TAX521: Daniel and Dominic are brothers from a well-to-do Malaysian family in Johor Bahru. Both are Malaysian citizens: OECD Model Tax Convention Assignment, SUSS

Daniel and Dominic are brothers from a well-to-do Malaysian family in Johor Bahru. Both are Malaysian citizens.

Both brothers were successfully accepted by universities in Singapore. Daniel enrolled in a business management and finance course; Dominic studied botany. When both brothers arrived in Singapore on 1 August 2017, they moved directly into, and shared, a rented bedroom in a residential unit in a condominium in town.

Both brothers opened and maintained separate bank accounts at United Overseas Bank in Singapore (UOB SG). They received monthly allowances from their parents that were remitted to them in Singapore through their respective bank accounts kept with United Overseas Bank in Malaysia (UOB MY).

Although both boys were studying in Singapore, from January 2018, they were able to travel between Singapore and Johor Bahru by juggling their timetables. They would leave Singapore on Thursday evening and would return to Singapore on Sunday night. They did this because they wanted to spend an extended weekend in Johor Bahru with their parents.

They did this every week except when movement was restricted during the COVID-19 pandemic. Both brothers stayed in Singapore during the COVID-I 9 pandemic and resumed their travel pattern after the guidelines established by the Malaysian Government on 2 October 2020 for entry into Malaysia were phased out effective in April 2022.

Both brothers completed their tertiary education in 2021.

At home in Singapore during one weekend in July 2021, after some discussion on the cost of doing business and other related issues, both brothers decided to incorporate a private limited company in Malaysia, Verde Living Sdn Bhd, with a 31 December year-end. The brothers instructed a service provider in Malaysia via Zoom.

Daniel holds 60% of the shares of the Malaysian company and Dominic holds the balance of 40%. Both brothers are directors of a Malaysian company. This Malaysian company offers design services, installation, and maintenance of vertical gardens, or green walls. Dominic is in charge of designing the vertical garden, and Daniel will manage all other aspects of the business.

Although there were inquiries, the Malaysian company was not successful in obtaining any business in Malaysia.

Both brothers decided to step up their efforts to market vertical gardens in Singapore instead.

To prepare for business implementation and growth in Singapore, the brothers discussed and decided to commence establishing and expanding their business footprint in Singapore.

A company, Verde Living (S) Pte Ltd, with a 31 December year-end was incorporated in Singapore as a subsidiary of the Malaysian company in September 2021. Both brothers are directors in the Singapore company and the company secretary is provided by a professional company secretarial firm. The Singapore company will also provide vertical garden design, installation, and maintenance services for customers in Singapore.

The Singapore company will subcontract the entire contract to the Malaysian company. Potential clients would sign only one contract with the Singapore company and would not know that all the services would be provided by the Malaysian company.

In September 2021, the brothers also decided to rent an apartment in Singapore with a balcony and renovated the apartment to showcase how vertical gardens, which can be as small as a picture frame or massive enough to cover an entire wall, can be incorporated as part of the decor. The brothers intend to use the apartment as their home and as an office and to entertain existing and potential customers and business associates.

Inquiries picked up after the Singapore company stepped up its marketing efforts making use of photographs and videos of the newly renovated apartment on various social media channels.

In mid-2022, the brothers hosted a small party in the apartment. During the party, Daniel managed to strike a deal with a developer from Malaysia, who is interested in launching a residential development in Kuala Lumpur with green living as a theme for sale to buyers from Singapore.

The Malaysian developer was keen to pay the brothers for a vertical garden on one of the walls in the balcony of the units as a unique feature unless the potential buyer opts out. However, the Malaysian developer wanted a Malaysian company to be involved but payment was to be made in Singapore from the deposits paid by the Singapore buyers.

Daniel decided to involve Verde Living Sdn Bhd in this project and promptly opened a bank account for the Malaysian company with UOB SG. The contract with the Malaysian developer was signed with Verde Living Sdn Bhd using its letterhead but with a doing address in Singapore, which was the address of the apartment. Daniel also gave the bank account information to the Malaysian developer, informing him that the bank account would be used exclusively for transactions relating to this project.

In early December 2022, Verde Living Sdn Bhd conducted its first physical annual general meeting in Johor Bahru with the company secretary from the professional corporate secretarial service provider. Daniel was physically present for this meeting and Dominic dialed in from Singapore because he was hospitalized for dengue fever. Verde Living Sdn Bhd declared the director’s fee for Daniel and Dominic for 2022 in arrears since both directors were not paid salaries for 2021 and 2022.

Two weeks later, Verde Living (S) Pte Ltd conducted its first physical annual general meeting in Singapore with the company secretary from the professional corporate secretarial service provider. Daniel and Dominic were physically present for this meeting.

Assume the avoidance of double taxation agreement between Singapore and Malaysia is identical to the OECD Model Tax Convention.

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