Anti tax avoidance - S140(C)

8 important questions on Anti tax avoidance - S140(C)

What is the formula to compute the restricted interest under section 140C?

The tax deduction is restricted to 20% of the 'Tax EBITDA' from each business source in a YA. Tax EBITDA = A + B + C.

What is the purpose of S140C-Earnings Stripping Rules (ESR) in Malaysia?

The purpose is to prevent the shift of profiting from one country to another, resulting in base erosion and profit shifting (BEPS).
It limits interest deduction on loans between related companies within the same group to a ratio of 20% of the companies' earnings.

What is the restriction on deductibility of interest under S140(C)?

No deduction is allowed on interest expense exceeding 20% of "Tax-EBITDA" in connection with controlled transactions with associated persons outside Malaysia.
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What does 'A' represent in the Tax EBITDA formula?

'A' is the amount of adjusted income from business source before any restriction on the deductibility of interest under section 140C of the Act.

What is the scope of S140C regarding interest expenses?

The scope includes interest expenses from financial assistance paid to:
  • Associated persons outside Malaysia
  • Associated persons with a permanent establishment in Malaysia
  • Third parties outside Malaysia where the loan is guaranteed by the holding company

What does 'C' signify in the Tax EBITDA formula?

'C' is the total amount of interest expense incurred in relation to the gross income

How is the 'qualifying deduction' determined when business expenditure exceeds the deduction allowed?['B' in the EBITDA fomula]

The 'qualifying deduction' is the difference between the deduction allowed and the business expenditure incurred in the SOPL. This is B

What is the non-application of S140C regarding individuals?

  • The provision under S140C shall not apply to individual.
  • Interest not exceeding RM500,000.
  • Not applicable to interest paid to associated companies in Malaysia.

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