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Industry Guide:

Petroleum Downstream

 
Please click here to download complete guide.

 

FREQUENTLY ASKED QUESTIONS 

Group Registration 

1. Due to the complex nature of the petroleum downstream business, there are many registered companies which are interconnected to each other in terms of operations and equity control. For example, Company ‘A’ is a large oil and gas conglomerate. Under its operations there are myriad of business activities inter-related to each other such as refining, storage and distribution, marketing/retailing, logistic and transportation, and Research and Development. Each of these activities is managed and administered by a registered company. To achieve cost efficiency of compliance, Company ‘A’ has opted to register for GST group registration. Are the companies eligible for GST group registration?

Group registration is a facility that allows two or more related companies to register as a group for GST purposes. The pre-requisite conditions for group registration are: 

(a) each company must be making wholly taxable supplies. However, where a company is making incidental exempt supplies, the company is also allowed to be a member of the group (Please refer to GST General Guide for details on incidental exempt supplies);

(b) each company must be GST registered individually before they register as a group;

(c) company holding more than 50% of the issued share capital is considered as having controlling power over the other companies; and

(d) all members of the group shall be jointly and severally responsible for the payment of tax.

For the purpose of group registration, a company is considered to have control over another company either directly or indirectly through subsidiaries by holding more than 50% of the issued share capital of the other company. 

An illustration of direct and indirect controls is shown below:

Figure 1: Control Test for Group Registration 




















Note:

Company A has direct control in Companies B and C. They are eligible to be members of a group because Company A has a 55% stake in Company B and a 100% stake in Company C respectively, i.e. more than 50% of the issued share capital. Company A has an indirect control (stake) of 55% {55% x 100%} in Company E and thus Company E is also eligible to be a member of the group. Company D cannot be a member of the group because Company A has only an indirect control (stake) of 19.25% {55% x 35%} in it. 


Bunker Oil 

2. Domestic-registered and foreign-registered vessels berthing at the local ports to acquire the supply of bunker oil. What is the GST treatment on the bunker oil supplied to the ships?

The supplies of bunker oil to the following ships are zero rated: 

(a) ships which are involved with international voyages; and

(b) ships that ply between ports of Peninsular Malaysia and East Malaysia but it stops in Singapore or Indonesia in between the journey. 

The supplies of bunker oil to the following ships are standard rated: 

(a) fishing boats including trawlers and deep sea fishing boats;

(b) local movement cargo vessels;

(c) domestic passenger ships such as ferries;

(d) domestic travel ships such as cruises; and

(e) non cargo carrying ships like tugboats, dredgers, cable layer and submarines. 



Supply of fuel to Airlines 

3. What is the GST treatment for the supply of fuel to airlines?

Supply of fuel for domestic flights is subject to standard rate and zero rate for international flights. 


Storage Loss 

4. Storage loss is a loss of petroleum products while being stored in the bonded oil depot after taking into account the permissible loss percentage due to natural causes such as evaporation and thermal variation. During the monthly measurement, a warehouse operator realized that he has incurred losses of diesel and petrol arising from the storage in the bonded warehouse or depot. Is the operator liable to pay GST on the losses exceeding the permissible loss percentage?

Yes, the loss over and above the permissible loss percentage is subject to GST at a standard rate. However, the loss not exceeding the permissible loss percentage is not a supply and therefore not subject to GST. The permissible loss percentage is as follows: 

(a) Diesel - 0.25%  

(b) Petrol - 0.50% 


Transit Loss 

5. Sometimes, the oil depot received supply from the local petroleum refineries or other licensed petroleum depots. During the transmission process of the petroleum products, either by direct pipeline or by vessel, the company may incur loss which exceeded the permissible loss percentage. Is this loss liable to GST?

Yes, the loss over and above the permissible loss percentage is subject to GST at standard rate. 


Import Loss 

6. Import loss is quite similar to that of transit loss. The only difference is that the goods or stock is imported. Is the loss subject to GST?

Yes, it is subject to GST at standard rate if the quantity loss exceeded the permissible loss percentage.


Continuous Supply of Feedstock 

7. In the highly integrated petroleum complex, the finished product of one plant becomes the feedstock or raw material for the other. The supply is transferred between plants by pipelines on a continuous basis. All the firms involved in the complex are companies of the same group. What is the GST treatment for the feedstock supplied within the highly integrated petroleum complex? 

The company which supplies the feedstock has to charge GST while the company receiving the feedstock is entitled to claim the GST as input tax. The supply of petroleum product by a pipeline is treated as a continuous supply. GST has to be accounted for when payment is received or when the invoice is issued, whichever is the earlier. However, he companies involved may be eligible for group registration subject to the fulfillment of the GST group registration requirements. For group registration, supply between members of the same group is disregarded. Supply to non members of the group is subject to GST.


Operating in Foreign Country 

8. What is the GST treatment for supplies received and made by a subsidiary company operating in a foreign country?

If a company located in Malaysia makes a supply of goods and services to a subsidiary company operating in a foreign country, the supply is treated as zero-rated.

Any supply made by the subsidiary company is treated as out of scope and therefore not subject to GST because the supplies of goods and services made by him are outside Malaysia. 


Company Registered in Designated Areas 

9. A company which is located in a designated area is intending to undertake business activities within Malaysia. The business activities will have the GST implications. Is the company eligible to register for GST and entitled to claim input tax credit for GST charged by his suppliers?

Yes, it is eligible to register for GST and is entitled to claim GST incurred on the inputs acquired.

Under GST, designated areas (DA) refer to Langkawi, Labuan and Tioman. The GST treatment for supply of good and services in relation to DA is as follows:

 (a) Supply of goods and services (except for selected goods and services prescribed by the Minister of Finance) within DA is not subject to GST.

 (b) Supply of selected goods and services prescribed by the Minister of Finance within DA is subject to GST at a standard rate.

 (c) Supply of goods (except for selected goods prescribed by the Minister of Finance) from principal customs area to DA is subject to GST at zero rate.

 (d) Supply of selected goods prescribed by the Minister of Finance from the principal customs area to DA is subject to GST at standard rate.

 (e) Supply of services from principal customs area to DA is subject to GST at standard rate.

 (f) Supply of goods and services from DA to principal customs area is subject to GST at standard rate.

 (g) Supply of goods (except for selected goods prescribed by the Minister of Finance) from one DA to another DA is not subject to GST.

 (h) Supply of selected goods prescribed by the Minister of Finance from one DA to another DA is subject to GST at standard rate.

 (i) Supply of services (other than freight services and selected services prescribed by the Minister of Finance) from one DA to another DA is not subject to GST.

 (j) Supply of freight services and selected services prescribed by the Minister of Finance from one DA to another DA is subject to GST at standard rate.  

 (k) Importation of goods and services (except for selected goods and services prescribed by the Minister of Finance) into DA is not subject to GST.

 (l) Importation of selected goods and services prescribed by the Minister of Finance into DA is subject to GST at standard rate.

 (m) Exportation of goods and services from DA to overseas is subject to GST at zero rate. 


Swapping of Supply 

10. Supplier A, a Malaysian oil company, received an order from B, an overseas company, to buy crude oil. Instead of delivering the crude oil to B, A asked C who is his business associate in Europe to deliver on his behalf. At the same time, C also has an agreement to deliver crude oil to D, a company located in Malaysia. Both A and C agreed to swap the supply of crude oil which is of similar quantity and quality. What is GST treatment for the swapping of supply of crude oil which involved an out of scope supply and a local supply as shown in Figure 2 below?

Figure 2: Swapping of Supply
























The transaction between A and D is a local supply. Thus, it is a taxable supply and is subject to GST at a standard rate. A charges GST on the supply made to D but issues tax invoice to C (U.K). Assuming that C (U.K) is registered for GST, he is entitled to input tax. For the supply made to D, C (U.K) is required to charge GST on the supply in which D is entitled to claim as input tax if D is registered for GST. If C is not registered for GST, he is not entitled to input tax and not required to charge GST on the supply. The transaction between C and B is outside of Malaysia. The out of scope supply is not subject to GST.  
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