➡Background of Multi Square case
In the case of Multi Square Sdn Bhd vs. Ketua Pengarah Hasil Dalam Negeri, the High Court determined that management fees aren’t tax deductible due to the Management Services Agreements (MSAs) being seen as sham agreements.

➡ Key takeaways include:
Multi Square is a subsidiary of Sersol Berhad and is involved in the production and sale of paints and chemical solvents.

The Inland Revenue Board of Malaysia disallowed the management fees (above RM900k for 2 years of assessment) paid to Sersol, claiming that these were essentially part of Sersol’s responsibility as the holding company.

The Taxpayer’s appeal was dismissed by the Special Commissioners of Income Tax.

The MSAs in question were found to be deficient in several ways including being only a page long, lacking detail, not clarifying the services Sersol provided, not detailing the number of people or hours worked by Sersol, and failing to specify Sersol’s liability.

There was a lack of evidence or records showing Sersol provided these services.

The MSAs were seen as false contracts that only appeared to establish legal responsibilities between the two entities.

Therefore, the management fees cannot be deducted from taxes as per Section 33(1) of the Income Tax Act 1967.

➡ Final Words
Lastly, it’s essential to clarify that this case doesn’t mean all management fees aren’t tax deductible. Here, the deduction was denied because of the sham nature of the MSAs and the lack of evidence that Sersol provided services.

The case underscores the importance of maintaining clear and detailed management services agreements and proper record-keeping. Don’t play play.