strategizing & managing: critical tax issues...

Strategizing & Managing: Critical Tax Issues 2018 With focus on Tax Audit and Tax InvestigationChow Kuo Seng l Tuesday, 30 January 2018

2© 2018 Deloitte Tax Services Sdn. Bhd. Strategizing & Managing: Critical Tax Issues 2018

Are you prepared during critical moments with the IRB?

Borang J / JA / JR by the IRB

01 02

Documentation

03

Key takeaway -Moving forward

Key considerations on tax appeal


1. Borang J / JA / JR based on the tax findings by the IRB

Following a tax investigation or tax audit


Critical moments

When the Borang J/JA/JR is received by a taxpayer

• 10% and 5% late payment penaltySec. 103

• Civil proceedings at the courtsSec. 106

• Travel restrictions on Co. DirectorsSec. 104

He has 30-days to pay up (notwithstanding any appeal)


IRB Taxpayer

• Income Tax Act 1967

• Penal Code (Act 574)

• Criminal Procedure Code (Act 593)

• Evidence Act 1950 (Act 56)

• Whistleblower Protection Act 2010 (Act 711)

• Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (Act 613) aka AMLATFPUA

Tax Investigation Framework

1 January 2007 1 October 2013

Tax Investigation Framework

Tax investigation framework in Malaysia


Updates on tax audit frameworks in Malaysia

1 June 2015

• Tax Audit Framework On Finance and Insurance

1 August 2015

• Tax Audit Framework On Withholding Tax

1 May 2017

• Tax Audit Framework

• (Amendment 1/2017 dated 01 May 2017)

January 2007

• Tax Audit Framework (Superseded)

January 2009

• Tax Audit Framework (Amendment 2009) (Superseded)

April 2013

• Tax Audit Frameworks (Superseded)

• Petroleum Tax Audit Frameworks

• Transfer Pricing Tax Audit Frameworks

1 February 2015

• Tax Audit Framework (Amendment 1/2015) (Superseded)

Latest


Snapshot

Tax Audit Framework 2017

(Para 1) Intro• Under the Self-Assessment System, tax audit is a primary activity of the IRB.• Assist audit officers to carry out their tasks efficiently and effectively.• Assist taxpayers in fulfilling their obligations

(Para 4) Objectives• Enhancing voluntary compliance with the tax laws and regulations.

(Para 5) Years of assessment covered• Full audit for 3 to 5 years of assessment. • 5-year time limit is not applicable to cases involving fraud, wilful default or negligence.

(Para 7.4.5) Examination of recordsWhere the books or accounting records are kept electronically, instead of requesting taxpayers to make available hard copies of such records, IRB officers can access those financial data from the taxpayer’s computer system by downloading into any portable pen drive, hard disk or suitable storage media.

(Para 10) Offences and penaltiesReduced tax penalty will be imposed by the IRB where a taxpayer submits a voluntary disclosure on any tax under declared in the past years. However, a taxpayer would not be considered for “Voluntary disclosure to mitigate penalties” after a tax audit has commenced.


Snapshot


Commencement of an audit

(Para 7.2.1)

For field audit cases, commencement date is upon issuance of the Letter Requesting for Documents. In the absence of such letter, on the 1st day of visit at the taxpayer’s premises.

(Para 7.2.2 and 7.2.3)

• For desk audit case, the date when taxpayer was contacted via CP 800 / CP800A.• A taxpayer is required to respond within 21 days from the date of the Letter

Requesting for Documents / CP 800 / CP 800A, otherwise the IRB can visit the taxpayer’s premises without any notification.

• Notification letter will indicate the following:

i) The records that should be made available for audit.

ii) The relevant years of assessment to be audited.

iii) The name of audit officers who will conduct the audit.

iv) The expected timeframe required for the audit visit.


Something new by the IRB


(Para 7.2.4)A notification letter will be sent to a taxpayer selected for field audit (at least 14 days prior to the visitation date). Nevertheless, the IRB may conduct a field audit without any prior notification on the taxpayer.

(Para 7.2.5)A tax audit can be extended to any related company / business having the same director without notification to the taxpayer.

(Para 7.2.9)The IRB can, in any condition, visit any premises of the taxpayer without prior notification.


(MDTD) Media Release dated 18 April 2014

(Para 7.7) Monitoring Deliberate Tax Defaulters Programme

Non-compliant Taxpayer

•Upon being listed as a non-compliant taxpayer.

Official letter from

the IRB

•Non-compliant taxpayers will receive a official letter from the IRB.

Full Audit•A full audit will be conducted by the IRB for the impending audit visit.

Comply •Taxpayers will be delisted if no repeated offences are committed.


IRB’s request for Information/Documents

• General Ledgers

• Sales/Purchases Ledger

• Cashbook

Date of Tax Audit Visit;

22 February 2017

Capital statement in a tax investigation by the IRB

Capital

Statement

Encompasses

Statement of Net Asset – CP103.pdf – Pin.5/96

Statement of Personal & Private Expenses

– CP102.pdf – Pin.10/80

CP103.pdf

CP102.pdf


Sample letter from the IRB (Capital Statement)

IRB’s request for Information/Documents

• General Ledgers

• Sales/Purchases Ledger

• Cashbook

Date of Tax Audit Visit;

22 February 2017


CP103 (page 1 of 2)

Salient points

1. Harta-harta dan Tanggunan-tanggungan Perniagaaan.

2. Harta-harta dan Tanggunan-tanggunan Kepunyaan sendiri

3. Butir-butir Harta

4. Butir-butir Tanggungan

5. Syer

6. Pinjaman-pinjaman

7. Jika ruangan tidak mencukupi di bawah satu-satu kepala, senaraimestilah disediakan….

8. Senarai ini mestilah termasukharta-harta yang dibeli dan dijualdalam tahun yang sama….


CP103 (page 2 of 2)


CP102 (page 1 of 1)


Voluntary disclosure

Period after the prescribed deadline for tax submission

Penalty rates(Jan 2009 to 2017)

Penalty rates(w.e.f. 1 May 2017)


Before being selected for tax audit

Within 60 days 10% 10%

>60 days < 6 months 15.5% 15.5%

>6 months < 1 year 20%

35%>1 year < 3 years 25%

>3 years 30%

After being selected for tax audit

VD after taxpayer has been informed of the tax audit

35%

45% for 1st offenceNon-disclosure (Discovery of omission during audit and investigation)

45% for 1st offence

100% for MDTD 100% for MDTD

Max. penalty to be imposed on a taxpayer is 100% under Section 113(2) penalty, where the taxpayer has “omitted or understated any income” liable to be taxed.


Media Release dated 17 April 2017 issued by the IRB

100% 113(2) Penalty – w.e.f. 1 January 2018

Note:

The proposal to increase the rate of penalty to 100% of the tax payable on the undeclared or under-declared incomebeginning 1 January 2018 is a step towards elevating the level of voluntary compliance among tax payers by dealing with tax payers who are hardcore tax law defaulters.

Repeated offences of undeclared or incorrectly declared income received by way of a return form.

Refusal to give full cooperation during an audit or investigation process.

Failure to give information or documents requested to assist in an audit or investigation process.

Carrying out an organized tax evasion scheme.

Failure to comply with the tax law even though the taxpayer has been audited or investigated before.


LHDNM MEDIA RELEASE dated 25 July 2017

Tunggakan Cukai

LHDNM Litigation Branch Kuala Lumpur (Cawangan Guaman Kuala Lumpur “CGKL”) which was established on 1

May 2017 started operation on 1 August 2017.

The CGKL will take over the civil suit and litigation functions from the Legal

Units of seven LHDNM Branches —Duta Branch, Non-Resident Branch,

Large Taxpayer Branch, Kuala Lumpur Bandar Branch, Cheras Branch, Wangsa Maju Branch and Bangi

Branch.

This is part of the LHDNM’s continuous efforts to improve the tax collection

and civil suit process where the CGKL will also focus on court cases involving taxpayers who fail to comply with the

agreed tax instalments.


2. The remedies

Tax appeal


Appeal against assessment

Preserve your right

Form ParticularsProvision of

the ActDue date for submission

Form QNotice of Appeal to

SCITSection99/97A

Within 30 days after the Notice of Assessment

served

Form NNotice of EOT for

AppealSection 100

Extension of time after the abovementioned 30

days

CP15CRelief (Error or

Mistake)Section 131

Within 5 years after end of year of assessment

CP15DNotice of Appeal

(WHT)Section 109H

Within 30 days from the date the WHT-in-dispute

is due

PR 12/2017 dated 29 Dec 2017 replaces the PR No. 7/2015 dated 22 Oct. 2015: Taxpayer who is aggrieved by an assessment which has been made on him by the IRB is entitled to appeal against that assessment pursuant to Section 99/97A of the Income Tax Act.


Tax appeal

Special Commissioners of Income Tax (SCIT)

Taxpayer

Dispute Resolution

& the Secretariat Department

(DRBSD)

State Director’s

Office (“PPN”)

Form Q (IRB

Branch)

Where an amicable resolution is achieved for tax settlement, the file will be returned to the PPN/DRP for revision.

AppealAllowed

AppealAllowed

To submit Form Q within 30 days from the date of the Form J/JA/JR/NONC or upon approval of the Form N.

The IRB has within 12 months to register the Form Q with the SCIT.

.

The IRB to discharge

tax-in-dispute

Tax Litigation Division(Legal

Department)Note:J = Notice of AssessmentJA = Notice of Additional AssessmentJR = Notice of Reduced AssessmentNONC = Notification of Non Chargeability

To submit Form N if Form Q is not submitted within 30 days from the date of issuance of Form J/JA/JR/NONC.

In case of a relief application for error or mistake, if the branch decides not to grant the relief, taxpayer has 6 months to request the IRB to forward the relief application to the SCIT.

The IRB branch is given 30/60/90 days to forward the appeal to DRBSD/PPN.

High Court

Court of Appeal


Tax Appeal against disallowance of “ suspicious” payment – Oren -Puba v KPHDN

Issue: Whether the payment made by the Appellant be disallowed on the ground that the transaction is “suspicious” (“diragui”) as contended by the Respondent


Chronology of Events - a Diligent Taxpayer in his critical moments with the IRB

Events Time taken by the IRB

Communications between the taxpayer

& the IRB Officers

Notification of tax field audit to the taxpayer by the IRB

2 weeks

• E-mails / Telephone calls

• Audit at taxpayer’s premises

Tax audit findings letter(s) issued by the IRB3 weeks to 3-6 months

1 or 2 post- tax audit meeting(s) and the Final computation is determined by the IRB

Description Date Late payment penalty Form Q

Form JA dated 10/4/2017

Form JA served to taxpayer 15/4/2017

Imposition of penalty under S.103 @ 10% 10/5/2017

Imposition of penalty under S.103 @ 5% 10/7/2017

Deadline for filing of Form Q 15/5/2017

Example 1 as per PR12/2017 –Appeal Against Assessment and Application for Relief:


3. Documentation to the Inland Revenue Board


PR 3/2015 dated 29 July 2015“Failure to furnish information within the stipulated period”


PR3/2015 Failure to furnish information within a stipulated period

Example 4

“…Rania Beauty Sdn Bhd (“RBSB”) … After the expiry of the time stipulated in the notice, RBSB still failed to furnish the supporting

document. Therefore, the expense of RM250,000 will not be allowed as a deduction under subsection 39(1A) of the Income Tax Act 1967.”

Example 5

“…RBSB furnished the supporting document within the extended time. Thus, RBSB is allowed to claim the payment of RM250,000 as sponsorship expense for arts,

cultural and heritage activities in the year of assessment 2014.”

Example 7

“…If the Director General discovers that the supporting documents can be obtained from a third party but the company has not endeavouredto get them, then the report will not be accepted as a substitute for the invoices on maintenance expense. Therefore, the maintenance expense of RM25,000 will not be allowed as a deduction under subsection 39(1A)

of the ITA.


Key takeaway - Moving forward

Be equipped: Know your rights and responsibilities and apply the Tax Law and Regulations correctly

Be prepared: How you respond to a tax audit and investigation and the documents you provide will determine the outcome. Prepare now!

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