1.0 Introduction
From the Malaysian perspective, to begin with, there must first be a tax liability under the Malaysian Income Tax Act, 1967 (ITA). Once this is established, then one has to check the provisions in the DTA to see whether a reduction of tax rate or total elimination is available. If so, the DTA must be respected. This is clearly provided in the ITA, namely S 132(1) which states that if the Minister by statutory order declares that arrangements set out in such order been made by the with the government of any territory outside Malaysia in order to give to the relief of double taxation in relation to tax beneath this Act and any other foreign tax territory and it was is expedient that those arrangements should have effect (Choong, 2013).
Next, as long as the order remains in force, those arrangements shall be effective in relation to tax beneath this Act notwithstanding anything in any written law. Whilst the above law is quite clear, there have been litigations on this aspect. And, as expected, it has been established that due respect should always be given to the DTAs that the Malaysian Government has entered into (Choong, 2013).
2.0 Scope of DTAs
Double Taxation Agreement (DTA) is a deal between two nations who want to avoid double taxation by determining the taxing rights of each nation taking into consideration cross-border flows of revenues and provide tax credits or exemptions to eliminating double taxation (Yong, 2012).
The objective of the DTA Malaysia to establish favorable climate for both inbound and outbound investments and also to make Malaysia typical tax incentives for the taxpayer entirely effective exporting nations capital, to get assistance more effective than double the tax relief obtained beneath unilateral measures and to avoid evasion and prevention of tax (Choong, 2013).
As with the rest in the advanced economies and developing countries, Malaysia also cannot free itself from the need to trade facilitation and investment with the external world via his network of international tax treaties with other nations (Yong, 2012). The rate of increase of industrial a combination of rising foreign direct investments in the country requires tax agreement arrangements with other nations to provide investors with assurance and security in the field of taxation (Choong, 2013).
2.1 Example
A common scenario is when the America state, to transact business with persons resident in the country, the Bangleshdalesh. Gains or a profit accruing to America is, say, $ 200. This $ 200 is probably subject to the tax in country America (since it were resident or based in America), and also in the Bangleshdalesh country (because the profit derived or acquired from State Bangleshdalesh). Therefore, the same revenues of $ 200 are subject to the provincial tax twice, once in country America, country Bangleshdalesh once again.
Assuming Country America has a tax rate of 30%, while Country Bangleshdalesh taxes the income at 25%, America will potentially suffer a global tax of $110 [(30%of $200) + (25% of $200)], leaving him with a measly after-tax income of only $90 (Yong, 2012).
3.0 Treaty agreement
Treaty agreement aims to alleviate, either wholly or partially, the burden of double taxation on the same income derived by a taxpayer. Other objectives of the treaty agreement would be facilitating world trade, promoting technology transfer and prevention of tax avoidance and evasion (Choong, 2013).
The facilitate world trade, where Malaysians venture into foreign country, the local investor (Malaysia) would like to know whether such activity constitutes trading in or trading with the foreign country (Yong, 2012). With the existence of double taxation agreement (DTA), the scope of taxation is much clearer, certain, and without confusion. Similarly, whether a foreign enterprise having a transaction with Malaysia is subject to Malaysian tax or not is also spelt out in the various articles of DTA (Choong, 2013). Promoting technology transfer Malaysia encourages foreign company to transfer technology and scientific knowledge to Malaysians Company. As such, DTA would normally accord a lower tax rates on royalty or technical payment. The last objectives of treaty agreement which is preventing of tax avoidance and evasion, the international business operations may give rise to tax avoidance and evasion (Choong, 2013). To combat to this, treaty countries would exchange information and co – operate to eliminate artificial tax avoidance or evasion. This would involve international audit on the multinational company.

4.0 Treaty protection
The governing principle of treaty is to avoid the possibility of double taxation on the same income. In the treaty agreement, there consist various articles defining the scope of treaty which include the person and entities to which it applies, the taxes covered and the territories to which the treaty extends (Choong, 2013).
The coverage of each treaty should be understood before one embarks on any transactions with the treaty country (Yong, 2012). In order to reap the maximum benefit from the DTA, the understandings of the following are crucial: * Residence
Some countries subscribe to the principle that a resident will be subject to tax on worldwide income. Hence, it is beneficial to avoid being resident of these countries, and possibly shift their residence to tax havens or country where residence is restricted to territorial scope or modified territorial scope (Choong, 2013). * Elimination of double taxation
One should be aware of the provisions for the granting of credit for underlying tax or credit for tax spared (tax sparing). Sometimes, there may impose conditions such as beneficial ownership, shareholder and extra. * Profit extraction
Royalties, interest and dividends are usually accorded reduced rates in most of the DTAs signed between Malaysia and treaty countries. It is therefore importance for the company to decide what form of transaction or business presence it should have in those countries in order to maximise profit extraction with minimum tax cost (Choong, 2013). * Withholding tax
Where developing countries have DTAs with developed countries, benefit can be derived where the DTA provides for a reduced rate of withholding tax or even tax exemption. * Permanent Establishment
In the business income article of most DTAs, PE is the factor to consider determining which country will have the authority to impose tax on a particular business activity. It is normal that a contracting state will only impose tax on business income if it is attributable to a PE. If no PE exists, the income derived by a company in the other state will not be taxed by the latter (Choong, 2013).
5.0 Permanent establishment (PE)
In a cross border transaction, the centre issue is which of the country the right to tax on the gains or profits has earned their form. In the double taxation agreements between Malaysia and treaty countries, the PE concept is employed to resolve the issue. When a foreign enterprise is carrying on the business through a PE in Malaysia, where profits are earned, such profits would be taxed in Malaysia, leaved the country of the foreign enterprise to grant relief on double taxation (Choong, 2013).
Otherwise, where a foreign industrial did not create PE in Malaysia, business profits could be exempt from tax in Malaysia. However, the withholding tax issues need to be considered in situations where the PE was not present (Choong, 2013). In Malaysia agreement, term PE means a fixed place of business, where the business is wholly or partly conducted. The term "permanent establishment" shall include especially:
(a) A place of management;
(b) A branch;
(c) An office;
(d) A factory;
(e) A workshop;
(f) A mine, quarry, oil or gas well or other place of extraction of natural resources including timber or other forest produce;
(g) A farm or plantation;
(h) A building site or construction, installation or assembly project which exists for more than six months
One needs to examine the article on PE of the relevant country as there are some variations among countries. It is crucial to establish whether a foreign entity has a permanent establishment in Malaysia as it would set up the momentum of tax system in Malaysia. If permanent establishment exist, then the income attributable to the permanent establishment would be subject to Malaysia income tax. Where an enterprise having one or more of the above fixed places, it is said to be ‘trading in’ Malaysia (Choong, 2013).

5.1 Example
Yuuko industry is a manufacturing company in New York, United State (US). It manufacturing Caaca Cat, T- shirt cost of a T- shirt is RM30 while the selling price in US is RM45 (both are translated from USD). In 2013, the company sold 500 Caaca Cat T-shirt to Kaama, an independent agent in Malaysia for RM35 per T-shirt. The gross income of RM17, 500 would not have any Malaysian income tax exposure because Yuuko Inc. does not have PE in Malaysia.
Of an enterprise of a Contracting State shall be treated as have a permanent establishment in the other Contracting State if it carries on supervisory activities in that other Contracting State for over six months in connection with the construction, installation or assembly project which is being carried out in the other Contracting State.
Person acting in the a Contracting State on behalf of an enterprise of the other Contracting State shall be deemed to be a permanent establishment in the first-mentioned Contracting State, if: * he has, and habitually exercises in that first-mentioned Contracting State, an authority to enter into contracts on behalf of the enterprise, except for his activities are restricted to the purchase of goods or merchandise for the company * he maintains in the other Contracting State first mentioned a stock of goods or merchandise belonging to the enterprise from which he regularly fills orders on behalf of the enterprise * he ensure orders in the first-mentioned State with plenty of the enterprise itself or for businesses and other enterprises that are controlled by or has a controlling interest in it

In summary, the above activities have to be continued activities or active conduct of business in Malaysia in order to constitute a PE in Malaysia. Essentially, where an entity is found to have a PE in Malaysia, the income arising therefore would be assessed as business profit at the corporate tax of 25% (YA 2011 – 2013) on chargeable income (Choong, 2013).
It should be noted that a PE is established even though the non independent agent operates without a fixed place of business. In the event the foreign enterprise is said to have PE in Malaysia, the Malaysian tax payable on such Malaysian derived income shall be allowed as a credit against the foreign tax imposed on the foreign enterprise in its home country.
5.2 Example
Super Inc is tax resident in the United Kingdom. It enters into contract with its customer in Malaysia for the sale of pharmaceutical products manufactured in the United Kingdom. All sales contracts between Super Inc and its Malaysian customers are concluded outside Malaysia. Acceptance of purchase orders and issuance of invoices are done by Super Inc but transmitted via a Malaysian agent, which has no authority to conclude contracts on its behalf. To ensure prompt delivery to its order, Super Inc leased a warehouse in Singapore for storage and delivery of its goods directly to its customers in Malaysia at which time title to the goods passes.
However, in the above situation there would not be a PE in Malaysia under the Malaysia/united kingdom double tax agreement 1997 due to the no maintenance of stocks in Malaysia for purpose of fulfilling orders or no branch, office or fixed place of business in Malaysia.

6.0 Tax sparing incentives
Tax sparing provisions are embodied in several DTAs with which Malaysia had concluded with developed countries. Tax sparing is used to preserve the incentives which are provided in Malaysia to encourage foreign investments (Choong, 2013).
In normal circumstances, a tax credit is only available under a double taxation agreement if tax has been actually suffered in the foreign country. Consequently, any tax that is foregone by the country which provides special tax incentives to foreign investors would be of little use if the foreign investor had to pay the full tax on the overseas exempt income in his home country. Investors ultimately would not enjoy the exemption granted by incentives countries.
Hence, tax sparing relief is provided to the foreign investor for the tax exempt income derived. The effect of the sparing relief is that the overseas tax foregone by the overseas state is treated by the home state as if such tax has been paid in overseas state. With tax sparing, foreign investor would benefit from the sacrifice of Malaysian tax forgone and not attributable to the treasury of foreign country.
6.1 Example
Pioneer dividends paid by a Malaysian pioneer company to a Singapore resident will continue to be exempt from Singapore tax by virtue of tax sparing relief contained in the treaty arrangement between Malaysia and Singapore. Pursuant to Para 3 article VII of the Malaysia – Singapore treaty, a Singapore resident company may declare itself to be a Malaysia resident for the purpose of declaring dividends. As such, a two tiers dividend would also be available if the shareholders are corporations.

7.0 Income Tax Act Exemption (para 21, 22 sch 6)
Foreign expatriates exercise employment example, working in Malaysia is said to have their employment income to be deemed derived from Malaysia under section 13(2) (a). The employees may seek the following exemptions. The full paragraph of 21 and 22 are reproduced as follows:
Subject to paragraph 22, individual income from work performed by him while in Malaysia for a period or periods together does not exceed sixty days in the basis year for a year of assessment or for a continuous period (does not exceeding sixty days) which overlaps the basis years for two consecutive years of assessment or for a continuous period (not exceeding sixty days) which overlaps the basic years for two successive years of assessment and during the period or periods together with continuous period does not exceeding sixty days, if he does not reside for basis period or for each year of the base, as the case can apply paragraph 21 (Choong, 2013).
Paragraph 21 does not apply to an individual's income from employment if the individual income derived from Malaysia from employment for a period or periods totalling more than sixty days in the basis referred to in that paragraph or within the range of the base years to referred or if earnings is income from employment conducted by public entertainers (ie, any professional entertainers, artists, athletes or other individuals who celebrate either public or private for profit on stage, radio and television, in a stadium or sports ground, or otherwise) and no part of the income is paid out of public funds the government of a country outside Malaysia (Choong, 2013).
7.1 Example
Bean, an employee from a United Kingdom company, SmartCo Ltd has been assigned a job to Malaysia to provide technical assistance to Malaysia Boleh Sdn Bhd. He was in Malaysia for a period of 38 days in 2013 ( 16.4.2013 – 23.5.2013). The employment income attributable to the 38 days employment in Malaysia is exempted from Malaysian income tax.

7.2 Example
Enki Hirokawa, a Japanese engineer was seconded to Malaysia in years 2012 and 2013 for the following periods: Days in Malaysia
9.12.2012 – 31.12.2012 23
1.1.2013 – 6.2.2013 37 60
The employment income for the period 9.12.2012 – 31.12.2012 will be exempted from tax in YA 2012. Similarly, the employment income for the period 1.1.2013 – 6.2.2013 will be exempted from tax in YA 2013.

Pre – requisite for exemption
In order to apply for paragraph 21 under section 6 exemption, an employee had to be a non – resident. The exemption days refer to the period that the employee is exercising an employment in Malaysia and not to his physical presence in Malaysia. Even if the employee is in Malaysia for more than 60 days, he would be entitled to the exemption if he is a non – resident, or he had exercised employment, for period or period not exceeding 60 days. The period of his vacation in Malaysia would not form part of the 60 days computation (Choong, 2013).
Whether a director is entitled to paragraph 21, section 6 exemption
As a director is appointed by shareholders during the annual general meeting, the appointment is for one financial year and thus the discharge of the director’s duties need not coincide with physical presence in Malaysia. Even though the director is in Malaysia for less than 60 days, the exemption is not available to him (Choong, 2013).
The 60 days exemption rule may be extended under certain double taxation agreements, depending on the nationality of the expatriates and subject to the satisfaction of certain conditions. For example, a Japan – resident employee who is working in Malaysia may want to seek treaty protection under article 15 of double taxation agreement between Malaysia and Japan (1999)

8.0 Double taxation relief
In a situation where foreign income is assessed to Malaysian tax either on a territorial scope or world income scope there are two method of relieving the burden of double taxation which are bilateral relief and unilateral relief (Choong, 2013).
Bilateral credit
The minister of finance may, by statutory order, declare that arrangements have been made between the government of Malaysia and other government with a view to giving relief to person who have suffered tax in Malaysia and elsewhere on the same income under section 132.
Paragraph 5 of section 7 shall where, beneath any arrangement in force under section 132 in relation to territory outside Malaysia, foreign tax payable under law of that territory is to be allowed as a credit against Malaysian tax payable provided that the person chargeable to the Malaysia tax is resident in the basis year for the financial year, however, the bilateral credit allowed the person applicable of any foreign income for the year does not exceed an amount equal to so much of the Malaysia tax payable for the year (before the allowance of any credit under section 7) as bears to the entire that Malaysian tax the same share as his statutory income in respect of that foreign income bears to his total earnings for that year (Choong, 2013).
Time limit according paragraph 9, under section 7 bilateral credit for a year has to be claimed within 2 years after the end of that year. This may be varied in some of the DTA. The claim to the DG must be made in writing. Therefore, a claim of bilateral relief for year 2011 must be made latest by 31 December 2013 (Choong, 2013). The tax payer, if aggrieved by the DG’s decision, may appeal within 6 months after being informed of the decision and request the DG to send the application forward to the Sp Comm under section 131(5).

Unilateral relief (section 133)
Where there is no double taxation agreement between Malaysia and a foreign country, a person who is resident in Malaysia for the basis year for a year. Who is charged to tax in Malaysia in respect of foreign income (and who has suffered tax in respect of the same income in the country which the income has been taxed) may claim unilateral credit. Unilateral credit is given accordance with provisions of section 7 (Choong, 2013).
Unilateral credit allowed in respect of any foreign income for a year is either the amount of Malaysia tax payable in respect of the foreign income which is double taxed. The Malaysian tax applicable to the foreign income bears to the total income for that year or one half of the foreign tax payable in respect of the income bears to the income which is double taxed whichever is the lower (Choong, 2013). The time limits same as the bilateral credit method.
Exception for an employee who has paid Malaysian tax and foreign tax on employment exercised outside Malaysia, unilateral credit may be allowed on that foreign tax and this is available to the employee, whether or not he was resident during the basis year according paragraph 15 under section 7 (Choong, 2013).

8.1 Example
According the foregoing scenario of $ 100 profit made from transboundary trade and subject to double taxation, if available DTA signed between both countries and the credit method applicable for the elimination of double taxation, double taxation relief mechanism will work asfollows: $ $ $
In America (country of residence)
Income 200
America tax at 30% 60
Less double tax relief – ie Bangleshdalesh tax at 25% (50)
Tax payable in America 10 In Bangleshdalesh (country of source)
Income 200
Bangleshdalesh tax at 25% 50 Total tax payable globally 60
Double taxation is thus avoided; instead of paying tax of $110, person America pays only $60 globally on the profit of $200. Note how the two countries agree to share the tax revenue, and how the country of residence gives the credit (i.e. foregoes the tax revenue) of $50 to eliminate the double taxation.

9.0 DTA overwrite the act
In DGIR v Euromedical International Ltd (1950-1985) MSTC (256) FC, Wan Suleiman FJ held that the provision of the Double Taxation agreement should prevail over the income tax act 1967 where there exist a conflict between them. Since section 4A and section 4(f) payments are not stated is most DTA, it is thus applicable where the non resident does not has any permanent establishment in Malaysia (Choong, 2013).
However, in article 13, Malaysia / UK DTA 1997 provide that technical fees derived by an UK enterprise (who has no PE in Malaysia) are subject to a reduced rate of 8% provided that the fees are taxed in UK. Technical fees are defined to mean payment of any kind to technical, managerial or consultancy in nature (Choong, 2013).

10.0 Withholding taxes and DTAs concluded by Malaysia
As the name goes, withholding tax means the amount, which represents the portion of income tax of non-resident receivers, held by the taxpayer in Malaysia, and is paid directly to the Inland Revenue Board of Malaysia (Kl Management Services, 2013).
Taxpayers are responsible for making payments to the Inland Revenue Board within 30 days from the date of payment to non-resident receivers, or an invoice is received from non-resident receivers.Failure to make payment to the Inland Revenue Board within the prescribed period, a penalty will be 10% of the total tax due (Kl Management Services, 2013). It all depends on the countries engaged in the agreement of double taxation of different countries will have different rates of tax.

Please refer to appendix 1 and 2

11.0 Conclusions
Double taxation occurs when the more than one country impose taxes on the same taxpayers for the same taxable revenues which gain. In some sense, earning the same is taxed twice - the source country where the income arises and country of residence in which the income is received. To make easy for taxpayers from making double taxation, so that arise double taxation agreement which made agreement with other countries this related to the trading, which provide a variety of relief either under the domestic tax law from this agreement.

12.0 References

Choong, K. F. (2013). Advanced Malaysia Taxation: Principles and Practice (14th Edition ed.). Malaysia: Infoworld.
(2012). DOUBLE TAXATION AGREEMENTS WITHHOLDING TAX RATES. Malaysia.
Kl Management Services. (2013). Retrieved February 23, 2014, from Witholding Tax: http://www.klmanagement.com.my/blog/introduction-to-withholding-tax/
Yong, S. C. (2012). Double Tax Agreement (ACCA). Malaysia: Tenhical Article Student Accoutant.

13.0 Appendix DOUBLE TAXATION AGREEMENTS WITHHOLDING TAX RATES | EFFECTIVE DOUBLE TAXATION AGREEMENTS | No. | Country | Fees for Technical Services (%) | Dividends (%) | Interest (%) | Royalties (%) | 1 | Albania | NIL | 10 | 10 | 10 | 2 | Australia | NIL | 15 | 10 | NIL | 3 | Austria | NIL | 15 | 10 | 10 | 4 | Bahrain | NIL | 5 | 8 | 10 | 5 | Bangladesh | NIL | 15 | 10 | 10 | 6 | Belgium | NIL | 10 | 10 | 10 | 7 | Brunei | NIL | 10 | 10 | 10 | 8 | Canada | NIL | 15 | 10 | 10 | 9 | Chile | NIL | 15 | 10 | 5 | 10 | China | NIL | 10 | 10 | 10 | 11 | Croatia | NIL | 10 | 10 | 10 | 12 | Czech Republic | NIL | 12 | 10 | 10 | 13 | Denmark | NIL | 15 | 10 | 10 | 14 | Egypt | NIL | 15 | 10 | 10 | 15 | Fiji | NIL | 15 | 10 | 10 | 16 | Finland | NIL | 15 | 10 | 10 | 17 | France | NIL | 15 | 10 | 10 | 18 | Germany | NIL | 10 | 7 | 7 | 19 | Hungary | NIL | 15 | 10 | 10 | 20 | India | NIL | 10 | 10 | 10 | 21 | Indonesia | NIL | 10 | 10 | 10 | 22 | Iran | NIL | 15 | 10 | 10 | 23 | Ireland | NIL | 10 | 8 | 10 | 24 | Italy | NIL | 15 | 10 | 10 | 25 | Japan | NIL | 10 | 10 | 10 | 26 | Jordan | NIL | 15 | 10 | 10 | 27 | Kazakhstan | NIL | 10 | 10 | 10 | 28 | Kyrgyz Republic | NIL | 10 | 10 | 10 | 29 | Kuwait | NIL | 10 | 10 | 10 | 30 | Laos | NIL | 10 | 10 | 10 | 31 | Lebanon | NIL | 10 | 8 | 10 | 32 | Luxembourg | NIL | 10 | 8 | 8 | 33 | Malta | NIL | 15 | 10 | 10 | 34 | Mauritius | NIL | 15 | 10 | 10 | 35 | Mongolia | NIL | 10 | 10 | 10 | 36 | Morocco | NIL | 10 | 10 | 10 | 37 | Myanmar | NIL | 10 | 10 | 10 | 38 | Namibia | NIL | 10 | 5 | 5 | 39 | Netherlands | NIL | 10 | 8 | 8 | 40 | New Zealand | NIL | 15 | 10 | 10 | 41 | Norway | NIL | 15 | 10 | 10 | 42 | Pakistan | NIL | 15 | 10 | 10 | 43 | Papua New Guinea | NIL | 15 | 10 | 10 | 44 | Philippines | NIL | 15 | 10 | 10 | 45 | Poland | NIL | 15 | 10 | 10 | 46 | Qatar | NIL | 5 | 8 | 8 | 47 | Romania | NIL | 15 | 10 | 10 | 48 | Russia | NIL | 15 | 10 | 10 | 49 | San Marino | NIL | 10 | 10 | 10 | 50 | Saudi Arabia | NIL | 5 | 8 | 8 | 51 | Seychelles | NIL | 10 | 10 | 10 | 52 | Singapore | NIL | 10 | 8 | 5 | 53 | South Africa | NIL | 10 | 5 | 5 | 54 | South Korea | NIL | 15 | 10 | 10 | 55 | Spain | NIL | 10 | 7 | 5 | 56 | Sri Lanka | NIL | 10 | 10 | 10 | 57 | Sudan | NIL | 10 | 10 | 10 | 58 | Sweden | NIL | 10 | 8 | 8 | 59 | Syria | NIL | 10 | 10 | 10 | 60 | Switzerland | NIL | 10 | 10 | 10 | 61 | Thailand | NIL | 15 | 10 | 10 | 62 | Turkey | NIL | 15 | 10 | 10 | 63 | Turkmenistan | NIL | 10 | 10 | NIL | 64 | United Arab Emirates | NIL | 5 | 10 | 10 | 65 | United Kingdom | NIL | 10 | 8 | 8 | 66 | Uzbekistan | NIL | 10 | 10 | 10 | 67 | Venezuela | NIL | 15 | 10 | 10 | 68 | Vietnam | NIL | 10 | 10 | 10 |

(i) There is no withholding tax on dividends paid by Malaysia companies. | (ii) To claim the DTA rate, please attach the Certificate of Tax Residence from the country of residence. | (iii) Where the rate provided in the ITA 1967 is lower than the DTA rate, the lower rate shall apply. |

GAZETTE DOUBLE TAXATION AGREEMENTS

No. | Country | Fees for Technical Services (%) | Dividends (%) | Interest (%) | Royalties (% | | Bosnia and | 1 | NIL | 10 | 8 | 10 | Herzegovina | 2 | Senegal | NIL | 10 | 10 | 10 | 3 | Zimbabwe | NIL | 10 | 10 | 10 |

LIMITED AGREEMENTS No. | Country | Fees for Technical Services (%) | Dividends (%) | Interest (%) | Royalties (%) | | 1 | Argentina | NIL | 15* | 10* | 10* | 2 | United States of | NIL | 15* | 10* | 10* |
* The withholding tax rate on interest, royalties and fees for technical services is as provided in the ITA 1967.

INCOME TAX EXEMPTION ORDER | No. | Country | Fees for Technical Services (%) | Dividends (%) | Interest (%) | Royalties (%) | | 1 | Taiwan | NIL | 10% | 10% | 7.5% |