29/09/2025

BIZ & FINANCE MONDAY | SEPT 29, 2025

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Best practices for handling intra-group financing deals I NTRA-GROUP financing (IGF) has become one of the most scrutinised areas in taxation. The taxman looks at these transactions as a form of financial assis tance that should be analysed accurately. while dividends paid from share capital are not deductible. There is a tendency for the overzealous tax manager in any conglomerate to pump in extra financing so that they can obtain tax deduction on the interest and reduce the overall tax liability. interest free loans. In such a circumstance, the determination of whether it is a loan or equity is critical in determining the arm’s length nature of the capital structure.

Land disposal gain lifts MCE Holdings FY25 Patami to RM23.9 million

PETALING JAYA: MCE Holdings Bhd achieved revenue of RM152.60 million for the full year ended July 31, 2025 (FY25), compared with RM155.66 million in FY24, while profit after tax and minority interest (Patami) rose to RM23.91 million from RM15.96 million in FY24, boosted by a one-off gain from disposal of land. Excluding this item, Patami was RM17.59 million, representing a 10.2% increase year-on year, driven by stable contributions from the group’s core automotive business, improved operating efficiency and higher interest income from healthy cash flow. The group declared a second interim dividend of 4 sen per share, payable on Nov 14. Including the first interim dividend of 6 sen per share paid on May 15, this brings the total payout for FY25 to 10 sen per share. The board determined the payout after considering the group’s financial performance, which included the one-off gain from the disposal of land, enabling a higher distribution this year. The decision also took into account ongoing investments, such as the commissioning of the MCE Auto Hub in Serendah and expansion into new original equipment manufacturing and international markets. For the fourth quarter (Q4) of FY25, the group reported revenue of RM40.08 million, repre senting an 8.5% increase from RM36.95 million in the same quarter of FY24. However, higher staff and administrative costs from recruitment and preparation for the commissioning of the MCE Auto Hub in Serendah, a transitional expense ahead of its commissioning in the last quarter of calendar year 2025, resulted in Patami of RM3.42 million compared with RM4.14 million previously. This transitional period will pave the way for expanded production capacity and the manu facture of higher-value automotive electronic components such as infotainment systems, digital displays and ADAS (Advanced Driver Assistance System) modules, including key parts for Perodua’s first electric vehicle, which is expected to enhance margins and move the group further up the automotive industry value chain. MCE Holdings group managing director Dr Goh Kar Chun said the company closed FY25 with a resilient and stable set of results despite the challenges of a volatile operating environment. “This performance reflects the strength of our core automotive parts business and the discipline of our team in managing costs and efficiencies. Looking ahead, we have a healthy pipeline of projects, including supply agreements covering both electric and internal combustion engine vehicles.”

Once you have determined the proportion of the acceptable loan to capital that will meet the arm’s length test, the next steps will be to determine the arm’s length interest rate that should be charged on the IGF loan. In determining the arm’s length rate, you are encouraged to use the accepted transfer pricing methodologies, and the most common one would be a comparable price of a similar transaction available in the marketplace or a cost-plus method. You are entitled to use other methodologies, but you must be able to show that the methodology is acceptable in the marketplace.

The aim of the taxman is to ensure the “real” IGF transaction, i.e. loan, is identified and priced accordingly. In the area of IGF, loans and advances provided within the group are the most significant financial transactions that occurs in practice. The tax authorities are focusing on this area as they are attempting to ensure that there is no abuse of the use of the loan financing to shift profits to either offshore locations where the taxes are much lower than Malaysia or to tax shelters within Malaysia. It’s not uncommon to find many tax shelters in Malaysia and they usually arise due to tax holiday (pioneer status, investment tax allowance, loss carried forwards, etc.) It is the right of the taxpayer to allocate the profits which are commercially justifiable and meet the arm’s length test between the different entities within the group. The tax authorities scrutinise such allocations to ensure that excessive profits are not shifted unreasonably to the tax shelters within Malaysia or outside Malaysia. The reason loans are given greater emphasis by the tax authorities is that the interest payable on the loans is tax deductible PETALING JAYA: Pesona Metro Holdings Bhd’s wholly owned subsidiary, Pesona Metro Sdn Bhd, has accepted a letter of award from Indo Aman Bina Sdn Bhd for main building works on the upcoming DA Central Mall and The Arden. The contract covers Phase 1A, which consists of a 14-storey podium, and Phase 1C, a 40-storey office tower, both of which are integral components of the 48-acre Damansara Avenue master development in Bandar Sri Damansara, Selangor. The total contract sum is RM666 million and works will be undertaken over 30 months, commencing on Sept 18, 2025, and ending on March 17, 2028.

How should taxpayers avoid “the cat and mouse game”? Generally, taxpayers and tax authorities are on the same page – to pay the correct amount of tax. The underlying principle that must be met by the taxpayers to satisfy the tax authorities is to organise an IGF loan that will meet the arm’s length test i.e. the IGF loan transaction should be reflective of a similar transaction occurring between two independent parties in the open marketplace. The first consideration should be whether the amount of debt raised within the group can be substantiated with the characteristics of a debt. Some of the characteristics will be the right to receive regular interest payments, predetermined repayment date, no right to vote, etc. Even though an IGF has been labelled as loan, if the characteristics do not meet the loan criteria, then the transaction will be regarded as infusion of capital and interest payable will be recharacterised and therefore, not be tax deductible. A common problem faced by many Malaysian conglomerates is the provision of Phase 1A will feature two basement levels of car park, a six-storey commercial podium, a five-storey commercial podium, pedestrian link bridges connecting to Ativo Suites, Ativo Plaza and Sri Damansara Sentral MRT Station, as well as a vehicular ramp to Ativo Plaza. It also includes a nine-storey podium and car park levels, as well as one-storey serviced apartment facilities located at Level 8, which will be constructed in Phase 2. Phase 1C will comprise a 40-storey office tower block, including four storeys of facilities located at Levels 2 to 4, as well as at the roof level. Pesona Metro managing director Wie Hock

To avoid disputes with the authorities, the quantum of the debt versus equity and the pricing of the debt should be reflective of what happens in the open marketplace and it is absolutely key to prepare the necessary documentation to support each step of the analysis so that when the tax authorities come in they are convinced that you will give them the comfort that as a taxpayer you have taken the necessary steps to prove that your transaction meet the arm’s length test. This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com). Pesona Metro order book hits record RM2.6b after RM666m contract win

Beng said securing the project marks a significant milestone for the group as it strengthens its position in delivering large scale commercial developments. “With this latest win, our outstanding order book as of September 2025 will increase from RM2 billion to RM2.6 billion, marking the highest ever recorded in the group’s history. “The record-high order book provides us with clear revenue visibility for the next three years,“ he said in a statement. Wie said the group is also actively engaged in delivering landmark commercial and residential developments, while continuing to support the government’s affordable housing initiatives.

Hang Seng Index pulls back after three consecutive weeks of gains

Top stock warrants by value traded: Warrant Value Issuer Exercise

Group. Eco-Shop surged 10% during the week, closing at an all time high of RM1.50 on Friday. Investors were seen trading ECOSHOP-CM, which gained 67% in price throughout the week as of Friday’s close. To view the full list of structured warrants available on Bursa Malaysia, visit malaysiawarrants.com.my. Provided for Malaysian residents’ information only. This commentary has not been reviewed by the Securities Commission Malaysia. It is not an offer or recommendation to trade and is not research material. Past performance is not indicative of future performance. You should make your own assessment and seek professional advice. The warrants will not be offered to any US persons.

multi-year highs on new plans to ramp up AI spending (MSN, Sepy 25). Alongside, HSI futures saw notable moves on Wednesday and Friday last week. With the volatile moves, call HSI-CWKC was the top traded warrant, clocking in RM153.8 million traded in the week. Investors also hedged any downside risk by trading the puts such as HSI-PWJ8 and HSI PWLB which together clocked in over RM200 million traded. On Friday, HSI PWLB gained over 17% in its bid price as the HSI October futures fell 1.5%. In other global markets, the S&P 500 Index (SP500) and Nasdaq-100 ndex (NDX) notched in all time highs during the week but eventually came off their highs on Tuesday following US Federal Reserve chair Jerome Powell’s speech in which he com mented that “equity prices are fairly

WARRANTS WATCH

Expiry date

LAST week, turnover for warrants came in at RM826.3 million compared to RM337.8 million in the week before, which was due to a shortened trading period from the extended holidays last week amid the Malaysia Day celebrations. Similar to the previous weeks, turnover for the Hang Seng Index (HSI) warrants formed the bulk of turnover at RM679.1 million, which was 82.2% of the total. For the week to Sept 26, the HSI closed 1.6% lower, following three weeks of consecutive gains. The HSI saw red for four out of five days last week, with the exception being Wednesday, as the market rallied on the back of technology and artificial intelligence (AI) stocks amid Alibaba Group’s 9% gain to

name

(RM’ mil)

level

HSI-CWKC HSI-PWJ8 HSI-CWI3 HSI-PWLB HSI-CWI2

153.8 149.5 114.0 51.5 39.1

Macquarie Kenanga Kenanga Macquarie Kenanga

30,000.00 23,000.00 32,000.00 24,000.00 30,000.00

27 Nov 2025 27 Nov 2025 27 Nov 2025 27 Nov 2025 27 Nov 2025

3.8% from 3.3%. Trading activity was seen in SP500 warrants SP500-C56 and SP500-H57 on Friday. Meanwhile, turnover for warrants over Malaysia stocks grew to RM123.7 million as the FBM KLCI advanced 0.7% for the week. Some stocks which saw notable trading activity and price movements during the week include Gamuda, Eco-Shop Marketing, 99 Speed Mart and Southern Cable

highly valued” and signalled that the monetary easing path wasn’t clear (CNBC, Sept 25). Further, economic data that was released on Thursday evening nudged towards a streng thening labour market, dampening hopes of monetary easing as jobless claims for the week came in lesser than expected, while the second quarter gross domestic product was revised upward to an expansion of