TAXING AS JOINT VENTURE OR PARTNER?

Abstract

The Petroleum Income Tax Act of 1967 (PITA) is a reference point for taxation during the implementation of the Production Sharing Contract regime in Malaysia. The term person under the purview of the PITA encompasses partnerships, which, includes joint venture. The present study aims to elucidate the intricate interplay of relationships and transactions within a joint venture, with a specific focus on comprehending the underlying rationale for considering the entire joint venture as the chargeable person under the PITA, as opposed to taxing individual partners separately. The methodology is based on Research Onion Framework with qualitative research and inductive approach leveraging on action research. Analysing literature review to delves into the structural of the joint ventures and the preparatory measures aimed at ensuring the equitable participation of the involved parties in the joint venture arrangement, particularly in managing various alternative activities that may arise alongside the primary Joint Operating Agreement (JOA) activities, often manifesting as sole risk projects. The engagement in various non-monetary activities and the collective contributions of all partners, particularly in mitigating risks and ensuring the success of upstream exploration and production, are regarded as contributions that may not lend themselves to a straightforward division, which support the joint ventures as a chargeable person. The outcomes derived from this methodological approach culminate in a model that elucidates the rationale for taxing joint ventures as opposed to individual partners within the joint venture. This clarification is essential for all involved parties, including taxation agencies, industry stakeholders, and policymakers. Novelty: The study represents an initiative within Malaysia, to explore the interpretation of the PITA. The motivation was sparked by inquiries from industry stakeholders, who expressed apprehensions regarding the tax assessment processes, whether in the context of joint ventures or individual taxpayers.