Tax Audit focus areas in Accounts

1. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
Know the Process,
Know your Rights
Tax Does Not Have to be Taxing

2. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
Topics covered
• The Tax Audit and Investigation Systems and Procedures
• The Trigger Factors
• High Risk Zone
Target group
Last year - Doctors
Next - Architects, lawyers, engineers and etc
* picked based on : Risk analysis, 3rd party information, Analysis by Bank Negara Malaysia
• How Tax Audit and Investigation affect your business?
• IRB list of Hot Issues
• Tax Audit focus areas in Accounts
• How to overcome Tax Audit Issues?
• Offences and Penalties

3. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
New Penalty Regime
IRB impose 100% penalty on
(i) Repeated offences of undeclared or incorrect return
(ii) Refuse to give full co-operation during audit/investigate
(iii) Failure to give information or documents requested to assist in audit/investigation
(iv) carrying out an organized tax evasion scheme
(v) Failure to comply with the tax law even through the taxpayer has been audited or investigated before.
∴ no sign the IRB agreement “mengaku salah”, just sign/agree on the technical adjustment without prejudice.
1st January
2018
Voluntary Disclosure /
Discovery
Period from the submission
deadline
Penalty Rate
Voluntary disclosure before
tax audit
≤ 60 days
< 60 days and ≤ 6 months
> 6 months
10%
15.5%
35%
Non-disclosure (Discovery during audit) 100%
(45% for 1st offence)
Voluntary
disclosure is not
allowed once
audit has
commenced

4. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
Tax audit framework
• Time barred : generally 3 to 5 years (can be more than it if IRB can prove there is willful
default, fraud, and negligence)
* No statute barred if you never file a return
• Voluntary disclosure is NOT allowed once audit has been commenced
• Tax audit can be extended to related companies having the same director without prior
notification.
NOT just investigate a company or its director, BUT also investigate the whole group of companies as
being practised in other countries.
-The Edge Weekly on 27th May 2017
1. Capital Statement on the shortfall (Property acquired > income reported)
2. RPT documentation

5. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
The Trigger Factors
• Consistently low profits
• heavy or irrelevant expenditure
• ratios and scale too consistent – Gross Profit Rates (GPR) -
• cross border transactions/inter-company dealings
(Related Party Transaction - especially if it involves TP between borders and other transactions
that may lead to tax leakages (shifting of profit to lower tax jurisdictions)
• complex investments or business expenses reflected in the return large number of cash
transactions
• business expenses are large in relation to reported income
• Large claims for cash contributions to charities in tax return
• Variations or inconsistencies like a dramatic increase in cost or a large fall in turnover
• Tax return filed late, pay tax late
• etc
Extra: IRB sometimes flags people with lots of deductions.
∴ try not to claim > 7 personal reliefs

6. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
Tax Evasion VS Tax Avoidance
• Tax evasion is illegal practice where a person, organisation or corporation intentionally avoids
paying his/her/its true tax liability - subject to criminal charges and substantial penalties
• Tax avoidance is the legal utilisation of the tax regime to own’s advantage, to reduce the
amount of income tax that is payable (within the law, use legal method)
• Most tax avoidance schemes would have been believed to be both within the law and in the
spirit of law. However, some of it have subsequently been identified by IRB as being too
aggressive, contrived or artificial.
burden of
proof fall on
IRB

7. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
Section 140(1), ITA 1967
• DGIR has authority to disregard or vary transactions, if he believe that the person is altering the
incidence of tax or relieving that person from pay any taxes.
• DGIR cannot merely rely on suspicion alone.
• IRB also need to prove that the transaction is a sham transaction.
• To counter it, taxpayer are require to prove it is for commercial purpose or it is a bona fide
transaction - need to have a certain sort of mentality to take the stress of long argument with
IRB.
• http://lampiran1.hasil.gov.my/pdf/pdfam/4501.pdf

8. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
Example:
Sub-contractor wages
Disallow expenses, if the :-
1. payment made in cash,
2. no time recording documents,
3. no basis of payment,
4. no evidence of receipt by the receipt,
5. no contract for wages signed to spell out the job function or work assignment.
Tips : prepare sufficient documents + pay via cheque/direct deposit.
(if not, IRB may disallowed the contract wages and imposed penalties under S113(2), ITA 1967)
Personal relief
Desk audit if taxpayer claim 7 relief.
Foreign worker levy
Disallow in the past due to foreign worker levy is optional, not mandatory and never declare as perquisite
Tips : Unknown on the status as it is compulsory for employer / sponsor (deemed employer) to bear the levy
PCB Foreign worker salary
Disallow at company level or penalty for non-compliance for PCB due foreign worker are non resident. First
182 days foreign workers are non resident therefore subject to non resident rate of 28%. NR is then submit tax in
the following years.
Tips : IRB allow the expense provided it is covered in the employment handbook with foreign workers after
discuss with FMM.
w.e.f.
1st January
2018
w.e.f.
3rd August
2017

9. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
IRB
Expatriate Services Division (ESD) / MyExpat system
Check expatriates’ income tax status before leaving M’sia
@ copyright of KTP &THK
Immigration Department
*** have responsible to deduct the Monthly Tax Deduction (MTD)
Failure to do so, IRB would take action (Blacklisting, fines or imprisonment)
Employer
Local Sponsor
(Deemed employer – S83(6)
Salary or related costs
- Trainees / Interns
- Temporary staff
- Contract workers
- Employee from HQ / subsidiary on
temporary assignment / business
traveler
- Vendors (especially if they are NR)
Application
(ie. Foreign worker Levy, Professional Visiting Pass (PVP))

10. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
Other business expenses that are not deductible
1. Ang pow
Disallow
Tips : reported as income!
2. Motor vehicle under the name of individual but capitalised on the account of Sdn Bhd
Disallow related expense + CA because under personal name
Tips : KTP will fight until special commissioner. Legal vs beneficial ownership
3. Per Diem Allowance (PR2/2013)
Disallow on director allowance
Tips : KTP will fight for it, but make sure documented in the contract of employers.
4. Commission paid to agent/distributor
Disallow if no CP58 is issued on commission to others
5. Political Contributions
6. Kickbacks

11. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
• Timing issue
• Advance payment for services
• Prior to YA 2016, business income can only be brought to income tax at the time of accrual or
derived basis, instead of time of invoicing or receipt.
• Warranties and prepaid rent
• Retention money
* Once certificate of completion obtained by housing development, income must recognise 100%
Income recognition

12. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 Once taxpayer receive JA - taxpayer agree and pay or file form Q to appeal
(taxpayer has to pay the additional tax otherwise penalty on late payment will be
imposed).
 Form N is to prepared and submitted to IRB if more than 30 days after Form JA.
Valid reason : director sick, away for work, too short to prepare documents for
appeal ...

13. Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should
rely on the content of this publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim
all and any liability and responsibility to any person in reliance in whole or any part of this contents.
Tax Investigation Process
Source /
starting
point
informer
Public info
IRB internal
information
Information
from other
organization
Preliminary
study
Assets
accumulation
& income
reported
Family wealth
Preparation
Recce & plan
location, day
& time of raid
Logistics
Raid
Seize
documents
Image
computer
Interview
directors
Open safe
deposit
Count cash
Gather
evidence
Analyze book
& computer
records
Obtain bank
statement
Interview
directors,
employees,
suppliers,
customers,
etc, & record
statements
Settlement
or
prosecution
Seriousness of
offence
Quality of
evidence
Cooperation
of tax payer
Timing