Tax Issues – Is the tax place of intangible belongings clearer?

MALAYSIA’s Inland Income Board (IRB) had prior to now taken the view that intangible belongings don’t qualify as an expense deduction or eligible for capital allowances till 2018 when the courts dominated that intangible asset comparable to a database containing core deposit and bank card buyer info is “plant”. This was short-lived by way of a change within the legislation from 2021 to particularly exclude intangible belongings from the definition of “plant”.

Having realised the significance of mental property for many companies, particularly these within the service trade, the know-how sector, and the knowledge-based industries, the authorities have reversed their place and permit mental belongings to be considered “plant”, subsequently qualifying for capital allowance. This was introduced within the Finance Invoice 2023.

This might be welcomed by industries as monies spent in shopping for intangible or growing intangible belongings internally is critical. Up to now, taxpayers have been denied the fitting to say a tax deduction.

What are intangible belongings?

They’re belongings that aren’t bodily in nature however identifiable and supply alue to the enterprise in the long term. Examples of intangible belongings will embrace patents, copyrights, franchises, emblems, model names, licences, concessions, buyer and provider lists, know-how, software program, enterprise names and connections, and so on. There isn’t any definition within the tax legislation.

Accountants have tried to recognise intangible belongings within the accounts. Their standards are that the belongings should be identifiable, separable from the entity, or it arises from contractual or authorized rights no matter whether or not these rights are transferable or separable from the entity. The accountants additionally require the intangible belongings to generate future financial advantages, and the price of the belongings could be measured reliably.

The final tax precept is tax liabilities are decided primarily based on the tax legislation. The accounting remedy is barely used as a steering in deciphering the tax legislation.

The place are the issues?

If an intangible asset is acquired and it qualifies as plant (i.e. it’s an equipment used for carrying on the enterprise actions), capital allowances might be out there. Issue will come up the place the intangible asset is internally generated as a result of most often it is not going to be recognised within the accounts as a result of it’s unable to fulfill the standards set by the accounting requirements.

Nevertheless for tax functions, a separate calculation could also be wanted to determine the prices of the intangible belongings to make the declare. There are not any guidelines to supply steering. An inexpensive method might be to determine the prices and it’s utilized in carrying on the enterprise to generate revenue, and there might be a market worth for such an asset. The issue right here is whether or not the asset could be separated from the enterprise and offered. If it can’t be separated from the enterprise, there could also be problem in justifying the declare for capital allowances as plant.

You may count on the IRB, regardless of the change within the laws, to problem claims for mental property which is on the borderline, particularly internally generated mental property.

The change within the laws will negatively impression the IRB’s present place the place it has taken the view that funds made to amass everlasting advantages comparable to concessions, licences, contracts, and so on, are capital in nature and don’t qualify for an expense deduction.

The Finance Invoice 2023 now permits taxpayers the “room” to say such funds as intangible belongings. It will profit the taxpayer except the finance minister particularly excludes such gadgets from being eligible for capital allowances, which is supplied for within the Invoice.

To scale back conflicts between taxpayers and the IRB, will probably be advisable to interact trade {and professional} our bodies to agree the scope of the definition of intangible belongings and the way will probably be recognised for tax functions.

This text is contributed by Thannees Tax Consulting Companies Sdn Bhd managing director SM Thanneermalai (

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