Are intra-group services subject to Service Tax?

Published: Fri, 09/09/22

SERVICE TAX:

INTRA-GROUP RELIEF

Have you thought about this? When a company provides services to another company within the same group of companies, is the service provided taxable?

To eliminate the tax cascading effect on taxable services provided within the same group of companies, intra-group relief is available for selected taxable services under Group G (Professional Service) of First Schedule, Service Tax Regulation 2018.

In accordance with paragraph 3 of First Schedule, Service Tax Regulation 2018, where a company in a group of companies provides any taxable service specified in item (a), (b), (c), (d), (e), (f), (g), (h), (i) or (l) in column (2) in Group G to any company within the same group of companies, such service shall not be a taxable service.

Definition of Companies Within Group of Companies

Two or more companies are eligible to be treated as companies within a group of companies if one company controls each of the other companies.

A company shall be taken to control another company if the first-mentioned company holds—

Directly
Indirectly through subsidiaries
Together directly or indirectly from subsidiaries

more than 50% of the issued share capital of the second-mentioned company; or from 20% to 50% of the issued share capital of the second-mentioned company and the first-mentioned company has exercisable power to appoint or remove all or a majority of directors in the board of directors in the second-mentioned company.

Timeline of Development of the Intra-Group Relief

The following questions may now come to mind:

How to calculate taxable service to 3^rd party using the 5% Rule?
What if I cannot ascertain services provided is less than or more than 5%?
The above seems quite technical, are there any examples to refer to?

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No.32 & 34, Lorong Thambi 2, Jalan Brunei
Kuala Lumpur Wilayah Persekutuan 55100
MALAYSIA

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