Section 11 — AKTA KEWANGAN 2005

(1)

Subject to this section, a company (referred to in this section as a “surrendering company”) may surrender not more than fifty per cent of its adjusted loss in the basis period of a year of assessment to one or more related companies (referred to in this section as a “claimant company”):

Provided that the surrendering company and the claimant company shall be resident in the basis year for that year of assessment and incorporated in Malaysia.

(2)

Subsection (1) shall apply if for any year of assessment—

(a)

the surrendering company and the claimant company—

(i)

are related companies throughout the basis period for that year of assessment and the twelve months period immediately preceding that basis period;

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(ii)

have paid-up capital in respect of ordinary share of more than two million five hundred thousand ringgit at the beginning of the basis period for that year of assessment;

(iii)

have twelve months basis period ending on the same day;

(iv)

make an irrevocable election to surrender or claim an amount of adjusted loss in the return furnished for that year of assessment under section 77A;

and

(v)

are subject to tax at the appropriate rate as specified in paragraph 2 of Part I of Schedule 1; and

(b)

the claimant company has a defined aggregate income for that year of assessment.

(3)

For the purpose of this section, a surrendering company and claimant company are related companies if at least—

(a)

seventy per cent of the paid-up capital in respect of ordinary shares of the surrendering company is directly or indirectly (through the medium of other companies resident and incorporated in Malaysia) owned by the claimant company;

(b)

seventy per cent of the paid-up capital in respect of ordinary shares of the claimant company is directly or indirectly (through the medium of other companies resident and incorporated in Malaysia) owned by the surrendering company; or

(c)

seventy per cent of the paid-up capital in respect of ordinary shares of the surrendering company and claimant company are directly or indirectly owned by another company resident and incorporated in

Malaysia.

(4)

Subject to subsection (5), any amount of adjusted loss surrendered under this section for any year of assessment—

(a)

shall be the amount or aggregate amount of the adjusted loss or the excess of that amount of the surrendering company for that year of assessment as ascertained under subsection 44(4) or (5);

(b)

shall be allowed to a claimant company as a deduction in ascertaining the total income of the claimant company in accordance with subsection 44(1); and

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(c)

shall not exceed the defined aggregate income of the claimant company for that year of assessment.

(5)

Where the amount of adjusted loss is—

(a)

surrendered to more than one claimant company, the adjusted loss shall be fully deducted in accordance with subsection (4) to the first claimant company before any excess of the adjusted loss is surrendered and deducted in accordance with that subsection to the second claimant company and so on; or

(b)

claimed by a claimant company from more than one surrendering company, the adjusted loss surrendered from the first surrendering company shall be deducted in accordance with subsection (4) to that claimant company before the adjusted loss is surrendered from the second surrendering company be deducted in accordance with that subsection to that claimant company and so on.

(6)

For the purpose of subsection (5), the surrendering company and the claimant company shall ascertain the order of priority in respect of the adjusted loss surrendered or claimed but if that loss cannot be effected in accordance with the order of priority specified by any surrendering company or claimant company the amount of adjusted loss surrendered or claimed shall be dealt with in such manner as the Director General thinks reasonable and proper.

(7)

Notwithstanding that a company to which subsection (3)

applies, owns at least seventy per cent of the paid-up capital in the other company, it shall not be treated to have satisfied that subsection unless additionally in the year of assessment the first mentioned company is beneficially entitled to at least seventy per cent of—

(a)

any residual profits of the other company, available for distribution to that other company’s equity holders;

and

(b)

any residual assets of the other company, available for distribution to that other company’s equity holders on a winding up.

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(8)

Notwithstanding any other provision of this section, where—

(a)

a claimant company has made an election under subsection (2), that company shall not in that year elect to surrender its adjusted loss to any other claimant company; or

(b)

a surrendering company has made an election under subsection (2), that company shall not in that year elect to claim any adjusted loss from any other surrendering company.

(9)

Where—

(a)

in the basis year for a year of assessment the

Director General discovers that the adjusted loss as mentioned in subsection (4) ought not to have been deducted in arriving at the total income of the claimant company, the Director General may in that year or within six years after its expiration make an assessment or additional assessment in respect of that company in order to make good any loss of tax; or

(b)

the surrendering company gives an incorrect information in the return furnished under section 77A in respect of the amount of adjusted loss surrendered, the Director General may require the surrendering company to pay a penalty equal to the amount of tax which had or would have been undercharged by the claimant company in consequence of the incorrect information.

(10)

The provisions of this section shall not apply to a company for a basis period for a year of assessment where the period during which that company—

(a)

is a pioneer company or has been granted approval for investment tax allowance under the Promotion of Investments Act 1986;

(b)

is exempt from tax on its income under section 54A, paragraph 127(3)(b) or subsection 127(3A);

(c)

has made a claim for a reinvestment allowance under