protocol, signed on than IDR4.8 billion (based on
and revive the stalled economy due to COVID-19. 6 February 2017, to the Austria– India Income Tax Government Regulation No. 23/2018) is
Legislative amendments on the above will be Treaty has entered into force. The protocol borne by the Government. This is new.
proposed in due course. generally applies from 1 January 2021.
• Article 22 Income Tax on Imports:
In order to put more funds at the disposal of the Taxpayers are granted an exemption
taxpayers, the rates of tax deducted at source from this tax.
(TDS) for non-salaried specified payments made to
residents and the rates of tax collected at source • Article 25 Monthly Corporate Income
(TCS) for the specified receipts will be reduced by Tax: The income tax instalment is
25% of the existing rates, as follows: reduced by 30%.
• payments relating to contracts, professional
• Value-Added Tax: A VATable taxpayer
fees, interest, rent, dividend, commission,
(PKP) can apply for a preliminary refund
brokerage, etc. will be eligible for this reduced
as a low-risk PKP.
rate of TDS;
>> the relief will not be available for payments To apply for these incentives,
made towards salary and to non-residents; the taxpayer submits an online
application or notification.
>> the relief will be applicable for the
remaining part of FY 2020-21, i.e. from
14 May 2020 to 31 March 2021; and
14 | Asia Tax Bulletin INDIA 1
Courtesy Harsono Strategic Consulting in Jakarta.
The above incentives apply through the September The industries which may take advantage of these Cases where the KLU of the employer or the management, rental services and other
2020 tax period and the taxpayer must submit incentives have been expanded from those under taxpayer do not reflect the correct KLU or type of supporting services.
periodic realisation reports. The incentives are MoF-23 (Art. 21 expanded from 440 to 1,062 KLUs; business may be due to:
The following measures are applicable from
available for qualifying taxpayers who meet one of Art. 22 expanded from 102 to 431 KLUs; Art. 25
• Not providing the KLU code in the 2018 April to September 2020:
the following criteria: expanded from 102 to 846 KLUs).
CIT return
• Importation or domestic purchase of taxable
• They have a business classification (Klasifikasi The list of specific KLU codes is extensive • Not having submitted the 2018 CIT return goods and services by qualified persons that are
Lapangan Usaha (“KLU”)) listed in the and now includes certain businesses in the considered necessary in handling the COVID-19
applicable appendix (A, I, or N) to the categories listed in the table below: • Incorrectly stating the KLU code in the 2018
pandemic are eligible for the following:
regulation; CIT return
>> VAT will not be collected on the import of
If an employer or taxpayer believes it qualifies for
• They are a KITE (Kemudahan Impor Tujuan taxable goods by qualified persons, subject
the KLU or type of business under MoF-44, the
Ekspor) company; or to conditions;
employer/taxpayer can change the KLU by
submitting an amendment to the 2018CIT return >> VAT on the domestic supply of taxable
• They have a license as a bonded zone operator,
(if already submitted), as long as the return has not goods and services will be borne by the
a bonded zone entrepreneur, or entrepreneur
been audited. If a tax audit has been started or government; and
in a bonded zone (PDKB). This is new.
completed, the employer/taxpayer can submit a
>> VAT on the utilisation of taxable services
notification of change of identity to change the
from local or overseas providers will be
KLU code.
borne by the government.
MoF-44 revokes MoF-23. Taxpayers who have
KLU categories for Art. 21 employee income tax • Income tax exemption applies to the following:
Where payment is made up to 31 March 2020 already submitted the necessary notification or
and Art. 25 corporate income tax incentives
application for the Article 21, 22 or 25 incentives >> Exemption from import/income tax will be
• Agriculture, Forestry and Fishery • Agriculture, Forestry and Fishery under MoF-23 do not need to resubmit or reapply. granted for the importation or domestic
• Mining and Excavation • Mining and Excavation Taxpayers who have been granted a tax incentive purchase of necessary taxable goods by
• Processing Industry • Processing Industry under MoF-23 can continue to take advantage of qualified persons. However, domestic
• Procurement of Electricity, Gas, Steam/Hot Water • Procurement of Electricity, Gas, Steam/Hot the incentive. purchases of taxable goods must be
and Cold Air Water and Cold Air supported by tax exemption letters.
• Procurement of Water, Garbage Treatment and Recycle, • Procurement of Water, Garbage Treatment
Waste and Garbage Disposal and Cleaning and Recycle, Waste and Garbage Disposal Further Tax Incentives in >> Exemption from withholding tax will be
and Cleaning granted on income received by domestic
•
•
Construction
Wholesale and Retail Trade; Repair and Maintenance of
• Construction Relation to COVID-19 individuals from qualified persons for the
Cars and Motorbikes • Wholesale and Retail Trade; Repair and provision of taxable services.
• Transportation and Warehouse
Maintenance of Cars and Motorbikes The Ministry of Finance has granted tax incentives
• Transportation and Warehouse in the form of value-added tax (VAT) and tax >> Exemption from withholding tax will be
• Furnishing of Accommodation and Furnishing of
Meal/Drink • Real Estate exemptions on the supply of medicines, medical granted on income received by domestic
• Information and Communication equipment and other related services that are corporations and permanent establishments
• Financial and Insurance Service necessary in handling the COVID-19 pandemic. from qualified persons for the provision of
• Real Estate taxable services, provided that they are
• Professional, Scientific, and Technical Service The tax incentives are applicable to government supported by tax exemption letters.
• Rental, Manpower, Travel Agency, and Other Business agencies, hospitals or other parties appointed to • Taxpayers that have utilised the above tax
Supporting Service assist in the handling of the COVID-19 pandemic incentives must submit a realisation report by
• Education Service (qualified persons). the following dates:
• Health and Social Activity Service
The following supplies are considered necessary in >> 20 July 2020 for the April to June 2020 fiscal
• Culture, Entertainment and Recreation
handling the COVID-19 pandemic: period; and
• Other Service Activities
• taxable goods that include drugs, vaccines, >> 20 October 2020 for the July to September
laboratory equipment, detection equipment, 2020 fiscal period.
personal protective equipment (PPEs),
equipment for patient care and other • The above measures are implemented through
supporting equipment; and the issuance of Regulation No. 28/PMK.03/2020,
which came into effect on 6 April 2020.
• taxable services such as construction services,
consulting services, engineering, and
16 | Asia Tax Bulletin INDONESIA INDONESIA MAYER BROWN | 17
>> The proposed outcome of the APA must Denmark, Egypt, Hungary, Mexico, Pakistan,
>> VAT must be collected at the time of
VAT on Import of Digital payment made by the consumers and the
not result in a lower operating profit than Portugal, Norway, Russia, Serbia, Spain and
reported in prior years’ tax returns of the Sweden have been added. As a result, the total
Goods and Services tax invoice issued must fulfil the
domestic taxpayer; number of listed agreements has changed from
prescribed formats.
33 to 47.
On 15 May 2020, the Directorate General of The complete APA application was amended under
>> The taxable period is three months and the
Taxation announced the issuance of guidelines PMK-22 to include the following: TAJIKISTAN
VAT collected must be remitted by the end
regarding the procedure for the collection, deposit of the following month after the taxable >> audited financial statement for the three On 13 December 2019, the Indonesia–Tajikistan
and reporting of value-added tax (VAT) to be period in a prescribed form. years prior to the year for which the APA is Income Tax Treaty entered into force. The treaty
imposed on the consumption of digital products being applied; generally applies from 1 January 2020.
from abroad. From 1 July 2020, the import of digital
products in the form of intangible goods and Advance Pricing Agreements >> transfer pricing documentation for the HONG KONG
services by domestic consumers will be subject to three years prior to the year for which the
On 4 July 2020, the multilateral free trade
VAT at the rate of 10%. The Ministry of Finance (MOF) issued an APA is being applied; and
agreement (FTA) as well as the Investment
updated regulation on the guidelines for the >> documents containing detailed Protection Agreement between the Association of
The imposition of VAT on imported digital goods
implementation of advance pricing agreements explanations on the application of the arm’s Southeast Asian Nations (ASEAN) member states
and services such as streaming music subscriptions,
(APA) on 18 March 2020. length principle for every related party (Brunei, Cambodia, Indonesia, Laos, Malaysia,
streaming films, digital applications and games,
and online services, is expected to provide MOF Regulation No. 22/PMK.03/2020 (PMK-22) was transaction proposed to be covered in the Myanmar, Philippines, Singapore, Thailand and
additional tax revenue for the government to introduced to meet the minimum standard of action APA, completed in Bahasa Indonesia. Vietnam) and Hong Kong, signed on 12 November
cope with the economic impact as a result of plan 14 of the OECD/ G20 Base Erosion and Profit 2017, will enter into force in relations between
• PMK-22 simplifies the process to renew an
the COVID-19 outbreak and is also a part of Shifting project and to improve the provisions by Hong Kong and Indonesia.
existing APA. Taxpayers may initiate renewal by
the government’s effort to create a level making it more effective and providing more legal submitting the form attached in the appendix
playing field for all businesses. certainty, especially in relation to the determination of PMK-22. Only a one-time renewal of the APA
of transfer prices, procedures, timelines, and for the agreed APA period is allowed.
The guidelines are included in Ministry of Finance
follow-up requests for the implementation of the
Regulation No. 48/PMK.03/2020 of 5 May 2020. The • PMK-22 also introduced more administrative
transfer pricing agreement. PMK-22 is effective from
salient features of the regulation are set out below. requirements, deadlines and application of
18 March 2020 and replaced MoF Regulation No. 7/
• Digital goods are any intangible goods in PMK.03/2015. transfer pricing methods.
electronic form including but not limited to • PMK-22 applies to all applications and
• The pre-filing process has been simplified.
software, multimedia and electronic data. renewals submitted after its issuance. All APA
Taxpayers are only required to submit the
Digital services are services provided through applications and APA renewals already in
form as attached in PMK-22. Previously, the
the Internet or electronic network, automated or process before PMK-22 was issued will be
taxpayer was required to submit a detailed
with little human intervention and with the use subject to the provisions of PMK-22.
APA application.
of information technology including but not
limited to software-based services. • Both unilateral and bilateral APAs are now
applicable for a period of five years (previously International
• A representative who meets certain criteria as
provided in the regulation will be responsible
three years for unilateral APAs and four years for
bilateral APAs). PMK-22 also includes rollback
Tax Developments
for collecting and remitting the VAT on the sale
provisions. The rollback applies to years prior to
of taxable digital goods and the provision of MLI
the APA period, but subject to certain terms
taxable digital services to the consumers
and conditions. On 28 April 2020, Indonesia became the 45th
in Indonesia.
The eligibility criteria for a taxpayer’s APA country to deposit its instrument of ratification for
• Consumers in Indonesia include: the Multilateral Convention to Implement Tax
application has been updated to also include
>> a person who resides in Indonesia; the following: Treaty Related Measures to Prevent BEPS (MLI). The
convention will enter into force in respect of
>> a person who makes payment by using the >> The taxpayer must have prepared transfer Indonesia on 1 August 2020. Indonesia submitted
payment facility provided by an institution in pricing documentation i.e. master file and its MLI position on 7 June 2017 listing its
Indonesia; or local file for the three years prior to the APA reservations and notifications and including 33 tax
application; and treaties that it wished to be covered by the MLI. In
>> a person who transacts by using the Internet
protocol address in Indonesia or using the the final version of its MLI position, the tax treaties
telephone code in Indonesia. with Armenia, Bulgaria, the Czech Republic,
18 | Asia Tax Bulletin INDONESIA INDONESIA MAYER BROWN | 19COVID-19 If the gross income of a business entity has been
significantly decreased (by approximately 50% or
more in comparison with a corresponding period in
On 7 April 2020, the government
the previous year) for a certain period (one month
announced tax policy measures as part
or longer), the business entity will be allowed to
of an emergency economic package in
change its choice to be subject to consumption tax
response to the COVID-19 pandemic.
even after a taxable period has begun.
These tax policy measures are subject
to deliberations at the Diet (parliament). With respect to the 2021 tax amounts of local real
JURISDICTION: property tax and city planning tax on depreciable
Special measures will be established to
assets and buildings for businesses owned by
defer the payment of national taxes, local
Japan
SMEs, when the turnover of an SME has been
taxes and social security contributions for
decreased by 30% to 50% for a three-month period
one year without collateral and delinquent
between February 2020 and October 2020 in
tax for businesses, the gross income of
comparison with the corresponding period in the
which has been significantly reduced.
previous year, the tax base will be halved. If the
When the gross income of a taxpayer has turnover has been decreased by 50% or more,
been significantly decreased (by about 20% the tax base will be nullified.
or more in comparison with a
In order to support the capital investment of SMEs,
corresponding period in the previous year)
buildings and structures for business are added to
for a certain period (one month or longer)
the scope of depreciable assets subject to special
on and after 1 February 2020 due to
reduced tax rates for the realisation of productivity
COVID-19, and the taxpayer is faced with
enhancement. The period when the special
difficulty to pay taxes or social security
measures are applicable will also be extended
contributions at once, the deferral of
for two years to 31 March 2023.
payment for up to one year may be
granted. These measures will be applied to Stamp duty will be exempted for contractual
national taxes, local taxes and social documents on preferential loans by financial
security contributions the payment due institutions to business entities affected
date of which comes between 1 February by COVID-19.
2020 and 31 January 2021. They will also be
applied retrospectively when a payment
due date has come before these measures
take effect.
Currently refund via the carry-back of net
operating loss (NOL) is available for small
and medium-sized enterprises (SMEs) the
registered capital of which is JPY 100
million or less. The NOL carry-back regime
will be expanded to include middle-level
enterprises the registered capital of which
is between JPY 100 million and
JPY 1 billion. These measures will
be applied to NOL incurred in business
years ending between 1 February 2020
and 31 January 2022.
Equipment for telework (telecommuting) will
be added to capital investment subject to
special depreciation or tax credit under the
tax regime to strengthen the business
management of SMEs.
20 | Asia Tax Bulletin JAPAN MAYER BROWN | 21Plans to Impose Tax COVID-19
on Cryptocurrency On 6 April 2020, the government
Transactions announced the details of the Additional
PRIHATIN SME Economic Stimulus Package
The government has announced its plan to (third economic stimulus package 2020)
tax cryptocurrency in its efforts to realign the valued at MYR 10 billion in response to the
country’s tax system with the changes in recent COVID-19 pandemic in the country
JURISDICTION: market conditions. It was proposed that a JURISDICTION: following the announcement of the second
20% tax will be imposed on income derived stimulus package. This third economic
Korea Malaysia
from cryptocurrency transactions. This major stimulus package is targeted towards the
move came into place after one of the major small and medium-sized enterprises (SMEs)
cryptocurrencies exchanges (Bithumb) amidst calls for more assistance to be
decided to challenge a KRW 80.3 billion provided for their loss of revenue during the
(approximately USD 69 million) withholding Movement Control Order (MCO) period.
tax assessment back in November 2019. Though widely welcomed as a boost to the
some 700,000 businesses nationwide,
The announcement of this proposal was concerns remain about the short-term
made by the Finance Minister at the impact of the cash injection versus other
parliamentary finance committee meeting on possible longer-term (and more drastic)
17 June 2020. Further details of this proposal measures such as a reduction of the foreign
are expected to be released by the workforce. The main proposed measures
government in July 2020. are as follows:
• owners of buildings or business spaces
International Tax providing rental reduction or waiver to
Developments tenants consisting of SMEs will be given
a further tax deduction equivalent to
MLI the amount of rental reduction for the
months of April to June 2020, provided
On 13 May 2020, Korea became the 47th that the amount of rental reduction is at
country to deposit its instrument of least 30% of the original rental rate for
ratification for the Multilateral Convention that period;
to Implement Tax Treaty Related Measures
• the levy on foreign workers will be
to Prevent BEPS (MLI). The convention will
reduced by 25% for all companies in
enter into force in respect of Korea on
relation to the work permits that will
1 September 2020. In the final version of
expire from 1 April to 31 December
its MLI position, the total number of listed
2020 (excluding the domestic
agreements by Korea has changed from
help sector);
63 to 73.
• an automatic 30-day moratorium from
the date of the end of the MCO will be
provided for companies to lodge
statutory documents to the Companies
Commission of Malaysia (CCM). In
addition, an application to the CCM for
a three-month extension of filing
financial statements for companies with
financial year ended 30 September to
31 December 2019 can be made;
22 | Asia Tax Bulletin• a three-month wage subsidy programme will The eligible foreign companies must be in • The service tax exemption from 1 March 2020
be provided to qualifying SMEs to partly cover operation within one year from approval having to 31 August 2020 previously provided to
Tax Treatment of
the salaries of local employees earning not been obtained, and the total investment of fixed companies in the tourism sector will be Service Income
more than MYR 4,000 per month; and assets must be made within three years. This will extended to 30 June 2021.
take effect from 1 July 2020 to 31 December 2021.
• a one-off government grant of MYR 3,000 will • 100% export duty exemption will be provided On 16 June 2020, the Inland Revenue Board
be provided to qualifying micro-enterprises • Existing companies that relocate their to palm-oil-related products from 1 July 2020 provided clarification on the tax treatment of sums
registered with the Inland Revenue Board. manufacturing business into Malaysia will be to 31 December 2020. received and debt owed which arose in respect of
granted a 100% investment tax allowance for services to be rendered for business income that
• On 5 June 2020, the Prime Minister announced
five years. This will take effect from 1 July 2020 are governed under section 24(1)(b) and 24(1A) of
a short-term economic recovery plan
to 31 December 2021. Advance Pricing the Income Tax Act 1967 (ITA) respectively.
(PENJANA) which includes various non-tax and
tax incentives, such as special tax deductions, • The deferment of tax instalment payments from Arrangement Treatment Effective as of the year of assessment (YA) 2016,
tax rebates, individual tax reliefs, direct and 1 April 2020 to 30 September 2020 previously when section 24(1)(b) of the ITA came into light, a
indirect tax exemptions for taxpayers. The provided to companies in the tourism sector On 16 June 2020, the Inland Revenue Board (IRB) liability will arise to a debtor if there is a contractual
latest announcement represents the fourth will be extended by another three months. issued frequently asked questions (FAQs) to provide obligation to pay in advance for any services that
economic stimulus package announced by the an explanation and clarification on the advance have yet to be rendered. Consequently, a debt
The main tax initiatives for personal taxation are
government since the COVID-19 outbreak. pricing arrangement (APA) treatment due to the owing to the service provider will arise and such
set out below.
COVID-19 pandemic, as follows: amount will be regarded as the gross business
The main tax initiatives for corporate taxation are
• Employees who received benefits-in-kind in the income of the service provider in the same basis
set out below. • No new APA application will be accepted
form of mobile phones, laptop or tablet from period. Prior to YA 2016, a debt owing will be
by the IRB from businesses affected by the
• Tax deduction will be allowed for companies the employer for the purpose of working from regarded as the gross business income of a service
COVID-19 pandemic until further notice.
that incur expenses on purchases of personal home will be entitled to an income tax provider in the basis period only when the service
However, new APA applications are still
protective equipment and COVID-19 exemption of up to MYR 5,000. has been rendered.
applicable for businesses that are not
screening fees.
• Individuals who incur childcare expenses will affected by COVID-19 pandemic. Under section 24(1A) of ITA, any payment received
• A remission of a late payment penalty for be entitled to a personal relief of MYR 3,000. in advance by a service provider in a basis period
• The review process of an ongoing APA
taxpayers will be provided accordingly. will be regarded as gross business income,
• The domestic tourism relief of MYR 1,000 application request is based on the information
notwithstanding that no debt is owing to the service
• The special deduction for renovation and will be extended to year of assessment 2021. previously submitted to the IRB, with no
provider for services not yet rendered, i.e. there is
refurbishment expenses will be extended by a subsequent amendments being allowed.
The main tax initiatives for indirect taxation are set no contractual obligations to pay for the services.
period to be determined accordingly. Meanwhile, the term test may still be applied
out below.
in order to take into account the impact of In addition, the IRB has clarified that the following
• A two-year accelerated capital allowance will
• Stamp duty exemption will be provided to COVID-19 on the proposed covered service income will not be subject to section 24(1)(b)
be granted for qualified capital expenditure
eligible SMEs on instruments related to merger transaction on a case-to-case basis. and section 24(1A) of ITA:
incurred by businesses.
and acquisition transactions completed in the
• As such, a taxpayer can choose to either • services that are governed by separate income
• A special tax deduction of 30% on the period from 1 July 2020 to 30 June 2021.
continue with the ongoing APA based on tax rules;
rental deduction provided to small and
• Stamp duty exemption will be provided to sales information previously submitted to IRB
medium enterprises (SMEs) will be • services income regarded as special classes of
and purchase agreements and loan agreements or withdraw from the APA application.
extended accordingly. income under section 4A of ITA; and
for the purchase of residential property valued
• A taxpayer is required to comply with all
• A yearly income tax rebate up to MYR 20,000 between MYR 300,000 and MYR 2.5 million • refundable deposits including security deposits.
the critical assumptions stated in the APA
(for three years) will be granted to newly upon fulfilling certain criteria.
agreement with no exception. However, a
established SMEs which are set up and
commence operations between 1 July 2020
• Real property gains tax exemption up to three revision or cancellation of an APA is allowed in International Tax Matters
residential properties will be granted to the event the taxpayer could not fulfil the
and 31 December 2021.
Malaysian citizens for any disposal made in the critical assumptions made due to the due to Travel Restrictions
• Eligible foreign companies in the manufacturing period from 1 June 2020 to 31 December 2021. COVID-19 pandemic.
sector that relocate their operations into The Inland Revenue Board (IRB) released a
• Sales tax exemption of 50% (for imported cars) • A taxpayer will not qualify for a renewal of APA
Malaysia will enjoy a tax holiday for: frequently-asked-questions (FAQs) to provide
and 100% (for locally assembled cars) will be if the critical assumptions in the expiring APA
clarification on residence status, permanent
>> 10 years: if a total of fixed assets between MYR provided for the sale of passenger cars from are no longer valid or relevant due to material
establishment (PE) issues and cross-border
300 - 500 million is invested; and 15 June 2020 to 31 December 2020. changes in the taxpayer’s business as a result of
employment income issues arising from the travel
the COVID-19 pandemic. As such, the taxpayer
>> 15 years: if a total of fixed assets exceeding • No tourism tax will be charged from restrictions imposed by the government in response
has an option to either file a new APA
MYR 500 million is invested. 1 July 2020 to 30 June 2021. to the COVID-19 outbreak in the country.
application or forego a new APA application.
24 | Asia Tax Bulletin MALAYSIA MALAYSIA MAYER BROWN | 25The period of temporary absence of a resident The main amendments made in Public Ruling No.
individual from Malaysia due to COVID-19 travel 1/2020: Tax incentives for bionexus status
Guidance on Determination Tax Treatment of
restrictions will be taken into account as part of the companies (the PR) dated 22 May 2020 issued by of Place of Business Stock-In-Trade
individual’s period or periods in Malaysia for tax the IRB are set out below.
residency purposes. Accordingly, if a non-resident
• Bionexus status companies in Malaysia must
in Malaysia The Inland Revenue Board (IRB) has updated two
individual is temporarily present in Malaysia due to
fulfil the following substantial activities public rulings on the tax treatment of stock-in-trade,
the same reason, the aforesaid period in Malaysia The Inland Revenue Board (IRB) issued a guideline
requirement in order to enjoy the tax incentive: including the valuation of stock and withdrawal of
will not be taken into account for the purpose of on the establishment of taxable presence of stock by taking into consideration the latest
determining the tax residence of that individual. >> have an approved adequate number of businesses in Malaysia under the section 12(3) and changes in the Income Tax Act 1967 (ITA).
full-time employees and knowledge 12(4) of the Income Tax Act 1967 (ITA). The issuance
A company will be deemed to be a tax resident in
workers in Malaysia to carry on a qualifying of the guideline is to provide further clarity to Public Ruling No. 2/2020: Tax treatment of stock-in-
Malaysia even though its board of directors’ (BOD)
activity; and taxpayers in determining their taxable presence trade part I – valuation of stock (PR 2/2020). Where
meeting is not held in Malaysia, subject to certain
in Malaysia. a business applies the generally accepted
conditions as provided for in the FAQ. Accordingly, >> incur an approved adequate amount of
accounting principles in valuing the stock-in-trade
a non-resident company will not be deemed as a annual operating expenditure to carry on The guideline states that if a “place of business” and the basis of valuation is not acceptable for
tax resident in Malaysia if it held its BOD meeting in the qualifying activity or an approved is established in Malaysia, the income that is income tax purposes, the tax adjustments will be
Malaysia due to the travel restriction imposed and adequate investment in fixed asset in attributable to such place of business will be made in the income tax computation accordingly.
provided there are no changes to the economic Malaysia to carry on a qualifying activity. deemed to be derived from Malaysia. The definition For income tax purposes, the following stock
circumstances in the aforesaid of “place of business” is generally based on the
• Existing bionexus status companies that already valuation method must be applied:
non-resident company. definition of permanent establishment with
enjoying tax exemption are required to submit
some exceptions. • the market value of the stock-in-trade is
The temporary presence of the non-resident an application to the authority in relation to the
equal to the fair value or estimated selling
company’s employee in Malaysia will not give substantial activities requirement in order to The guidelines also adopted some features from the price of the stock;
rise to a PE in Malaysia if: qualify for the tax incentives after the Multilateral Instrument which is used to implement
grandfathering rules end. treaty-related measures under the OECD’s Base • the net realisable value is not acceptable and
• the company does not have a PE in Malaysia
Erosion and Profit Shifting (BEPS) project such as: adjustment is required to be made accordingly;
before the imposition of travel restrictions; • The royalty and other income of a bionexus
status company which is derived from IP rights • if the overall activity by the person or its • the stock-in-trade can be valued at market value
• there are no changes to the economic
will be excluded from the scope of tax associated person resulting from the or based on the total cost method (in the case
circumstances in the company; and
exemption after a specified date and will be combination of preparatory or auxiliary activities of physically tangible stock); and
• the temporary presence and employment subject to tax under the Income Tax Act 1967. constitutes complementary functions that are
• stock-in-trade consisting of immovable
activities performed by the employee in part of a cohesive business operation, such
• Examples are provided in the PR to illustrate on properties, stocks, shares or marketable
Malaysia are solely due to travel restrictions. activity would not be regarded as preparatory
the above. securities must be valued at the lower of the
or auxiliary; and
Various scenarios of cross-border employment cost price and market value at that time.
The issuance of the Public Ruling which replaces
income for resident and non-resident individuals • a person will not be an independent agent
the old Public Ruling on the bionexus status Public Ruling No. 3/2020: Tax treatment of stock-in-
affected by the travel restriction imposed were also for the principal if he acts exclusively, or
companies are generally welcomed by taxpayers as trade part II – withdrawal of stock (PR 3/2020). If a
discussed in the FAQs. almost exclusively, on behalf of one or
it provides clarification on the application of the person carrying on a business uses the stock-in-
more associated persons.
changes in the requirements for bionexus status trade of the business for its own use (including the
Public Ruling on Tax companies, which will affect the current tax If a non-resident is a tax resident in another country withdrawal of stock without consideration received),
exemption status of the companies. which is a tax treaty partner with Malaysia, the the withdrawal of such stock must be accounted for
Incentives for Bionexus provisions in the treaty will prevail. accordingly. Gains or profits from a business must
Status Companies The guideline also provides further clarification on
include an amount receivable arising from stock-in-
trade withdrawn due to compulsory acquisition or
its application of the section 12(3) and 12(4) of the any other similar manner.
The Inland Revenue Board (IRB) has updated the ITA together with various examples.
public ruling on tax incentives for bionexus status PR 2/2020 and PR 3/2020 replace PR 4/2006, and
companies. This was done by taking into PR 2/2020 and PR 3/2020 must be read together for
consideration the latest changes in law that affect better understanding. The PRs issued provide
the tax exemption status of the bionexus status several examples illustrating the tax treatment of
companies such as the substantial activities the valuation of stock and are useful for taxpayers to
requirements and the exclusion of the intellectual understand the application of ITA with regard to the
property (IP) income of the company from the stock valuation.
tax incentives.
26 | Asia Tax Bulletin MALAYSIA MALAYSIA MAYER BROWN | 27You can also read
