INTRA GROUP SERVICES UNDER SERVICE TAX REGULATIONS 2018

Service Tax Regulations 2018

FIRST SCHEDULE

[Regulation 3]

TAXABALE PERSON, TAXABLE SERVICE AND TOTAL VALUE OF TAXABLE SERVICE

1.       The taxable persons specified in column (1) in Groups A, B, C, D, E, F, G and I of this Schedule providing any taxable service specified in column (2) in each Group and exceeds the total value of taxable service specified in column (3) shall submit an application for registration under section 13 of the Act.

2.       The taxable person specified in column (1) in any Group shall charge service tax on any taxable service specified in column (2) in such Group provided by him.

3.       Where a company in a group of companies provides any taxable service specified in item (a), (b), (c), (d), (e), (f), (g), (h) or (i) in column (2) in Group G to any company within the same group of companies, such service shall not be a taxable service.

4.       For the purpose of paragraph 3, two or more companies are eligible to be treated as companies within a group of companies if one company controls each of the other companies.

5.       For the purpose of paragraph 4, a company shall be taken to control another company if—

(a) the first mentioned company holds—

(i)     directly;

(ii)    indirectly through subsidiaries; or

(iii)   together directly or indirectly through subsidiaries,

    more than fifty percent of the issued share capital of the second mentioned company; or

(b) the first mentioned company holds—

(i)     directly;

(ii)    indirectly through subsidiaries; or

(iii)   together directly or indirectly from subsidiaries,

from twenty percent to fifty percent of the issued share capital of the second mentioned company and the first mentioned company has exercisable power to appoint or remove all or a majority of directors in the board of directors in the second mentioned company.

6.       For the purpose of paragraph 5, shares shall be treated as not held if the shares are held—

(a) through nominees;

(b) in a fiduciary capacity; or

(c) by virtue of provisions of debenture holding,trust deeds for securing debentures or money lending activities.

7.       Where a company is controlled by virtue of paragraphs 5(a) and (b) by two or more companies, such company (second mentioned company) shall be taken to be controlled by the first mentioned company which has the exercisable power to appoint or remove all or a majority of directors in the     board of directors in the second mentioned company.

8.       Where a company provides any taxable service mentioned in paragraph 3 to another person outside the group of companies, the same taxable service provided to any company outside or within the group of companies shall be a taxable service.

9.       Service tax shall be charged on the taxable service mentioned in paragraph 8 on the day the person providing such service is required to be registered by virtue of section 13 of the Act.

My comments :

The First Schedule of Service Tax Regulations 2018 is similar to the Second Schedule of the Service Tax Regulations 1975 except for references in regard to taxable services referred in paragraph 3 above. In particular paragraphs 4, 5, 6, 7, 8 and 9 in the New Service Tax Regulations 2018 are an replication of paragraph 4, 5, 6, 7, 8 and 9 of the Second Schedule of the Service Tax Regulations 1975.

Therefore the basis of decisions made by Customs Dept regarding Intra-Group Services under the Service Tax Act 1975 in the period before 1 April 2015( Service Tax Act was repealed and replaced by Goods and Services Tax Act-GST 2014) should still be applicable.

It is important to note the implication of paragraph 8 above. This means anytime an intragroup company provides the same taxable services to a company outside the group, the same service provided to any company within the group becomes a taxable service ( the Group of Companies lose the exemption status of that particular taxable service)

Dated 6 Oct 2018

Below are examples of some decisions made on applications submitted by Companies to the Customs Dept under the Service Tax Regulations 1975. The Names of companies and persons have been altered to maintain confidentiality, any reference to an existing business or person is unintended and purely coincidental. The examples should serve as a guidance and should not be taken as having the authority of law.  

Example 1. (Contoh 1)

Pengenalan

MUGAN Tax Advisory Sdn Bhd memohon pengesahan jika perkhidmatan perundingan yang disediakan oleh  seseorang pemegang saham kepada syarikat yang dimiliki dan dikawal olehnya adalah tidak bercukai  kerana disediakan kepada pihak dalam intra-group.

Mugan tidak menyatakan sama ada ianya adalah suatu syarikat yang benar-benar ujud atau pun adalah suatu kes hypothetical kerana nama syarikat syarikat dan butir pemegang saham tidak didedahkan. Memandangkan kes ini bukan untuk ketetapan kastam, kajian dibuat dan jawapan ditujukan kepada Mugan dan mungkin pihak Mugan ingin menasihatkan pelanggannya 

2.   Perkhidmatan yang disediakan

2.1   Perkhidmatan yang disediakan adalah perkhidmatan perundingan yang merupakan perkhidmatan bercukai dalam Kumpulan G, butiran ‘o’.

2.2     Di bawah Jadual Kedua Peraturan 3 dinyatakan bahawa jika suatu syarikat menyediakan perkhidmatan Yang kena Cukai termasuk jenis butiran ‘o’ kepada syarikat lain dalam kumpulan syarikat yang sama, perkhidmatan tersebut adalah tidak bercukai.

2.3        Dalam senario yang dikemukakan oleh Mugan, pemegang saham yang merupakan  seorang individu yang memiliki ‘controlling stake’(lebih daripada 50% saham) dalam kedua syarikat. Suatu syarikat menyediakan perkhidmatan perundingan kepada suatu syarikat lain yang juga dimilikinya dan perkhidmatan yang sama tidak disediakan kepada pihak lain di luar kumpulan syarikat.

2.4     Gambaran perkhidmatan yang disediakan adalah seperti berikut :

             

            Kepentingan Pemegang Saham Individu:

Syarikat A : 51%

Syarikat C : 67%

Perkhidmantan Perundingan diberikan kepada kedua syarikat oleh Individu

3.   Kesimpulan dan Cadangan

3.1     Individu mengawal kedua syarikat A dan C, perkhidmatan disediakan bukan oleh individu tetapi Syarikat C kepada Syarikat B.

3.2     Peraturan 3 menerangkan : ‘Where a company…provides any taxable service…’; dan  Peraturan 4 menerangkan: ‘…if one company controls each of the other companies’ serta Peraturan 7 mencatat : ‘Where a company is controlled …by two or more companies,…’.

3.3     Dalam senario yang dikemukakan oleh Mugan, Syarikat C tidak memiliki saham dalam Syarikat A dan syarikat A juga tidak memiliki saham dalam Syarikat C tetapi kedua syarikat mempunyai seorang pemegang saham yang mengawal kedua syarikat tersebut(common controlling shareholder).

3.4     Apabila Peraturan 3, 4 dan 7 dibaca literally, pemegang saham individu tidak boleh menganggap mendapat layanan seperti syarikat kerana kepentingan saham dalam  kedua syarikat   (by virtue of control of both companies). Jika contohnya individu tersebut menubuhkan sebuah syarikat Syarikat B dan Syt B mengambilalih kepentingan sahamnya,ia akan memenuhi kelayakan yang ditetapkan.  

Laporan disediakan Mei 2013

KEPUTUSAN

SERVICE TAX EXEMPTION UNDER PARAGRAPH 3 OF THE SECOND SCHEDULE OF THE SERVICE TAX ACT 1975

Berdasarkan maklumat yang dikemukakan oleh tuan didapati Mr A mempunyai kepentingan saham dalam Syarikat A dan Syarikat B. Mr A (pemegang saham) tidak boleh disamakan sebagai syarikat yang mengawal syarikat syarikat lain dalam ’intra-group’ seperti kehendak Peraturan-peraturan 3, 4 dan 7  di bawah Jadual Kedua Peraturan 3 dan 4, Peraturan Peraturan Cukai Perkhidmatan 1975 iaitu 

Peraturan 3: ’Where a company...provides  any taxable service’; Peraturan 4: ’if one company controls each of the other companies’ serta Peraturan 7: ’Where a company is controlled...by two or more companies,...’