QUESTION 1:

Alex and Carmila agreed to buy the fixed assets and goodwill of a business for a lump sum consideration of RM400,000 payable in full on the transfer of the business in 2018. Not having enough money, they borrowed RM200,000 from Taram Ltd, located in Indonesia, which is repayable in full after two years. In the meantime, Alex and Carmila are to pay interest every three months starting from 1 March 2019 at the rate of 10% per annum (RM5,000 per quarter). Alex and Carmila will carry on the business at its existing location in Malaysia sharing profit equally, Alex is a Malaysian resident but Carmila is not.

Required:

a) Briefly explain whether the interest that Alex pays to Taram Ltd is deemed to be derived from Malaysia and should he withhold any tax on making payment. (5 marks)

b) Briefly explain whether the interest that Carmila pays to Taram Ltd is deemed to be derived from Malaysia and should she withhold any tax on making payment. (5 marks)

(Total: 10 marks)