According with the WHT arrangements would allow rise

According
to Income Tax Act 1967, withholding tax is a sum withheld by the taxpayer on
income earned by payee and paid to the Inland Revenue Board of Malaysia.
Payments of royalties and service fees
derived from Malaysia and paid or credited to non-residents are subject to
withholding tax at the rate of 10%, which may be reduced under an applicable
double taxation agreement (“DTA”). Generally, such payments would be deemed to be
derived from Malaysia if:

 

– Responsibility for payment
lies with a Malaysian tax resident, the Government, a State Government or a
local authority; or

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– The payment is
charged as an outgoing or expense:

a) Against any income
accruing in or derived from Malaysia (for royalties); or

b) In the accounts of
a business carried on in Malaysia (for service fees).

     The payer is responsible for withholding
the tax and remitting the same to the Malaysian Inland Revenue Board (“MIRB”)
inside 1 month of paying or crediting the non-resident. In spite of the fact
that WHT is imposed on the non-resident beneficiary, non-compliance with the
WHT arrangements would allow rise to penalties and adverse tax implications for
the payer.

 

     The proposed royalty definition is
extensive and differs considerably from the prevailing domestic and DTA
definitions, as well as guidance on royalties in the Organisation for Economic
Cooperation and Development’s Commentary (which looks for to align
international tax practices and is by and large utilized as a reference by many
other jurisdictions).

 

Even
in situations where payments are not regarded as royalties, withholding may be
applicable where payments fall within the “Special Classes of Income” under
Section 4A of the Income Tax Act, 1967 (“the ITA”).

 

Example
of royalty case is the case between Inland Revenue Board of Malaysia and Alam
Maritim Sdn Bhd. The appealing party of this case is Inland Income Revenue of
Malaysia and the respondent is Alam Maritim Sdn Bhd. The address of this case
or explanation of appeal is with respect to whether the payments of charter
fees for the time charter of ships and groups to non-resident companies are
subject to withholding tax under section 109B of pay Tax Act.

 

The respondent
requested to withhold tax on settlement of charter fees that given to
non-resident companies. The non-resident company has no lasting establishment
in Malaysia. The respondent is not fulfilling with the choice of Inland Revenue
Board of Malaysia, so the respondent records a request in High Court of Malaya.
The request was permitted and case favoured to respondent. The appealing party
(Inland Revenue Board of Malaysia) was disappoint with the choice and request
at the Court of Appeal but still the appealing party fizzled. Presently the
appealing party request the case at the Government Court of Malaysia. The
appealing party take off application with a question:

 

‘whether the time
charter payment made by a resident company in Malaysia to non-resident
companies in Singapore is subject to withholding tax under subsection 109B(1)
of Income Tax Act 1967 (“the”) read together with subsection 4A(iii) and 24 (8)
of the Act and therefore, such non-resident companies are not entitled for
relief under Article IV of the Agreement For the Avoidance of Double Taxation,
and the Prevention of Fiscal Evasion with Respect to Taxes on
Income(Malaysia-Singapore) (“DTA”)’

 

Alam Maritim Sdn Bhd
is a private company in Malaysia who is resident here having business action
owning vessels, enlisting and overseeing vessels with third party charterers.
The case of the third party is Petroleum Nasional Berhad. The respondents
marked into a contract which is Uniform Time Constitution Party for Seaward
Benefit Vessels contract (UTC) with the non-resident company particularly with
Singapore. The non-resident company locks in out vessels, administrations and
groups to the Alam Maritim Sdn Bhd and in thought that the installment will
made with the UTC contract. As conviction that the non-resident companies will
subject to Singapore Law, the respondent pay the amount (full installment )
without deducting any withholding charge beneath the segment 109 B of the Act.

 

On 16 August 2005,
the respondents lawful professional bring up the issues once more and hand in
an appeal to Inland Revenue Board of Malaysia for the choice that had been made
prior which says under area 109 B of the Act, the taxpayer has to withhold tax
on the payment but the Inland Revenue Board of Malaysia, the appealing party of
current appeal case, says that those sum was a special lesson of pay under area
4A (III) of the Act the evasion of double taxation understanding (DTA) managed
no help to the respondent (Alam Maritim Sdn Bhd).

 

In Government Court
of Malaysia, the appealing party won the case. The appeal was allowed. The
reason expressed was the classes to tax a chargeable or non-chargeable item is
based on Pay Tax Act and not Double Taxation Agreement. Double Tax collection
Ascension is a component to kill double tax and allow help in the event that
required. The income from the worldwide activity “takes noticeable quality over
Article IV, hence the Malaysian government can charge on non-resident
companies. As per that, under area 4(III) of the ITA, the court finds out that
the government may burden non-resident companies under the special classes of
income. The instalment made by respondent under the UTC contract, where the pay
derived to non-resident company as extraordinary classes of income. As it was
the deliberate of parliament to assess non-resident companies from Singapore in
the circumstances of the case and with Article IV being inapplicable to pay
gotten under Area 4 A (iii), the payments received by the non-residents were
the therefore taxable. As under section 109B of the Income tax Act, the
non-resident company is taxable and the respondent is bound to withhold a
portion of the payments as tax. Therefore, the case favoured to appellant.

 

      As per the case, the judge as specify
that .As under area 109B of the Income tax Act, the non-resident company is
taxable and the respondent is bound to withhold a portion of the payments as a
tax.

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