On 16 November 2011, the PRC State Administration of Taxation (SAT) and the Ministry of Finance ("MoF") jointly issued a notice regarding their general plan of replacing the business tax ("BT") system with the VAT system ("the Plan"). In accordance with the Plan, details of the Shanghai Pilot Program are provided under the Tax Circular Caishui [2011] No.111 ("Circular 111").
The author decided to offer to sneak preview of what this tax reform is all about. Below is an article written by Charlie Sun (Head of Tax PAG, CMS China) on this regard.
In China, there are two major kinds of turnover taxes, i.e. Value-Added Tax (VAT) and BT. They cover different scopes of transactions. The VAT system mainly covers import and sales of movable/tangible goods, while the BT system covers services, transfer of intangibles and immovable properties. A few exceptions are processing, repairing and maintenance services which are covered by the VAT system, not the BT system. The BT system has been widely criticized for not having the input-output credit mechanism which is adopted in the VAT system. Such feature of the BT system means that BT costs are not recoverable by either party. Further, in case of subcontracting of services, the portion of the subcontracted service value will be taxed twice for BT purposes (once at the main-contractor and once at the subcontractor). In addition, due to the different tax rates and systems, the simultaneous operation of both VAT and BT systems has caused various administrative problems for both taxpayers and tax authorities. To solve the above problems and to ultimately eliminate the BT system, the PRC government has recently taken actions to launch a pilot tax reform starting from 1 January 2012. For the time being, this reform is limited to Shanghai. However, ultimately, it is expected to be extended to all over China in the future.
28.1.12
An Intro To Transfer Pricing
The following article was written for the Malaysian Corporate Counsel Association (MCCA) and is currently being published in its official website www.mcca.com.my. The author, Zachary Lau is also the current Deputy President of the MCCA.
Transfer Pricing (TP) is a term that reveals little, but requires much an attention from MNCs and governments. This brief article attempts to examine some of the macro concepts underlying the TP framework.
TP impacts the pricing of goods, services and intangibles given for consumption or use to a related party (e.g. a subsidiary).
The category of pricing falling within the ambit of the TP framework can be either market-based, i.e. equivalent to the prevailing market price, or non-market based. The pricing objectives could be internal (e.g. the placement of a price on imported inputs) or, external (e.g. tariffs or taxes) [Source: Mayank K Agrawal, Transfer Pricing A Beginner's Perspective]
In an increasingly global economy, in which sourcing, manufacturing and consumption of goods takes place in different jurisdictions in order to reduce operational costs, the cross-border transactional pricing of goods, services and intangibles is a key focus area for MNC’s in determining the structure of groups of companies to be located all over the world. Obviously, it would be in the best interests of the MNC to familiarize itself with the TP guildelines of their host and home countries, in order to maximize benefits.
There is however, a fine line between maximizing benefits and outright manipulation, the potential for which has been of concern to the international community for some time. Manipulative practices could comprise, for example, the fixing of transfer prices on a non-market basis instead of in line with the dynamics of market forces, resulting in tax savings accruing to the MNC by virtue of deliberate movement of its accounting profits/taxable revenue from a jurisdiction in which taxes are high, to a jurisdiction in which taxes are low.
Such movement of taxable revenue would result in a distortion in Balance of Payments between the host and home country, and would impact the home country’s attractiveness towards Foreign Direct Investment (FDI). [Source: Mayank K Agrawal, Transfer Pricing A Beginner's Perspective]. The impact of such a practice would be to render some Asian countries such as Hong Kong and Singapore which have no TP controls, more attractive as FDI destinations than countries such as Malaysia, in which the TP framework is fairly restrictive.
For more information on TP, please visit the official website of the Inland Revenue Board of Malaysia.
Transfer Pricing (TP) is a term that reveals little, but requires much an attention from MNCs and governments. This brief article attempts to examine some of the macro concepts underlying the TP framework.
TP impacts the pricing of goods, services and intangibles given for consumption or use to a related party (e.g. a subsidiary).
The category of pricing falling within the ambit of the TP framework can be either market-based, i.e. equivalent to the prevailing market price, or non-market based. The pricing objectives could be internal (e.g. the placement of a price on imported inputs) or, external (e.g. tariffs or taxes) [Source: Mayank K Agrawal, Transfer Pricing A Beginner's Perspective]
In an increasingly global economy, in which sourcing, manufacturing and consumption of goods takes place in different jurisdictions in order to reduce operational costs, the cross-border transactional pricing of goods, services and intangibles is a key focus area for MNC’s in determining the structure of groups of companies to be located all over the world. Obviously, it would be in the best interests of the MNC to familiarize itself with the TP guildelines of their host and home countries, in order to maximize benefits.
There is however, a fine line between maximizing benefits and outright manipulation, the potential for which has been of concern to the international community for some time. Manipulative practices could comprise, for example, the fixing of transfer prices on a non-market basis instead of in line with the dynamics of market forces, resulting in tax savings accruing to the MNC by virtue of deliberate movement of its accounting profits/taxable revenue from a jurisdiction in which taxes are high, to a jurisdiction in which taxes are low.
Such movement of taxable revenue would result in a distortion in Balance of Payments between the host and home country, and would impact the home country’s attractiveness towards Foreign Direct Investment (FDI). [Source: Mayank K Agrawal, Transfer Pricing A Beginner's Perspective]. The impact of such a practice would be to render some Asian countries such as Hong Kong and Singapore which have no TP controls, more attractive as FDI destinations than countries such as Malaysia, in which the TP framework is fairly restrictive.
For more information on TP, please visit the official website of the Inland Revenue Board of Malaysia.
15.3.11
A snapshot on the major taxes in the PRC
There are 26 taxes in the People's Republic of China (PRC), which can be classified into 7 categories:
1) Turnover taxes (i.e. taxes on transactions), including Value-Added Tax (VAT), Excise Tax, Business Tax and Customs Duty.
2) Income taxes, including Enterprise Income Tax for domestic enterprises, Income Tax on Enterprises with Foreign Investment and Foreign Enterprises and Individual Income Tax.
3) Resource taxes, including Resource Tax and Urban and Township Land Use Tax.
4) Property taxes, including House Property Tax and Urban Real Estate Tax.
5) Taxes for special purposes, including City Maintenance and Construction Tax, Fixed Assets Investment Orientation Tax, Land Appreciation Tax and Vehicle Acquisition Tax.
6) Behavior taxes, including Vehicle and Vessel Usage Tax, Vehicle and Vessel Usage Plate Tax, Vessel Tonnage Tax, Stamp Duty, Deed Tax, Slaughter Tax and Banquet Tax.
7) Agricultural taxes, including Agriculture Tax, Agricultural Specialty Tax, Animal Husbandry Tax, and Farmland Occupation Tax.
For more information on the above tax rates and whether these taxes are applicable to you or your company, please visit the PRC State Administration of Taxation or contact your tax consultant.
1) Turnover taxes (i.e. taxes on transactions), including Value-Added Tax (VAT), Excise Tax, Business Tax and Customs Duty.
2) Income taxes, including Enterprise Income Tax for domestic enterprises, Income Tax on Enterprises with Foreign Investment and Foreign Enterprises and Individual Income Tax.
3) Resource taxes, including Resource Tax and Urban and Township Land Use Tax.
4) Property taxes, including House Property Tax and Urban Real Estate Tax.
5) Taxes for special purposes, including City Maintenance and Construction Tax, Fixed Assets Investment Orientation Tax, Land Appreciation Tax and Vehicle Acquisition Tax.
6) Behavior taxes, including Vehicle and Vessel Usage Tax, Vehicle and Vessel Usage Plate Tax, Vessel Tonnage Tax, Stamp Duty, Deed Tax, Slaughter Tax and Banquet Tax.
7) Agricultural taxes, including Agriculture Tax, Agricultural Specialty Tax, Animal Husbandry Tax, and Farmland Occupation Tax.
For more information on the above tax rates and whether these taxes are applicable to you or your company, please visit the PRC State Administration of Taxation or contact your tax consultant.
25.10.10
Malaysia Budget 2011: A Snapshot
The Malaysia Budget 2011 was delivered and tabled by the Prime Minister/ Finance Minister on Oct 15, 2010. Some of the highlights of the Malaysia Budget 2011:
- Parent medical tax relief extended to care for parents' expenses
- 50% stamp duty exemption on housing S&P and loan agreements
- Service tax increases from 5% to 6%
- Astro fees will be subjected to 6% service tax
- EPF relief scope extended but limit not increased
Google grooves around with Transfer Pricing
The following is a synopsis of an article published on Yahoo! finance dated Oct 21, 2010.
[To reduce its overseas tax bill, Google uses a complicated legal structure that has saved it $3.1 billion since 2007 and boosted last year's overall earnings by 26 percent. While many multinationals use similar structures, Google has managed to lower its overseas tax rate more than its peers in the technology sector. Its rate since 2007 has been 2.4 percent. According to company disclosures, Apple (Nasdaq: AAPL), Oracle (Nasdaq: ORCL), Microsoft (Nasdaq: MSFT), and IBM (NYSE: IBM) - which together with Google make up the top five technology companies by market capitalization - reported tax rates between 4.5 percent and 25.8 percent on their overseas earnings from 2007 to 2009. It is remarkable that Google's effective rate is that low, considering that this company operates throughout the world, mostly in high-tax countries where the average corporate rate is well over 20 percent. The corporate tax rate in the U.K., Google's second-largest market after the U.S., is 28 percent. So, how does Google grooves around with Transfer Pricing to gain a tax advantage?
A company's obligation to its shareholders is to try to minimize its taxes and all costs, but to do so legally. The setup lowers Google's overseas tax bill, but it also affects U.S. tax revenues as the government struggles to close a projected $1.4 trillion budget gap. Google Ireland licenses its search and advertising technology from Google headquarters in Mountain View, Calif. The licensing agreement allows Google to attribute its overseas profits to its Irish operations instead of the U.S., where most of the technology was developed.
The subsidiary is supposed to pay an "arm's length" price for the rights, or the same amount an unrelated company would. Yet because licensing fees from the Irish subsidiary generate income that is taxed at 35 percent, one of the highest corporate rates in the world, Google has an incentive to set the licensing price as low as possible. The effect is to shift some of its profits overseas in an arrangement known as "transfer pricing." This, too, is legal. In 2006 the IRS approved Google's transfer pricing arrangements, which began in 2003, according to Google's SEC disclosures. Transfer pricing arrangements are popular with technology and pharmaceutical companies in particular because they rely on intellectual property, which is easily transportable across borders.]
To read the entire article, please click here.
[To reduce its overseas tax bill, Google uses a complicated legal structure that has saved it $3.1 billion since 2007 and boosted last year's overall earnings by 26 percent. While many multinationals use similar structures, Google has managed to lower its overseas tax rate more than its peers in the technology sector. Its rate since 2007 has been 2.4 percent. According to company disclosures, Apple (Nasdaq: AAPL), Oracle (Nasdaq: ORCL), Microsoft (Nasdaq: MSFT), and IBM (NYSE: IBM) - which together with Google make up the top five technology companies by market capitalization - reported tax rates between 4.5 percent and 25.8 percent on their overseas earnings from 2007 to 2009. It is remarkable that Google's effective rate is that low, considering that this company operates throughout the world, mostly in high-tax countries where the average corporate rate is well over 20 percent. The corporate tax rate in the U.K., Google's second-largest market after the U.S., is 28 percent. So, how does Google grooves around with Transfer Pricing to gain a tax advantage?
A company's obligation to its shareholders is to try to minimize its taxes and all costs, but to do so legally. The setup lowers Google's overseas tax bill, but it also affects U.S. tax revenues as the government struggles to close a projected $1.4 trillion budget gap. Google Ireland licenses its search and advertising technology from Google headquarters in Mountain View, Calif. The licensing agreement allows Google to attribute its overseas profits to its Irish operations instead of the U.S., where most of the technology was developed.
The subsidiary is supposed to pay an "arm's length" price for the rights, or the same amount an unrelated company would. Yet because licensing fees from the Irish subsidiary generate income that is taxed at 35 percent, one of the highest corporate rates in the world, Google has an incentive to set the licensing price as low as possible. The effect is to shift some of its profits overseas in an arrangement known as "transfer pricing." This, too, is legal. In 2006 the IRS approved Google's transfer pricing arrangements, which began in 2003, according to Google's SEC disclosures. Transfer pricing arrangements are popular with technology and pharmaceutical companies in particular because they rely on intellectual property, which is easily transportable across borders.]
To read the entire article, please click here.
2.10.10
Cukai Tanah vs. Cukai Pintu
The author was at YB Hannah Yeoh's office earlier this week. Unexpectedly but pleasantly, he met 2 tax officers from MPSJ and had a hearty chat on Cukai Tanah (Quit Rent) and Cukai Pintu (Assessment). Apparently, many property owners are confused between Cukai Tanah and Cukai Pintu. Well, in a nutshell, apartment owners are only required to pay Cukai Pintu whereas landed property owners are required to pay both Cukai Tanah and Cukai Pintu. For more information, please contact your local council. For Selangor residents, please visit http://ptg.selangor.gov.my/.
(YB Hannah Yeoh is a lawyer by profession, an ADUN (State Assemblyman) for Subang Jaya and a faithful woman of God.)
(YB Hannah Yeoh is a lawyer by profession, an ADUN (State Assemblyman) for Subang Jaya and a faithful woman of God.)
28.9.10
Transfer Pricing: the Stranger in our midst
For years, the author scratched his head and raised his eyebrow whenever this 'stranger' (if the author may call it) is mentioned. Transfer Pricing (TP) is a term that reveals too little about its personality but yet, portrays a sophisticated corporate image. Governments pay prudent scrutiny on TP and MNCs pay a similar attention to it. What is the secret of this stranger that seduces such attention?
TP is simply the act of pricing of goods and services or intangibles when the same is given for use or consumption to a related party (e.g. a subsidiary). There can be either market-based, i.e. equivalent to what is being charged in the outside market, or non-market based. The reasons for the pricing could be internal (e.g. to monitor manager's performance by putting a cost to imported inputs) or external (e.g. taxes and tariffs issues) (Mayank K Agrawal, Transfer Pricing A Beginner's Perspective).
Understanding the interesting character of TP, it is not surprising that MNCs may manipulate TP to its advantage. It is this TP manipulation that Governments are discouraging. TP manipulation is basically fixing transfer price on non-market basis which generally results in saving the total quantum of organization's tax by shifting accounting profits from high tax to low tax jurisdictions (Mayank K Agrawal, Transfer Pricing A Beginner's Perspective). The implication is moving one nation's tax revenue to another.
It is not only corporate tax differential that induces organizations to manipulate TP. Other reasons include High Customs Duty, Restriction on Profit Repatriation and Ownership Restrictions.
The effect of TP manipulation on a nation limits not only to lower tax revenue, but also lead to distortion in Balance of Payments between the host and home country, and level of attractiveness towards Foreign Direct Investments (FDI). Nations such as Singapore and Hong Kong which have no TP controls become much more attractive for FDI.
In short, TP arises in the global economy with sourcing and consuming destinations being different, with organizations operating in different nations, and most importantly, due to varying tax and other laws in different countries. As more organizations are going global, including many local corporations in Malaysia, TP has risen up as an important aspect in corporations, whether we are familiar with it or not. Unsurprisingly, the author intends to get cozy with TP and perhaps, fall in love with this stranger in our midst.
TP is simply the act of pricing of goods and services or intangibles when the same is given for use or consumption to a related party (e.g. a subsidiary). There can be either market-based, i.e. equivalent to what is being charged in the outside market, or non-market based. The reasons for the pricing could be internal (e.g. to monitor manager's performance by putting a cost to imported inputs) or external (e.g. taxes and tariffs issues) (Mayank K Agrawal, Transfer Pricing A Beginner's Perspective).
Understanding the interesting character of TP, it is not surprising that MNCs may manipulate TP to its advantage. It is this TP manipulation that Governments are discouraging. TP manipulation is basically fixing transfer price on non-market basis which generally results in saving the total quantum of organization's tax by shifting accounting profits from high tax to low tax jurisdictions (Mayank K Agrawal, Transfer Pricing A Beginner's Perspective). The implication is moving one nation's tax revenue to another.
It is not only corporate tax differential that induces organizations to manipulate TP. Other reasons include High Customs Duty, Restriction on Profit Repatriation and Ownership Restrictions.
The effect of TP manipulation on a nation limits not only to lower tax revenue, but also lead to distortion in Balance of Payments between the host and home country, and level of attractiveness towards Foreign Direct Investments (FDI). Nations such as Singapore and Hong Kong which have no TP controls become much more attractive for FDI.
In short, TP arises in the global economy with sourcing and consuming destinations being different, with organizations operating in different nations, and most importantly, due to varying tax and other laws in different countries. As more organizations are going global, including many local corporations in Malaysia, TP has risen up as an important aspect in corporations, whether we are familiar with it or not. Unsurprisingly, the author intends to get cozy with TP and perhaps, fall in love with this stranger in our midst.
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