Pricing Convertible Securities - The Malaysian Institute Of Certified ...

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2 PERSPECTIVEThe Malaysian AccountantThe lead feature in this issue of the journal focuses on the key tax developments that have takenplace from the period of September 2011 to February 2012.These key developments concentrate mainly on the enactment of the Finance Act 2011, thegazetting of several proposals as announced in the recent Budget, the issuance of several PublicRulings, updates on double tax agreements and the Trans-Pacific Partnership Agreement as wellas administrative guidelines and tax filing programme for 2012 issued by the Inland Revenue Board(IRB).One of the interesting aspects’ to note is that several contentious proposals in the 2012 Budgethave not been enacted in the Finance Act 2011. The majority of Public Rulings that were issuedconcerned personal taxation in relation to tax treatment of gratuity on retirement, compensationreceived for loss of employment and taxation of foreign nationals working in Malaysia includingthose working for operational headquarters, regional offices, international procurement centresand regional distribution centres. Read more on these tax updates inside.More on integrated reporting. In the October 2011 issue, the journal had reported on the pressureto change the landscape for corporate reporting. However, the recent financial crisis and thefinancial scandals have underscored the need for a different form of reporting.It was found that simply reporting on CSR and sustainability issues is not enough. Now there is ademand for reporting that not only discloses non-financial information but also one that allowsinvestors to identify the link between non-financial and financial information. This method ofreporting is called Integrated Reporting. Read more about it inside.What does one know about convertible securities? Convertible securities are traded widely inglobal debt markets. The most common convertible securities are convertible bonds andconvertible preferred stocks. The Convertible Bond (CB) is an equity-linked instrument that givesthe holder of the bond the right to convert the bond into a predetermined number of common stockin the future. It is attractive to investors as it provides downside protection of a straight bond withcoupons and principal payback at maturity plus the upside return of equities.Being a hybrid of a bond and equity, the price behaviour of a CB is rather unique but not very clearcut.The article inside describes the features of the CB and its pricing behaviour and illustrates twocommon pricing methods in the market.We all know that being healthy is one of the most important things’ in our lives. We would do almostanything to ensure good health and go to great lengths to look for ways to improve our general wellbeing. One way to do it is to drink healthy green smoothies. Read more about the benefits of greensmoothies in the lifestyle section.M a r c h - A p r i l 2 0 1 2 w w w . m i c p a . c o m . m y
The Malaysian Accountant FEATURE 3MALAYSIANUPDATESBy Thang Mee LeeSet out below is a summary of the key tax developments(excluding case law developments) that have taken placeduring the period from September 2011 to February 2012.The key developments centre on the enactment of the Finance Act2011, the gazetting of several proposals as announced in therecent Budget, the issuance of several Public Rulings, updates ondouble tax agreements and the Trans-Pacific PartnershipAgreement as well as administrative guidelines and tax filingprogramme for 2012 issued by the Inland Revenue Board (IRB).An interesting aspect to note is that several “contentious”proposals in the 2012 Budget have not been enacted in theFinance Act 2011 (as outlined below). The majority of PublicRulings issued concern personal taxation in relation to taxtreatment of gratuity on retirement, compensation received for lossof employment and taxation of foreign nationals working inMalaysia including those working for operational headquarters,regional offices, international procurement centres and regionaldistribution centres.Malaysia has successfully negotiated its first bilateral freetrade agreement (“FTA”) with a Latin American country i.e. Chile,which has come into force in February 2012. The other FTAs,which Malaysia is currently negotiating, are with Turkey andAustralia respectively. The tenth round of negotiation amongstmembers of the Trans-Pacific Partnership (“TPP”) was held inKuala Lumpur in December 2011 (the eleventh round ofnegotiations was subsequently held in Melbourne in March 2012).The TPP accounts for a third of Malaysia’s global trade andtogether with the FTAs concluded by Malaysia, this would increaseMalaysia’s share of global trade covered under the preferentialtreatment to above 70%.The tax filing programme for 2012 released by the IRBrecently provides for extension of time (or grace period) for the filingof tax returns by e-filing (i.e. 15 days) and by post (i.e. 3 days).These grace periods are also applicable for payment of balance oftax under Section 103(1). However, there will not be any extensionof time for filing of tax returns by hand.Gazette OrdersIncome TaxFinance Act 2012The Finance Act 2012 was gazetted on February 9, 2012 toenact the Budget 2012 proposals. However, the followingproposals as announced in the Finance (No. 2) Bill 2011 were notenacted:-• Section 80(1B) – Power of access of the DG to be extended tocover access to computerised data stored on a computer orotherwise, including passwords, encryption codes, etc.• Section 81(2) – Power of the DG to disregard information wheresuch information is furnished after the time-frame imposed bythe DG and hence such information cannot be used to disputeany assessment made or in any proceedings before theSpecial Commissioners or courts• Section 106 – Discretion of the DG to remit the whole or anypart of the interest on judgment debt awarded by the court tothe Government in any civil proceedings• Section 107D – Power of the DG to direct a person to pay taxby instalments in cases where the person does not file a returnwithin the stipulated dateline and where the DG has reason tobelieve that the person has made an incorrect return or hasprovided incorrect information• Section 54A – amendment to reduce income tax exemptionfrom 100% to 70% for Malaysian shipping companies carryingw w w . m i c p a . c o m . m y M a r c h - A p r i l 2 0 1 2
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