Staple pages here

Cover sheet
Candidate ID Word count

TAX211 Project: Part A

(600 words)
Do not exceed the word limit. Penalties will apply.

Candidate declaration
I declare that: This is my own original work and I have acknowledged all materials, sources and references used in the preparation of this assignment. I have abided by the Institutes Bye-Laws. This assignment has not been submitted previously for assessment. I have not copied in part or whole or plagiarised the work of other candidates, students and/or authors. The electronic version of this assignment has been submitted in compliance with the project requirements.

I consent to the Institute notifying my employer and/or any tertiary institution at which I am enrolled if this assignment constitutes an actual or reasonably suspected breach of any of the Institutes Bye-Laws and Exam Regulations. I acknowledge that the Institute will retain the original of this assignment. In submitting this assignment to the Institute, I declare it is my own work undertaken for the purpose of meeting the assessment requirements of the MICPA Programme module in which I am currently enrolled. I understand that the Institute will check my assignment for plagiarism and will retain a copy of my assignment for future plagiarism checking. This declaration confirms the above statements.

Signature:

Date:

Staple pages here

Cover sheet
Candidate ID Word count

TAX211 Project: Part B

(600 words)
Do not exceed the word limit. Penalties will apply.

Candidate declaration
I declare that: This is my own original work and I have acknowledged all materials, sources and references used in the preparation of this assignment. I have abided by the Institutes Bye-Laws. This assignment has not been submitted previously for assessment. I have not copied in part or whole or plagiarised the work of other candidates, students and/or authors. The electronic version of this assignment has been submitted in compliance with the project requirements.

I consent to the Institute notifying my employer and/or any tertiary institution at which I am enrolled if this assignment constitutes an actual or reasonably suspected breach of any of the Institutes Bye-Laws and Exam Regulations. I acknowledge that the Institute will retain the original of this assignment. In submitting this assignment to the Institute, I declare it is my own work undertaken for the purpose of meeting the assessment requirements of the MICPA Programme module in which I am currently enrolled. I understand that the Institute will check my assignment for plagiarism and will retain a copy of my assignment for future plagiarism checking. This declaration confirms the above statements.

Signature:

Date:

Taxation (2) 2011

Project

All rights reserved. No part of this document may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, by any third party, without the prior written permission of MICPA.

Taxation (2) 2011 Project

Contents
Due date Structure Marking summary Word limit Objective How to submit your project Submit electronic version by e-mail Submit a hard copy by mail Project Part A (37 points) Part B (50 points) 2 2 2 2 2 3 3 3 5 5 7

Taxation (2) 2011 Project

Due date
Due date: 11.55 pm, July 25, 2011 (Monday), Malaysian time, to be submitted via email to taxproject@micpa.com.my. No late submissions will be accepted.

Structure
There are two parts to this project, Part A and Part B, which are required to be submitted as two separate files: Part A Part B

Marking summary
A total of 89 technical points will be awarded for this project, allocated for each Part as follows:
Part A B Total Technical points 37 50 87 Additional points 1 1 2 Total 38 51 89

The two (2) additional points awarded are for presentation, clarity and logic. The total points will then be converted into an assessment mark out of 20.

Word limit
The overall word limit is 1,200 words. Part A 600 words Part B 600 words.

Objective
The project aims to help you: achieve the Taxation communication skills). module objectives (specifically problem-solving and

Taxation (2) 2011 Project

How to submit your project

You need to submit an electronic version and an IDENTICAL paper version of your project.

Submit electronic version by e-mail

IMPORTANT: Please ensure that your file is saved and closed before your submission. 1. Submit your project electronically by e-mailing it to taxproject@micpa.com.my. You are reminded to attach the cover sheet(s) when submitting the electronic version of your project. When submitting the electronic copy of your project, you need your file saved and named as follows xxxxxx_TAX211_Project (where xxxxxx is your candidate number). Candidates are advised to substitute the punctuation mark: / in the candidate number with an underscore: _ . There are two Parts to your project which is required to be submitted as two separate files. Please ensure that each file is named and saved as follows: 4. 5. xxxxxx_TAX211_Project_Part A xxxxxx_TAX211_Project_Part B.

2.

3.

The subject line should include the work Project along with your candidate ID. You must submit your project before the due date and time.

Submit a hard copy by mail

1. 2. 3. You must also submit a hard copy of your project, which must be IDENTICAL to the soft copy submitted. You are reminded to attach the cover sheets(s) to the front of each Part of the project. The project is due on a Monday. You must put the hard copy of your project into a mail box either on the Monday night or early the next day, in time for the postal service to collect and process first thing on the Tuesday morning. Sometimes there are delays in the mail, but we will look at the postmark in order to determine if the project has been submitted late. If the hard copy of your project is lost in the post or does not arrive prior to the commencement and coordination of marking arrangements, the Institute will mark your electronic submission. Use the checklist below to ensure you have completed all the steps for the paper copy submission: a) print the project (single-sided only) and cover sheet(s) b) check that all pages have been printed
3

4. 5.

6.

Taxation (2) 2011 Project

c) check that you have included your candidate ID in the top right corner of each page d) check the page number is on the bottom of each page e) check the electronic version is exactly the same as the paper copies f) 7. attach the cover sheet(s) to the project and staple together (as indicated on the cover sheet).

Ensure your candidate ID, candidate name and module code is written clearly on the front of the envelope.

Taxation (2) 2011 Project

Project
Part A (37 points)
Jacqueline Sdn Bhd, which operates a manufacturing concern, owns 90% of the shares in Joel Sdn Bhd, an information technology company, and 60% of Jessica Sdn Bhd, which is involved in food manufacturing. Jason Sdn Bhd, a management consultancy firm, is owned by Jacqueline Sdn Bhd (10%), Joel Sdn Bhd (20%). The balance is held by Jessica Sdn Bhd which it purchased on 23 August 2009. All the companies are incorporated under the Companies Act 1965, are tax residents in Malaysia, have a 31 December year-end and have a paid-up capital of RM 3 million. All other shareholdings are held by non-related parties. Details of the financial results of the various companies for the year ended 31 December 2010 are as follows:
Jessica Sdn Bhd RM000 Profit/(Loss) before tax Expense items include: Entertainment of staff EPF contribution (25%) Halal certification expenditure Cash donations: - government - approved institutions - health care centre - Zakat perniagaan Other information: Capital allowances Interest income Rental income 300 Joel Sdn Bhd RM000 (580) Jason Sdn Bhd RM000 (120) Jacqueline Sdn Bhd RM000 250

40 75

60

20

80

50 14 25 20 15

40 80

70 30

45 20

44 120 120

Note: Joel Sdn Bhd incurred RM100,000 on developing a website which is functional for e-commerce transactions. This was reflected as an exceptional item after profit before tax in the profit and loss account for the year ended 31 December 2010.

Taxation (2) 2011 Project

Required
a) State the conditions that must be satisfied before a company qualifies for claiming group relief under Section 44A of the Income Tax Act 1967. State and explain (with reasons) whether ALL the companies mentioned in the question are related to each other (for group relief purposes) for the year of assessment 2010. Compute the chargeable income for the year of assessment 2010 for each of the companies with a view to achieve optimum tax efficiency by utilising any group relief incentives. Identify which company with current year losses, cannot surrender its losses to the other companies in the Group although it is a related company, and explain why. For any company which is surrendering its losses to other companies in the Group, compute any unutilised balance of the losses.

[7 points]

b)

[6 points]

c)

[18 points]

d)

[3 points]

e)

[3 points] 37 points

Taxation (2) 2011 Project

Part B (50 points)

Background information As a tax senior with Shrewd Tax Consultants, you have just returned from a meeting with the CFO of Debonair Sdn Bhd (DBN) to discuss the tax incentives available in relation to export sales. DBN is a Malaysian resident company incorporated in Malaysia, with a quarter of its share capital held by foreign parties. The company is engaged in the manufacture of a unique line of chemical products and had been a leading exporter to the Asia-Pacific region since 2005. Based on consultations with its previous tax agents, DBN had not been concerned about export incentives as the tax agents had advised that the incentives are only available when there is a significant increase in exports. In its initial years, DBN had exported the the chemical product exclusively to Asian countries but subsequently decided to explore and penetrate the European market, being a new focus market as determined by MATRADE. This strategy crystallised on 1 January 2009 with the acquisition amounting to RM500,000 of shares in Silhouette GmbH, a company incorporated in Germany which is engaged in a similar business. The acquisition enabled DBN to penetrate the European market as well as to transfer their technology for production in Malaysia. With this achievement, DBN was recognised with the Export Excellence Award by the Ministry of International Trade & Industry for achieving the highest increase in export sales of year of assessment 2010. However, in 2011, DBN was besieged with severe financial and strategic problems causing it is lose huge export markets resulting in a steep reduction in export in the Asia Pacific region. Although the management is confident of regaining its position as an export leader in 3 to 4 years, it is currently contemplating disposing of its shareholding in Silhouette GmbH. Operational results
(for year ended 31 December) 2008 RM000 Export sales - customers in the Asia-Pacific region (CIF price) - Free Industrial Zones - licensed manufacturing warehouses Local sales Business adjusted income (before any incentives) Capital allowances (for tax purposes) Other income (no attributable expenses): - interest income - rental income (factory complex in Penang) Donations in cash: - State Government - approved institutions 2009 RM000 2010 RM000

650 100 70 150 120 80 40 70 8 6

780 200 80 250 250 120 25 84 10 17

895 300 75 200 520 100 20 21 nil 12

Taxation (2) 2011 Project

Manufacturing profit for prior years

(for year ended 31 December) 2006 RM000 Sales of manufactured chemical products: Local (FOB) Overseas (FOB) Less: Cost of manufactured goods Raw materials Labour Overheads Profit (manufacturing) 828 276 1,104 688 40 64 792 312 2007 RM000 1,380 345 1,725 945 222 300 1,467 258

Notes: i. Qualifying export sales (FOB) in 2005 was RM190,000. ii. FOB prices are taken to be 20% less than CIF prices. iii. Business losses brought forward from year of assessment 2007 was RM6,000. iv. The sales figures is marked up at 15% of ex-factory price and the raw materials used for export sales is in the same proportion as it bears to total sales

Required
In relation to the above information, prepare a report in a suitable format to the CFO of Debonair Sdn Bhd to advise on the following. a) Evaluate the advice of the previous tax agents given for the years of assessment 2006 and 2007. Determine whether the Company would have been eligible for any export incentives and if so, briefly explain the conditions to qualify and the mechanics of the incentives. Compute the allowance for increased exports claimable by the company for the years of assessment 2006 and 2007. Explain whether the Company is eligible for a more favourable exemption in respect of export sales from the years of assessment 2008 to 2010, briefly stating the pre-requisites for qualifying and identifying the appropriate rates of exemptions. Compute the chargeable income and the exemption(s) available to the Company for the years of assessement 2008 to 2010. State whether the Company can claim a deduction for the acquisition of shares in Silhoutte GmbH and if so, briefly explain why it qualifies (i.e., the conidtions to be fulfilled), the mechanics of the incentive and any circumstances where the incentive can be withdrawn. Explain, with reasons, the incentive(s) which the Company should claim.

[6 points]

b)

[8 points]

c)

[5 points]

d)

[12 points]

e)

[12 points]

f)

[7 points] 50 points

Taxation (2) 2011 Project