The IRB recently made available the company income tax return form (Form e-C) for YA 2019 on its website. Significant additional information may need to be disclosed in the worksheets (“Helaian Kerja”) to the YA 2019 Form e-C and certain additional parameters have been included in the Form e-C itself. These matters are discussed below.
Requirement to submit detailed information in Helaian Kerja
The IRB has simplified the Form e-C for YA 2019 in comparison to the YA 2018 Form e-C, by requiring the details of each item / disclosure to be submitted via the Helaian Kerja (HK) instead. It is noted however that more details have been requested via the HK for YA 2019, compared the prior years.
In addition, with effect from YA 2019, the HKs will form part and parcel of the Form e-C, and are to be submitted together with the Form e-C.
1. New HK-F: Summary of absorbed / surrendered / disregarded losses carried forward (including pioneer losses after tax relief period)
The Finance Act 2018, which was gazette on 27 December 2018, restricts the carry forward of unutilized business losses to seven years with effect from YA 2019 (see Special Tax Alert – Highlights of Budget 2019 – Part I, Special Tax Alert – Highlights of Budget 2019 – Part II, Special Tax Alert No.1/2018 and Tax Alert No.25/2018).
To ensure that losses for each YA are properly tracked, companies are now required to complete the new HK-F:
Summary of absorbed / surrendered / disregarded losses and losses carried forward (including pioneer losses after tax relief period), to be submitted together with Form e-C.
2. New JK-N: Information on Controlled Transactions
Companies undertaking controlled transactions within the meaning of Section 139 and 140A of the Income Tax Act 1967 (ITA) are now required to complete the new HK-N: Information on Controlled transactions.
This new HK-N is broadly similar to the existing Form MNE pertaining to information on cross border transaction. Which some taxpayers would be familiar with. Previously, the Form MNE was only required to be completed and submitted by taxpayer upon specific request by the IRB.
With the new HK-N, impacted companies will be required to provide comprehensive details in relation to related party transaction and the parties they are dealing with. Significantly more information will be required as compared to prior Years’ disclosures required in the Form e-C (Part N: Transaction between related companies).
Examples of the information which would need to be disclosed in the HK-N include:
i. Specific classification of the taxpayer itself, e.g. whether it is a toll-manufacturer, limited- risk distributor, franchisor, service provider (and if so, the type of service provider), etc.
ii. Disclosure of specific categories of controlled transactions undertaken with parties in and outside Malaysia, including sales, purchases, loans, guarantee fees, advertising, marketing and promotions, research and development, cost contribution agreements
iii. Detailed disclosure of top-10 related party transaction, including the name, country code and business activity of the counterparty
iv. Disclosures of transaction with counterparties in jurisdictions with a lower corporate income tax rate than Malaysia, including the name, country code and business activity of the counterparty
v. Disclosures of business restructuring, research & development activities and cash pooling activities undertaken by the taxpayer
Taxpayers and their advisors would need the ensure that sufficient time and resources are available to accurately compile and analyses the information required, to ensure that HK-N is completed in a correct and consistent manner. Taxpayers may not have all the necessary information required to complete the form HK-N at their disposal and may need to reach out to their associated parties for certain information.
3. New item F8 (Form e-C): Subject to interest restriction under section 140C
The Finance Act 2018 introduced the new Section 140C into the ITA, to legislate earnings stripping rules (ESR) with effect from 1 January 2019 (Special Tax Alert No.25/2018).
Section 140C stipulates that in ascertaining the adjusted income of a person from his business sources, no deduction shall be allowed in respect of any interest expense in a controlled transaction granted directly or indirectly to that person, which is in excess of the maximum amount of interest as determined under any rules made under the ITA. The relevant rules have not yet been released.
In line with the above, item F8 has been incorporated in the YA 2019 Form e-C require taxpayers to specify whether or not the company is subject to “interest restriction” underSection 140C of the ITA.