Tax Highlights –
January to March 2015
In this edition’s asset management tax highlights for the
Asia Pacific region, we highlight industry developments
from Australia, China, Hong Kong, India, Korea, Malaysia,
and Singapore, which may impact your asset management
business. We hope you find these updates of interest, and will
be pleased to discuss these developments and issues with you
The Australian Treasury has released draft
legislation for the final element of the
Investment Manager Regime (IMR) on 12
March 2015. The IMR measures are aimed
at removing tax uncertainty that has been
a disincentive for foreign funds to invest in
Australia. The IMR is accessed under two
alternative measures, where a foreign
fund invests in certain Australian
1. Directly (Direct Concession); or
2. Indirectly via an “Independent
Australian Fund Manager” (Indirect
Where the concession applies, broadly,
returns, gains and losses from the disposal
of certain Australian assets (excluding
“land-rich” investments) are disregarded
(or treated as non-assessable non-exempt)
for tax purposes.
For a foreign fund to access the Direct
Concession, it must satisfy the following
• It is a foreign resident at all relevant
• It does not carry on a trading business or
control a trading business
• It satisfies the widely held test
• The asset (IMR financial arrangement)
must be a portfolio interest (i.e. less than
10% interest); and
• The returns, gains or losses must not be
attributable to an Australian permanent
establishment of the foreign fund.
Broadly, a foreign fund is widely held if:
• It has wide membership (i.e. no member
holds a participation interest of 20% or
more, or five or fewer members do not have
a combined participation interest of at least
50%). There is also a start-up concession
which allows foreign funds up to 18
months to satisfy the widely held rules;
• Or, it is a specified widely held entity (e.g.
foreign life company, Government pension
2 Asset Management Tax Highlights – Asia Pacific
For a foreign fund to access the Indirect Concession, it must
satisfy the following requirements:
• It is a foreign resident at all relevant times
• It does not carry on a trading business or control a trading
• The IMR financial arrangement is made on its behalf by an
independent Australian fund manager, and
• The direct participation interests held by the foreign fund or
associates in a resident issuer of, or counterparty to, the
financial arrangement are less than 10%.
An independent Australian fund manager is defined as an entity
• An Australian resident
• Carries on investment management activities in the ordinary
course of its business
• Receives arm’s length remuneration for carrying out the
• One of these:
–– The foreign fund receiving the services is widely held, or
–– 70% or less of the fund manager’s income is income received
from the foreign fund (or connected entities); or
––Where the fund manager has been carrying out investment
management activities for 18 months or less, it is taking all
reasonable steps to ensure it meets the 70% threshold
If the Australian fund manager (or its connected entities) derive
profits from the foreign fund exceeding 20%, and the
requirements of the Direct Concession are not met, the concession
is reduced by that percentage. However, the foreign fund can
lodge an application to the Commissioner such that this outcome
does not arise in certain circumstances (i.e. it is intended that the
requirements will be met within five years with the intention that
the investment in the foreign fund is being actively marketed).
This final element of the IMR is proposed to apply from 1 July
2015 with certain transitional provisions for prior income years.
For further details, please refer to http://www.pwchk.com/
Draft legislation for the Managed Investment
On 9 April 2015, the Australian Treasury released draft
legislation in respect of the new tax system for Managed
Investment Trusts (MITs). The new MIT Regime is designed to
provide greater tax certainty for MITs and their investors, and
enhance the competitiveness of Australia’s funds management
industry. An MIT qualifies under the MIT Regime if it meets the
requirements to be an attribution MIT (AMIT), which is broadly a
MIT where members have clearly defined interests.
The key features of the MIT Regime include the following:
• Under the attribution model, the AMIT attributes trust
components to members.
• The treatment of “unders” and “overs” (i.e. differences between
distributed trust components and actual components per the
income tax return) has been codified. Generally, unders and
overs can be carried forward and offset against trust
components in the following year rather than requiring a
reissuing of investor tax statements. However, an “uplift”
(representing the time value of money) and penalties may arise
if certain safe harbour thresholds are exceeded, and depending
on the level of culpability of the trustee.
• AMITs are deemed to have a fixed trust status for income tax
• There may be upward cost base adjustments to members’
interests in the AMIT where attribution amounts exceed the
amount distributed in order to prevent double taxation.
• A multi-class AMIT has the option to recognise each class as if
it was a separate AMIT.
• There are detailed and complex withholding tax changes
aimed at ensuring withholding applies to “attributed” amounts
rather than the amount distributed.
• The treatment of tax deferred distributions in the hands of
members has been clarified.
• As an integrity measure, where the AMIT derives non-arm’s
length income, the trustee is subject to tax at the highest
marginal tax rate (plus applicable levies) on the excess over an
arm’s length amount less certain deductions (if any).
The draft legislation indicates a general start date of 1 July 2015,
however, it is understood that the Government intends to defer
the start date to 1 July 2016, with an optional start date of 1 July
The Australian Taxation Office provides
guidance on foreign currency hedging
The Australian Taxation Office released Taxation Ruling TR
2014/7 dealing with foreign currency (FX) hedging transactions
entered into as part of a FX currency overlay or portfolio hedge.
The Ruling sets out the Commissioner’s views on:
1. Determining the source of foreign currency hedging gains; and
2. The allocation of foreign currency hedging losses against
foreign income for the purposes of the foreign income tax offset
Whilst the Ruling applies to the calculation of the FITO limit (i.e.
cap on the amount of foreign tax credits that can be claimed), the
Ruling also has implications for Australian funds in determining
the ability to pass FITOs through to investors, and for
determining the components of trust distributions.
The latest draft legislation is a significant improvement from
previous versions, and more closely aligns the IMR with the
Government’s policy objectives. However, foreign funds will
still need to closely consider whether they fall within the
rules, as not all funds will qualify.
MITs will need to assess the impact of becoming an AMIT and
whether early adoption is beneficial. In addition, the new
regime is expected to require changes to operations
(including systems, processes and governance), service
arrangements, investor reporting and product development.
Asset Management Tax Highlights – Asia Pacific 3
Source of hedging gains
For a FX hedging transaction undertaken in accordance with
normal commercial practice (i.e. under the terms of a standard
ISDA Agreement) the Commissioner’s view is that the office
through which the counterparty acts determines the source of the
FX hedging gain. The office through which the counterparty acts
is as follows:
• for a single branch Master ISDA Agreement, the office specified
in the Master ISDA or if none, the counterparty’s head office.
• for a multi-branch Master ISDA Agreement, the office identified
in the relevant confirmation. Where it is impractical to track
every confirmation, the Commissioner accepts a reasonable
basis for determining the percentage of confirmations which
are Australian sourced (e.g. a representative percentage over a
3 month period).
Allocation of FX Hedging losses against income
For the purposes of calculating the FITO limit, whether FX
hedging losses are “reasonably related to”, and therefore offset
against relevant foreign income/gains, will need to be
The Ruling states that a FX hedging loss will be reasonably
related to a FX hedging gain where the FX hedging transactions
giving rise to the losses and gains are entered into under the
same foreign currency hedging strategy.
If the FX hedging gain is foreign sourced, then a FX hedging loss
under that same hedging strategy will need to be offset against
that foreign income. If the FX gain is Australian sourced, and
there is no foreign income to which it otherwise reasonably
relates, then a FX hedging loss under that same hedging strategy
is to be allocated to Australian sourced income.
In some circumstances, the Commissioner states that FX hedging
losses may need to be apportioned between both foreign and
domestic income. Examples include:
1. where there are both foreign and domestic sourced FX hedging
gains in relation to the same hedging strategy; or
2. where there are domestic sourced FX hedging gains and foreign
capital gains to which the hedge relates.
Reform of Australia’s tax system –
Tax Discussion Paper
On 30 March 2015, the Australian Government released a tax
discussion paper “Re: think, Better tax system, better Australia”
(the Discussion Paper), which formally starts the process for
developing the White Paper for Reform of Australia’s Tax System
(the White Paper).
The purpose of the Discussion Paper is to generate a dialogue
with the community as to how to create “a better tax system that
delivers taxes that are lower, simpler, fairer”. It is part of the
broader process of tax reform to respond to globalisation,
Australia’s decline in productivity and the ageing population
(which was a major theme in the recently released
The Discussion Paper is a comprehensive summary of the current
Australian tax system, and raises a number of questions for
consultation. The broad areas of consideration include: personal
tax, general business tax, small business, indirect taxes, local
taxes, State and Territory taxes, not-for profit sector, and
governance and administration.
The Discussion Paper identifies a number of key challenges that
the Government faces:
• Australia has a high reliance on income taxes (including
company taxes) than most other comparable countries.
• State and Territory governments rely considerably on taxes
which impose high economic costs (e.g. stamp duties) by
impeding Australia’s productivity.
• The tax system is complex with significant resources spent on
tax compliance and tax management activities.
• The interaction between the tax system and the transfer system
can discourage workforce participation.
• Tax on savings is very complex and distorts savings choices. For
example, savings on bank accounts are taxed at full marginal
rates while superannuation may not be taxed at all.
• Tax changes need to be managed carefully as it may negatively
impact long term decisions based on previous arrangements.
In the context of the business tax system in an increasingly
digitised and globalised world, the Discussion Paper identifies a
number of key points:
• Tax is increasingly becoming important in competing for
foreign investment (and noting that Australia’s corporate tax
rate is high compared with others in the Asia-Pacific region).
• A more competitive tax environment would encourage higher
levels of investment and increase employment and wages in the
• Dividend imputation ensures no double taxation but
contributes little to attracting foreign investment into
• Australia’s corporate tax system is extremely complex. Certain
distinctions embedded in the tax system create investment
biases and distorts business decisions.
• The research and development incentive and concessional tax
treatment of employee share schemes are two ways that the tax
system supports innovation.
In releasing the Discussion Paper, the Government has taken the
first step in the tax reform process. Submission can be made until
1 June 2015, with a “Green Paper” to be released in the second
half of 2015 outlining tax reform options. The Government will
then release the White Paper outlining its tax reform proposals
which it will take to the next Federal election in late 2016.
As the Ruling applies from 1 July 2014, Australian funds will
need to assess the impact of the treatment of FX hedging gains
and losses prior to year end distributions. In particular, funds
will need to review their ISDA agreements to determine the
location of FX hedging counterparties and consider whether
system changes are required.
4 Asset Management Tax Highlights – Asia Pacific
Second round of consultation on the Asia Region
Funds Passport regime
The Asia Region Funds Passport (ARFP) Working Group
(Australia, Korea, New Zealand, the Philippines, Singapore and
Thailand) released a second Consultation Paper comprising of a
Feedback Statement and draft Memorandum of Understanding
(MOU). The Feedback Statement summarises the views
expressed in earlier submissions and the Working Group’s
treatment of those views in developing the draft MOU.
The proposed timetable and milestones are as follows:
The consultation questions focus on specific operational aspects
such as investment restrictions, distribution, performance fees
and suspension of redemptions.
The Feedback Statement indicates broad support for the passport
but amongst other things, also acknowledges that a large number
of submissions urged the Working Group to consider domestic tax
implications and advocated for neutral tax treatment of passport
funds. In addition, each Working Group member agreed to share
to other members, information about their tax and capital control
settings in their respective country to identify potential issues
that could impede the use of the passport.
The Australian Government faces a number of challenges to
bring about substantive changes to the broader tax framework
in Australia given the politically sensitive matters up for
consideration and debate. If reform is managed well, there is
opportunity for significant positive impacts on economic
growth and livings standards, and international
competitiveness. The process has just started and we
anticipate plenty of community engagement during the
The regulatory framework is close to finalisation with certain
refinements being considered in the Consultation Paper.
There is an acknowledgement that tax issues are a critical
piece in ensuring that the ARFP will be successful, and we
expect further developments in this is area.
April 2015 Public consultations on Passport MOU annexes
conclude.Working Group continues to engage with
other economies to encourage their participation
May 2015 Working Group considers public submissions
August 2015 Working Group finalises MOU and annexes
September 2015 Willing and ready economies will become party to
the Passport MOU
+ 12 months
to the passport
Economies which are party to the MOU (Passport
member economies) will endeavour to implement
changes to legislation and regulations where
necessary to give effect to the Passport
arrangements within 12 months after becoming
party to the MOU.When at least two economies
give effect to the Passport arrangements, eligible
Collective Investment Schemes in these economies
can access the Passport arrangements.
Asset Management Tax Highlights – Asia Pacific 5
A totally different tax landscape for offshore
indirect transfer upon the release of Public
Notice  No. 7 – wider, clearer and more
In early February 2015, the China State Administration of
Taxation (SAT) released Public Notice  No. 7 (Public
Notice 7) to supplement the current Chinese tax rules in
relation to offshore indirect equity transfer. Public Notice 7
introduces a new tax regime, which is significantly different
from that under Guoshuihan  No. 698 (Circular 698)
issued by the SAT in 2009. Firstly, it widens the China tax net
to capture not only offshore indirect equity transfer
transactions addressed under Circular 698, but also
transactions involving transfer of immovable property in
China, and assets held under the establishment and place
(E&P) in China of a foreign company through the offshore
transfer of a foreign intermediate holding company. Public
Notice 7 also broadens the term ‘transfer of the equity interest
in a foreign intermediate holding company’ to cover any
changes in the shareholder of that foreign company being
transferred in the course of the group’s overseas
restructurings. In addition, compared to Circular 698, Public
Notice 7 provides clearer criteria on how to assess ‘reasonable
commercial purposes’ and introduces ‘safe harbour’ scenarios.
However, it also brings challenges to both the foreign
transferor and transferee in the offshore indirect transfer
transaction as they have to make a self-assessment on whether
the transaction should be subject to China Corporate Income
Tax (CIT) and to file or withhold the CIT accordingly.
It is worth noting that Public Notice 7 clearly states that the
payer of the sales consideration (which is usually the
transferee) should withhold CIT in an offshore indirect equity
transfer if the transaction is subject to CIT. Failure to fulfil the
withholding obligation may trigger a penalty of 50% to 300%
(or three times) the amount of the CIT liability based on the
relevant provisions in Tax Collection and Administration Law
(TCAL). This penalty may be reduced or waived if the
withholding agent has reported the transaction to the Chinese
tax authorities within 30 days of signing the equity transfer
contract. This is the first time the SAT has explicitly stated that
the transferee, including a foreign one, would have such heavy
monetary consequence. Needless to say, this stipulation would
cause the transferee, especially an unrelated party, to be very
cautious about the foreign transferor’s China tax position in an
offshore indirect transfer deal.
Public Notice 7 sets a new landscape for tax treatments of
offshore indirect transfer transactions. It imposes more
responsibilities on the transaction parties when assessing and
making their decisions. Both foreign transferors and
transferees should examine carefully the facts and merits of
each transaction and rethink their strategies accordingly.
Despite this, Public Notice 7 still leaves several uncertain but
important issues unanswered, such as how to allocate the
gains attributable to China Taxable Properties in the case of a
regional offshore indirect transfer; the cost base of China
Taxable Properties after a few transfers including direct and
indirect, etc. We are eager for the SAT to release further
clarification on these important issues. Public Notice 7 has
demonstrated the Chinese tax authority’s determination to
combat erosion of China’s tax base through offshore indirect
In view of Public Notice 7’s release, private equity funds should
take the following into account when making investments and
• Consider reasonable commercial purpose when planning
investment structure and business arrangements
• Prepare sufficient documentation to support the reasonable
• Assess China tax implications and make appropriate decisions
on whether to perform the indirect tansfer reporting or not
• Both buying and selling parties of the transaction should
discuss how to handle the tax matters for the transaction and
reach a consensus as early as possible, and
• Communicate with the in-charge China tax authority
throughout the whole process of the transaction.
6 Asset Management Tax Highlights – Asia Pacific
The Bill extending the profits tax exemption
for offshore funds to PE funds gazetted
The Hong Kong Government published the Inland Revenue
(Amendment) Bill (the Bill) 2015, which extends the current
profits tax exemption for offshore funds to private equity
funds in the Gazette on 20 March 2015. The Bill will be introduced
into the Legislative Council on 25 March 2015.
For further details, please refer to http://www.pwchk.com/
Amendments to the China-HK double tax
arrangement – what it means for the financial
On 1 April 2015, Hong Kong and Mainland China signed the
Fourth Protocol (the Protocol) to the comprehensive double
tax arrangement between China and Hong Kong (the CDTA).
The most important benefit to Hong Kong taxpayers from the
amendments set out in the Protocol is to provide a tax
exemption in China for gains derived by Hong Kong residents
and “Hong Kong resident funds” (as specifically defined in the
Protocol) from the disposal of shares listed on recognised
Chinese stock exchanges, provided certain conditions are met.
Additionally, the withholding tax rate for rentals from aircraft
leasing (as well as ship chartering) is reduced to 5% from the
current 7%. This News Flash explores these two amendments
in more detail, and its impact to Hong Kong taxpayers in the
financial services industry.
For further details, please refer to http://www.pwchk.com.
• On 5 February 2015, the Securities and Exchange Board of
India (SEBI) and the Reserve Bank of India (RBI) each
issued a circular permitting Foreign Portfolio Investors
(FPIs) to invest in coupons in Government securities
investments, or “G-Secs”. The circular further stated that
such investments shall be kept outside the applicable limit
(currently USD30 billion) for investments made by FPIs in
• On 6 February 2015, the RBI issued a circular in connection
with the policy changes for FPI investment in the debt
market. These are:
I. Investments in all debt instruments will need to comply
with a minimum residual maturity of 3 years. Any
further investment in Commercial Papers will not be
II. Investments in instruments having minimum initial /
residual maturity of 3 years with an exercisable option
within 3 years are not permitted.
III. Investments in amortised debt instruments are
permitted provided the duration of the instrument is 3
years and above.
• On 20 March 2015, the RBI issued guidelines to address
operational issues faced by FPIs by providing an extended
reporting time and T+2 settlement for outright secondary
market trades in G-Secs. In these guidelines, RBI permits
settlements on T+2 basis for outright secondary market
transactions in G-Secs undertaken by FPIs and reported on
the Negotiated Dealing System – Order Matching (NDS OM)
subject to fulfilling certain conditions. The guidelines were
effective from 6 April 2015.
• On 31 March 2015, the RBI issued a circular to increase the
limit for taking currency positions in INR-USD on the
exchange traded currency derivatives market without
underlying securities exposure to USD15 million per
exchange. In addition to this, the aggregate limit in INREURO,
INR -GBP and INR -YEN shall be an amount
equivalent to USD5 million per exchange. Prior to this
circular, FPIs were only able to take currency positions
across all currencies up to USD 10 million or equivalent per
Key decisions from SEBI’s board meeting on
22 March 2015
• Approved the SEBI (International Financial Services
Centres) Guidelines, 2015, which had effect from 1 April
• Approved a proposal, prepared in consultation with RBI, to
relax the applicability of certain provisions of the SEBI
(Issue of Capital and Disclosure Requirements) Regulations,
2009 and the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 in cases of conversion of debt
into equity of listed borrower companies in distress by the
• Approved SEBI (Issue and Listing of Debt Securities by
Municipality) Regulations, 2015 thereby providing a
regulatory framework for issuance and listing of debt
Asset Management Tax Highlights – Asia Pacific 7
securities by Municipalities. These regulations are in line with
the Government of India’s guidelines for the issue of tax-free
bonds by Municipalities. Although the regulations have not
been released yet, a concept paper was released by SEBI on 30
December 2014.Relaxed the 20,25 rule for local fund managers
– i.e. removed the rule of having 20 investors with no
individual investor holding more than 25% in the fund.
Instead, domestic fund managers are now allowed to manage
offshore funds belonging to Category I FPIs and appropriately
regulated broad based Category II FPIs. A circular amending
the present regulation will be issued in due course.
Union Budget 2015: Key Policy Announcements
• Doing away with the distinction between different types of
foreign investments in Indian companies, especially FPI and
• Setting up a Public Debt Management Agency in order to bring
it to the same level as the equity market
• Proposing to merge the Forwards Markets Commission with
• The intent to consider concealment of income or evasion of tax
in relation to a foreign asset considered to be a predicate
offence; suitable provisions to be introduced under the
Prevention of Money Laundering Act
• On 26 February 2015 the Central Board of Direct Taxes issued a
circular clarifying that the dividend declared by a foreign
company outside India does not have the effect of transfer of
any underlying assets located in India and the said dividends
would not be deemed to be income accruing or arising in India
by virtue of the provisions of Explanation 5 to section 9 (1) (i)
of the Act, even if the shares derive their value substantially
from assets situated in India.
• The Finance Minister specified in its Union Budget 2015 its
intent for the Budget to lay a roadmap for accelerating growth,
enhancing investment and passing on benefit of the growth
process to the common man, woman, youth and child those,
whose quality of life needs to be improved. Salient points are as
a. General Anti -Avoidance Rules provisions deferred by two
years and are now effective from 1 April 2017.
b. Minimum Alternate Tax provisions will not be applicable
to capital gains income of FPIs.
c. The term substantially clarified in context to indirect
d. Sunset clause for provisions relating to the applicability of
5% tax rate for FPIs on income from certain corporate
bonds and G-Secs, extended from 31 May 2015 to 30 June
e. Taxability of income of foreign funds whose fund manager
is located in India has been clarified. Fund management
activities carried out through an eligible fund manager
shall not constitute a business connection in India by the
eligible fund subject to certain conditions.
f. A foreign company to be regarded as a tax resident of
India if its place of effective management is in India at any
time during the year.
g. A person responsible for making payment to a nonresident
is now required to provide information about the
payment to Indian revenue authorities, even if the
payment is not chargeable to tax in India.
h. Increase in surcharge from 10% to 12% for foreign non
corporate tax payers where income exceeds INR10
i. Definition of Global Depository Receipts (GDRs) are
proposed to be amended to include GDRs issued against
shares of listed companies.
j. Interest payable by an Indian branch to its head office or
other offshore branches is taxable in India, and is deemed
to be a separate and an independent person from its head
office or offshore branches for taxation purposes.
k. Tax ‘pass-through’ status provided for all Category-I and
Category-II of AIFs (Investment funds) governed by SEBI
(AIF) Regulations, 2012. Tax ‘pass-through’ also extended
to LLPs and body corporates. However, business income is
not eligible for ‘pass-through’, and is taxable in the hands
of investment funds.
l. Gains arising from the transfer of units during initial
public offering or subsequently upon the listing of units
held in business trust shall be liable to Securities
Transaction Tax and the long-term capital gains shall be
exempt from tax. Short-term capital gains tax will be
taxable at 15% (plus surcharge and education cess). Also,
‘pass-through’ status for rental income received in relation
to assets directly held by the business trust.
m. Transfer of units (where held as a capital asset) under a
consolidation scheme of a mutual fund not to be regarded
as a taxable ‘transfer’.
The budget proposals would be effective once they are passed
by both houses of Parliament and receive Presidential assent.
Please refer to the link for more details: http://www.pwc.in/
• Provisions relating to Advance Pricing Agreements were first
introduced in the Finance Act 2012, with effect from 1 July
2012. However, these provisions did not then include roll back
provisions, which were subsequent brought into the Finance
Act 2014, with effect from 1 October 2014. Please refer to the
link for more details: http://www.pwc.in/assets/pdfs/
• On 31 March 2015, the Central Government notified Income
Computation and Disclosure Standards (ICDS), which would
be applicable to all assessees, following the mercantile system
of accounting, for computing income chargeable to income-tax
under the head “Profit and gains of business or profession” or “
Income from other sources” As against 12 ICDS proposed, 10
are presently notified, covering Accounting Policies, Valuation
of Inventories, Construction Contracts, Revenue Recognition,
Tangible Fixed Assets, Effects of Changes in Foreign Exchange
Rates, Government Grants, Securities, Borrowing Costs,
Provisions Contingent Liabilities and Contingent Assets. The
ICDS will be applicable from FY 2015-16 (AY 2016-17).
8 Asset Management Tax Highlights – Asia Pacific
Additional surtax to facilitate the use of
corporate retained earnings in facility
investment and increases in payroll and
In order to motivate corporations to utilise corporate retained
earnings to fund facility investment, wage increases and dividend
payments, the recently amended Corporate Income Tax
Law (CITL) introduces a 10% additional levy on corporate income
if the use of such earnings falls short of a certain portion
of corporate net income for the concerned year. Major points of
the additional levy under the amended CITL are as follows:
• The additional levy shall apply to companies with net equity
in excess of KRW50 billion (excluding small and midsize
companies) and companies belonging to business groups
subject to restrictions on cross-shareholdings under the Act
on Monopoly Regulation and Fair Trade.
• Regarding the method of charging the additional levy,
companies may elect one of the following methods and
cannot revoke its election for three consecutive years:
1. (taxable income (*note 1) for the year x 80% – the total
amount of investment (*note 2), payroll increases and
dividend payments) x 10%; or
2. (taxable income for the year x 30% – the total amount of
payroll increases and dividend payments) x 10%
The taxable income in (*note 1) shall be adjusted for certain
items. Examples of add-backs to taxable income include
dividends received from subsidiaries, interest income
received on refunds of overpaid national taxes and the
amount of depreciation expenses incurred in facility
investments made in the current year. Examples of
deductions from taxable income include corporate taxes
(excluding this surtax), tax loss carried forwards, statutory
reserve transfers, disallowed donations, etc.
The scope of investment in (*note 2) will include tangible
and intangible fixed assets for business use. Investments
made to build new or additional business buildings ranging
from factories, sales shops, offices, warehouses and head
offices to laboratories and purchase the relevant building
site, machinery and equipment, vehicles, tools, patents,
trademarks, mining rights, and developments costs will be
included in the scope of investment. Where a certain part of
buildings are rented, only the proportion of the gross area
directly used for its own business to the total area of the
rented building shall be deemed as facility investment.
Scope of ‘non-traditional’ financial services
subject to VAT
Subsequent to the amendment of a series of tax laws on 2
December 2014, the government announced bills to amend
the relevant enforcement decrees of tax laws on 26 December
2014. The government’s bills to amend enforcement decrees
were approved and legislated on 3 February 2015.
The VAT law has been amended to include the supply of ‘nontraditional’
financial services to the scope of taxable supplies. The
amended Enforcement Decree of the VAT law includes five categories
of affected non-traditional financial services: (i) safe deposit
of securities certificate; (ii) investment advisory; (iii) insurance
actuary and pension actuary; (iv) money trust and discretionary
investment business investing in real estate and non-financial
assets; and (v) real estate trust business limited to management,
disposition and parcel-out administration.
This change will apply the supply contracts made on or after 1 July
Scope of related party to test a controlled
foreign corporation expanded
For the purpose of testing a controlled foreign corporation
(CFC), the scope of related party shall be expanded to related
parties as prescribed in the Law for Coordination of International
Tax Affairs. In other words, related parties where a Korean
national takes control by shareholding or in substance, shall be
added to the scope of related parties and their shareholdings will
be combined with the shareholdings held by the Korean national
in a CFC to test the 10% threshold. Under the Korean CFC rule,
when a Korea national and its related parties own directly or
indirectly at least 10% in a foreign corporation and the foreign
company’s average effective income tax rate for the three most
recent consecutive years is 15% or less, the amount of retained
earnings as of the end of each business year of the CFC shall be
deemed to be paid as a dividend to the Korean national and subject
to tax in Korea unless certain exemptions apply.
Asset Management Tax Highlights – Asia Pacific 9
Overview of Malaysian Goods and Services Tax
Malaysian Goods and Services Tax (GST) is a multi-stage tax on
domestic consumption which was implemented on 1 April 2015
to replace the existing sales tax and service tax. GST is charged
on all taxable supplies of goods and services in Malaysia except
those specifically exempted. GST is also charged on importation of
goods and services into Malaysia.
Payment of tax is made in stages by the intermediaries in the production
and distribution process. Although the tax would be paid
throughout the production and distribution chain, only the value
added at each stage is taxed thus avoiding double taxation.
In Malaysia, a person who is registered under the Goods and Services
Tax Act 2014 is known as a “registered person”. A registered
person is required to charge GST (output tax) on his taxable supply
of goods and services made to his customers. He is allowed to
claim back any GST incurred on his purchases (input tax) which
are inputs to his business. A person who makes taxable supplies in
excess of RM500,000 is required to register for GST.
Singapore Budget 2015 announcements
“Umbrella” approvals for Singapore fund structures
To encourage fund managers to set up operations in
Singapore, a tax exemption regime for offshore funds was put
in place since the early 1980s. In 2006, the fund tax
exemption regime was extended to approved Singapore
resident funds (the Singapore Resident Fund Scheme, also
referred to as the SRF Scheme) to enhance the appeal of
Singapore and attract more fund managers here. The
Government did not stop there and brought about the
Enhanced-Tier Fund Tax Incentive Scheme (ETF Scheme) in
2009, which was a great enhancement to the SRF Scheme.
Today both the SRF and the ETF schemes co-exist and are
being extensively used by fund managers. However, with the
increased use of Singapore domiciled funds, limitations t the
above schemes became apparent.
For example, a practical difficulty arises when a Singapore
fund acquires investments through the use of Singapore
special purpose vehicles (SPV). The need for such a SPV is
driven by legal and commercial reasons. The limitation of the
ETF and SRF schemes is that whilst the main fund might have
obtained tax exemption under the SRF or ETF scheme, its
wholly owned SPV will not be automatically exempted (it will
continue to be exposed to Singapore tax). In order for the SPV
to qualify for tax exemption, the SPV needs to independently
apply for tax exemption and satisfy an additional layer of
conditions to obtain the ETF or SRF status. This leads to
additional costs and compliance burden.
This budget seeks to address this difficulty. From the reading
of the budget, it seems that SPVs of funds approved under the
ETF scheme can automatically qualify for tax exemption. It is
expected that the conditions that are normally applicable to
ETF applicants may be increased for those funds looking to
avail themselves of the automatic exemption for the SPVs.
However, for the enhanced scheme to be attractive, it is
expected that the conditions will be lighter than having to
apply for tax exemption individually for the SPVs. This
announcement is generally welcomed by the industry.
This enhancement will take effect for applications made from
1 April 2015 and further details are expected to be released by
the Monetary Authority of Singapore (MAS) by May 2015.
Venture Capital Funds
Currently, venture capital funds approved under section 13H
(13H Scheme) of the Income Tax Act (13H Funds) can enjoy
exemption on income derived from approved investments.
Most tax incentive/tax exemption schemes have a review date
to give the policy makers an avenue to review the relevance of
a particular scheme after a period of time. A review date for
exemption under section 13H has now been set at 31 March
2020 to allow the review of this exemption scheme at that
The take up rate of this incentive is not as good as it used to
be. This is primarily due to the fact that many venture capital
funds prefer the SRF and ETF Schemes. All the three schemes
aim to provide tax exemption. However, the 13H Scheme is
more restrictive in terms of the type of income that is exempt,
lays down conditions on the location of the investments and
also comes with a limited life of 10 years.
10 Asset Management Tax Highlights – Asia Pacific
Venture Capital Fund Management Companies
Venture capital fund management companies (FMCs) managing
13H Funds have historically enjoyed tax exemption on
management fee and performance bonus received from 13H
Funds. This exemption was available under the Pioneer Service
incentive and was subject to certain conditions.
As managing venture capital funds is no longer considered a
pioneering activity in Singapore, the tax exemption will no longer
be available to new applicants with effect from 1 April 2015.
Instead, a 5% concessionary tax rate will be accorded to approved
venture capital FMCs managing 13H Funds. The approval period
will be from 1 April 2015 to 31 March 2020.
The allure of applying for the 13H Scheme was that, besides the
exemption of income at the fund level, the FMC could also enjoy
tax exemption on its fee income. The limitations of the 13H
Scheme were considered acceptable to some FMCs who were
keen to get their tax rate on fee income reduced to 0%. With the
increase in the tax rate to 5% on the fee income of the FMC, the
attractiveness of the 13H Scheme would perhaps be less now, but
is nonetheless still considered attractive relative to the normal
tax rate of 17%.
Goods and Services tax
Any services provided to the fixed or business establishment of
the fund or an overseas fund manager (OFM) in Singapore is
supposed to attract Goods and Services Tax (GST) at the
standard rate of 7%. There has been some uncertainty on what
constitutes a fixed or business establishment such that GST
should be charged to an overseas fund or an OFM.
There have been recent developments aimed towards providing
certainty to this matter. The Inland Revenue Authority of
Singapore (IRAS) issued the e-tax guide “GST: Guide for the
Fund Management Industry (Second Edition)” on 18 March 2015
(IRAS E-tax guide). In addition, the MAS Circular (Circular No.:
FDD 02/2015) was issued on 24 March 2015 (MAS Circular
To summarise, an overseas fund (other than a trust fund) or an
OFM can be treated as having a business establishment in
Singapore if the fund or OFM wholly relies on a Singapore Fund
Manager to carry on its business. In addition, an overseas fund
will have a fixed establishment in Singapore if it conducts regular
board meetings in Singapore. In such cases, GST would be
applicable on the fees charged to an overseas fund or an OFM for
services provided to them.
Having said that, services to the overseas fund (that has a
business establishment in Singapore due to wholly relying on the
Singapore fund manager) can be treated as zero-rated supplies
a. the overseas fund meets the conditions of the Offshore
Fund Tax Exemption Scheme (section 13CA) or the ETF
Scheme (13X) of the Income Tax Act, as the case may be;
b. the overseas fund does not have any other fixed or
business establishment in Singapore.
In the case of an OFM that relies wholly on a qualifying Singapore
fund manager, the fees charged to the OFM would be zero-rated
provided the OFM des not have any other establishment in
The above rules would apply from 1 April 2015 onwards.
On 6 January 2015, the IRAS issued revised transfer
pricing guidelines that require taxpayers to prepare and
keep contemporaneous transfer pricing documentation
except in very limited circumstances. Contemporaneous
refers to documentation and information that taxpayers
have relied upon to determine the transfer price prior to
or at the time of undertaking the transactions. However,
for ease of compliance, the IRAS is willing to accept as
contemporaneous transfer pricing documentation any
documentation prepared no later than the time of filing
the tax return for the financial year in which the
transaction takes place.
The IRAS’ position is that the transfer pricing
documentation requirement is effective since 2006 when
the first edition of the transfer pricing guidelines was
issued. Hence, there is no transitional period for
implementation and, at a minimum, the
contemporaneous transfer pricing documentation should
be completed for the financial year 2014 by the tax
return filing date or latest by 30 November 2015.
The date of creation or update of each document should
be stated in the document. The IRAS does not require
taxpayers to submit the transfer pricing documentation
with their tax return. However, taxpayers should keep
their transfer pricing documentation and submit it to the
IRAS within 30 days upon request.
The transfer pricing documentation should be organised
at group level and local entity level. Broadly, the transfer
pricing documentation should contain a description of
the business and the related party transactions, a
functional analysis and a transfer pricing analysis/
Asset Management Tax Highlights – Asia Pacific 11
For more information, please contact the following territory tax partners:
Country Partner Telephone Email address
Australia Ken Woo +61 (2) 8266 2948 email@example.com
China Jeremy Ngai +852 2289 5616 firstname.lastname@example.org
Hong Kong Florence Yip +852 2289 1833 email@example.com
India Gautam Mehra +91 (22) 6689 1155 firstname.lastname@example.org
Indonesia Margie Margaret +62 (21) 5289 0862 email@example.com
Japan Akemi Kitou +81 (3) 5251 2461 firstname.lastname@example.org
Stuart Porter +81 (3) 5251 2944 email@example.com
Korea Kwang-Soo Kim +82 (0) 10 3370 9319 firstname.lastname@example.org
Malaysia Jennifer Chang +60 (3) 2173 1828 email@example.com
New Zealand Darryl Eady +64 (9) 355 8215 firstname.lastname@example.org
Philippines Malou Lim +63 2 845 2728 email@example.com
Singapore Anuj Kagalwala +65 6236 3822 firstname.lastname@example.org
Taiwan Richard Watanabe +886 (0) 2 2729 6666 26704 email@example.com
Thailand Prapasiri Kositthanakorn +66 (2) 344 1228 firstname.lastname@example.org
Vietnam Van Dinh Thi Quynh +84 (4) 3946 2231 email@example.com
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