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This article is targeted at candidates preparing for Paper P6 (MYS), Advanced Taxation. This article provides guidance on a new style of question within Section A from the December 2014 sitting of Paper P6 (MYS) and also provides some advice on good exam technique and best exam practice.

Although this article is about exam technique as opposed to technical knowledge, it must be emphasised that you will not be able to pass the exam on the basis of good exam technique alone. Strong technical knowledge across the whole of the syllabus is vital for exam success in paper Paper P6 (MYS).

There is more guidance on exam technique in the examiner’s report published after each exam session.


Changes in format of Section A from December 2014

Beginning with the December 2014 session, the Section A questions will be presented in a different format to mirror more closely the workplace. Specifically, the Section A questions will include requirements that are contained within the question scenario itself, usually in an email from the tax manager, who is requesting that you perform certain tasks relevant to the question scenario.

It should be stressed that this does not represent a change to the technical substance of the paper and this change in how some question requirements will be presented is not intended to make the questions more difficult.  Rather, the change in format is intended to make Paper P6 (MYS) more relevant to the commercial environment in which many candidates may be working. Candidates should remember that the two questions in Section A are important because they represent 60% of the marks on the paper. As in the past, Question 1 will be for 35 marks and will include four professional marks. Question 2 will continue to be for 25 marks and, since there will be no professional marks, answers to this question will not be required to be presented in a specific format.

The format of the Section B questions is not changing.

To illustrate the change in question requirement, Section A of the June 2014 exam has been presented below, as it would have appeared if presented in the new format:

1. Last week, your tax director met with the general manager of Ayer Batu Sdn Bhd (ABSB), an established manufacturer of edible cube ice. Extracts from the notes of meeting and from an email from the tax director are set out below.
 

Extract from the notes of meeting

Donations

As a responsible corporate citizen, ABSB made the following donations during the year ended 31 December 2013:

– Donated ice to the neighbourhood schools on their sports days. The total cost of the stock of ice thus donated amounted to RM10,000, although the ice would have otherwise sold to the public for RM25,000.

– Donated one of its used delivery vans to the School for the Disabled on 1 December 2013. The market value of the van on that day was RM38,000 while its residual expenditure and net book value was RM35,000.
 

RM45,000 (RM10,000 + RM35,000) was charged to ABSB’s statement of profit or loss for the year ended 31 December 2013 as 'donations'.
 

Oxygen-enriched bottled water
ABSB intends to diversify and produce oxygen-enriched bottled water. To enable it to do this, ABSB engaged Mr Oksijen, a foreign technical expert to advise on the project. Mr Oksijen will be in Malaysia for 12 weeks in the second half of 2014. ABSB expects to incur RM180,000 for Mr Oksijen’s expertise.
 

The bottled water activity is expected to commence by 1 October 2014.
 

Forecasts for 2014
For the year ended 31 December 2014, the forecast results of ABSB are as follows:

 Ice manufacturing
RM '000

Bottled water
RM '000

Other income
RM '000
Gross sales12,0001,000 
Adjusted income/(loss)3,000(640) 
Capital allowance932,570 
Interest income  200


Extract of an email from the tax director

I trust you have read the notes of meeting I passed to you a few days ago.

Please draft a letter to the general manager of ABSB which addresses the following issues:
 

(i) Donations
The income tax treatment and the relevant income tax adjustments required for the year of assessment 2013 in respect of the stock of ice donated, the delivery van and the donation charge.
 

(ii) Technical fee
The tax treatment, including any withholding tax compliance obligations, from the perspectives of both ABSB and Mr Oksijen in respect of the payment of RM180,000 for technical services, if the foreign expert was engaged as:

(1) an independent consultant, and
(2) an employee.


(iii) Business activities
The arguments for treating the ice manufacturing and the bottled water activities as

(1) a single business, and
(2) two separate businesses.    


(iv) Total income
The impact on ABSB’s total income for the year of assessment 2014 of having a single business or two separate businesses.
 

I suggest you support your explanations in this part with a computation of the total income under each alternative. 


Required:
Prepare the letter to the general manager as requested by your tax director. The following marks are available:

(i) Donations (6 marks)
(ii) Technical fee (12 marks)
(iii) Business activities
(6 marks)
(iv) Total income
(7 marks)

Professional marks will be awarded in Question 1 for the appropriateness of the format of the letter and the effectiveness with which the information is communicated. (4 marks)

(35 marks)

 

2. Your tax principal is due to attend a meeting with the group chief financial officer of  the Domestik Group of companies (the Group). A schedule of information obtained from the client files and an extract from an email from the tax principal in connection with the Group are set out below.
 

Schedule of information

The Group has been established by a group of several entrepreneurs to undertake investments in Malaysia. The group has not been granted any tax incentives so far.
 

There are four wholly-owned Malaysian tax resident subsidiaries in the Group, each of which derives income from a single principal activity. The profile of these subsidiaries is as follows:
 

A Sdn Bhd
A Sdn Bhd is an established manufacturer of a consumer product, which consistently achieves a value-added of 30% to 35%. The company has just ventured into the export market to Europe and expects an annual increase in export sales of 20% in the coming years. In 2013, its exports stood at RM1m out of total annual sales of RM6m.
 

B Sdn Bhd
B Sdn Bhd has been manufacturing medical supplies for the past four years. In 2014 it plans to invest RM6m to automate its operations in order to achieve increased output without an increased dependence on scarce labour.
 

C Sdn Bhd
C Sdn Bhd is currently a dormant company. It intends to invest capital expenditure of about RM100m over a period of three years (in the ratio of 50:30:20) to manufacture a promoted product. The company’s business will take at least four years to become profitable.
 

D Sdn Bhd
D Sdn Bhd is a newly-incorporated company that is to undertake a tourism business, a promoted activity. This business is expected to be profitable within three months after its commencement and to generate an annual statutory income of RM10m.


Extract from an email from the tax principal

I am meeting with the Group next week.
 

Incentive measures
In advance of my meeting, please determine which incentive measure is the most suitable for each of the companies within the Group.

For each company, your approach should be to:

– Identify the recommended incentive measure, with reasons;
– State the respective pre-requisites which are satisfied, and
– Explain the incentive mechanism.


Please support your explanations with relevant computations, where necessary.


Required:
Carry out the work required as requested in the email from your tax principal. The following marks are available:

(a) A Sdn Bhd (6 marks)
(b) B Sdn Bhd (6 marks)
(c) C Sdn Bhd
(7 marks)
(d) D Sdn Bhd
(6 marks)

(25 marks)

For more illustrations of the new style of question within Section A, please refer to the Paper P6 (UK) papers for the December 2012 exam session onwards (see 'Related links').


Understanding question requirements – exam technique

In the Paper P6 (MYS) exam, marks are awarded in the exam for satisfying the question requirements and not for other information provided, regardless of how well written or technically accurate it may be. Accordingly, it is vitally important for exam success to be able to identify and then address the requirements of the question.

In light of this, some techniques to bear in mind when responding to questions during the exam have been compiled, which should assist candidates to maximise their marks in the Paper P6 (MYS) exam.

1. Read the requirement
Candidates are urged to read the requirements carefully. Underline the key words and pay attention to the verb used in the requirement:

List
Explain
State
State, with reasons
Determine
Compare
Analyse
Conclude
Calculate

For example, ‘explain’ requires you to give reasons for your statements whereas ‘state’ (on its own) does not.  Explaining tax implications is often not easy and candidates should practise this to ensure that they are able to make their point in a sufficiently precise manner, in the time available.

If a question requirement asks candidates to ‘calculate’, this generally does not require explanations, although the requirements may ask you to provide supporting explanations in respect of certain aspects of the calculation.

2. Apply your knowledge to the scenario
It is important at the Paper P6 level that candidates are able to apply their technical knowledge to the scenario provided rather than regurgitating all of the facts they have learnt or recalled on a particular technical area.  Your answer should focus on the specific facts on the question rather than generalising.

For example, if a question asked whether withholding tax is applicable in a given scenario, a satisfactory answer should consider the nature of payment; is it an interest payment, royalty payment, technical fees or other income? Furthermore, is the payment derived in Malaysia? How is it derived in Malaysia? Is the recipient a resident or non-resident? If the question concerns an interest payment, then there are unlikely to be marks available to a candidate who writes at length about the withholding tax applicable on technical fees, however tempting this may be.

Furthermore, candidates should resist the temptation to provide unnecessary information, which is not asked for in the requirement. This is a waste of valuable time. To illustrate, in the withholding tax example above, it will not be automatically necessary to provide additional information such as payer must pay the tax withheld to the DGIR within one month and the penalty for late payment is 10% of the amount.

3. Answer the question, rather than writing all you know about the topic
Try not to think of a question as being about a particular technical area as, if you do, you risk that you answer the question in too narrow a manner.

For example, if a requirement asks you to 'Provide arguments for treating the gain as revenue or capital' try to resist the temptation to write an essay about the badges of trade.

A much better approach is to relate the facts given in the scenario and demonstrate how they satisfy the relevant badges of trade. This also links into technique 2 (above) about application of knowledge.

4. Show how conditions are fulfilled
Following on from the points above, it is generally insufficient to state the relevant law – candidates are then expected to demonstrate how any legislative conditions are satisfied (or not satisfied) by the taxpayer in the relevant scenario.

For example, if a requirement asks you to 'Explain the requisite conditions for the incentive that are satisfied by the company' it is not sufficient to merely list the conditions for the incentive, but, rather, you should demonstrate how the company satisfies each condition.

5. Be specific
It is important at Paper P6 (MYS) that candidates’ knowledge is sufficiently precise to be able to answer the specific requirement. As noted above, it is important to resist the temptation to write generally about a technical topic as a requirement will rarely ask you to do this.

From a time perspective, it is important that you only address the requirement set. For example, if you are asked to explain the tax treatment of the Malaysian single-tier dividend,do not launch into an introductory paragraph on the different types of dividend, exempt account, exempt dividend, two-tier exempt dividend, transition from the imputation system etc. This is not relevant to the requirement that is being set which asked you to focus on the treatment of the single-tier dividend only.

6. Note the marks allocated
Be mindful of the marks allocated: it is an indication of how wide or how deep your answer should be (and the time you have to answer the requirement).

For example, if a question presents you with two scenarios and you are required to consider whether withholding tax is applicable in each of these different scenarios, it is important that you note the marks allocated to each of the respective scenarios. If the Scenario in part (a) carries two marks while the scenario in part (b) carries five marks, this is an indication that part (b) requires more thinking through and more consideration while part (a) may be a more straightforward situation. It is important that you allocate your time accordingly and do not waste precious time providing a very lengthy answer to part (a) – remember, you cannot be awarded more than two marks for this part, however impressive your answer may be.

7. Use terms accurately
Part of the nature of tax is precision and attention to detail and it is consequently important that candidates sitting Paper P6 (MYS) are careful in their use of tax terminology such as exempted, allowable, deductible, interest restriction, etc:

To illustrate this point, below are listed some examples of clumsy use of tax terminology which is frequently encountered in Paper P6 (MYS) candidate scripts:

  • Stating the employer is 'exempted', when it should be the employer is 'allowed a tax deduction'
  • Stating that 'the company is entitled to be an RPC', when what is meant is 'company is classified as an RPC'
  • Stating 'there will be interest restriction', when what is meant is 'there will be interest attribution to different sources of income'
  • Stating 'the transaction is eligible for/entitled to controlled sale treatment' when what is meant is that 'the transaction will be subject to controlled sale provisions/rules' (the former wording suggests an entitlement to a preferential treatment, when this is often not the case).


It can be seen from all of the above examples that a failure to use tax terms accurately can change the sense of what the candidate has written and may render an answer technically incorrect.

8. Think before you write
Due to the complexity of the scenarios presented at the Paper P6 level, it is important to think before you write. This thinking time gives you time to be clear on the facts of the scenario and what the requirements are asking you to do.

Thinking before you write should also help you avoid wasting time by writing about irrelevant matters which do not address the requirement set.

To look at this another way, if a tax client came into your office to request some advice, you would not quickly read through the presented documents and immediately present your advice. Rather, you would take some time to think through the implications and to fully understand the work the client required you to do. The same logic applies in the Paper P6 (MYS) exam.


Best practices

In light of the above exam techniques, some best practices have been compiled to increase the effectiveness of your preparation for the Paper P6 (MYS) exam. This list is not comprehensive but should present you with some useful suggestions to make use of in the course of your preparation for the exam.

1. Constantly improve your English
Read, listen, speak, practise, and improve. Ensure you are comfortable with the relevant tax terms and how to use these. Practice answering past exam questions in the allocated time to ensure you are answering the requirement in a clear and coherent fashion – it is not as easy as you might think!

2. Do not memorise without understanding
If you understand or comprehend what you are learning, it is much easier to remember and recall (and to apply correctly in the exam!). If you do not understand a technical point, ask others: your peers, your lecturers etc. This may spark a technical discussion where you learn a lot more than you would have reading by yourself.

3. Understand the rationale or the basis for the rules
Wherever applicable, learn about the rationale for certain rules or laws. It then becomes easier to remember them as they should make more sense.

4. Make short notes
Having read through and understood the reference materials, make short notes on cards. This will entrench or reinforce your understanding of the subject matter.

A good technique is to try and summarise a topic in your own words. Not only does this test whether you have understood the topic but it also helps ensure you are able to express yourself clearly in English (see best practice point 1, above).

5. Share and learn
Form discussion groups with like-minded fellow students to benefit from peer-group learning. There should be unreserved sharing amongst group-members of what each member understands. In sharing and vocalising what you have learned, you will remember better because you have processed the subject matter, understood it and expressed it in your own words. Therefore, in sharing, you are retaining. Often you may find that your fellow students all struggle with different areas of the syllabus. Perhaps you can help a fellow student on the area you are strongest on and receive assistance in return on an area you find more of a challenge.

Written by a member of the Paper P6 (MYS) examining team

Last updated: 20 Apr 2015