MKH Annual Report 2020

209 MKH BERHAD 35. FINANCIAL GUARANTEE The Company 2020 RM 2019 RM Corporate guarantees given by the Company to financial institutions and  creditors for banking and credit facilities granted to the subsidiaries:  Outstanding as at financial year end 561,486,678 638,519,708 The financial guarantees have not been recognised since the fair value on initial recognition was immaterial as the financial guarantees provided by the Company did not contribute towards credit enhancement of the subsidiaries’ borrowings in view of the securities pledged by the subsidiaries and it is not probable that the counterparties to financial guarantee contracts will claim under the contracts. 36. CONTINGENT LIABILITIES (a) On 18 April 2016, PT Maju Kalimantan Hadapan (“PTMKH”), a subsidiary of the Company, received a tax assessment letter from the Indonesia’s Director General of Tax (“DGT”) for the year of assessment 2012, to restrict the claims on net realised and unrealised foreign exchange losses incurred amounted to IDR97,700 million, equivalent to RM30.7 million. According to the tax objection in Balikpapan, Indonesia, on 19 June 2017, DGT restricted PTMKH’s claims on net realised and unrealised foreign exchange losses up to IDR7,414 million, equivalent to RM2.3 million instead of abovementioned IDR97,700 million. Based on applicable corporate income tax rate of 25%, the restricted amount of the net realised and unrealised foreign currency exchange losses of IDR90,286 million, equivalent to RM28.4 million will result in over- recognition of tax benefit of IDR22,571 million, equivalent to RM7.1 million in the financial statements of the Group and PTMKH. On 6 August 2018, PTMKH received official verdict letter from the DGT for year of assessment 2012’s tax appeal. The entire net realised and unrealised foreign exchange losses of IDR90,286 million, equivalent to RM28.4 million is allowable to claim as expenses in the tax return submitted by PTMKH. On 29 August 2017, PTMKH received tax assessment letter from DGT for the year of assessment 2013, to restrict the claims on net realised and unrealised foreign exchange losses incurred amounted to IDR188,875 million, equivalent to RM59.3 million. According to the tax assessment letter, DGT restricted PTMKH’s claims on net realised and unrealised foreign exchange losses up to IDR44,405 million, equivalent to RM13.9 million instead of abovementioned IDR188,875 million. Based on applicable corporate income tax rate of 25%, the restricted amount of the realised and unrealised foreign exchange losses of IDR144,470 million, equivalent to RM45.4 million will result in over-recognition of tax benefit of IDR36,118 million, equivalent to RM11.3 million in the financial statements of the Group and PTMKH. On 27 November 2017, PTMKH filed an objection letter in reply to tax assessment letter for the year of assessment 2013. The objection letter has been rejected by tax appeal office in Balikpapan, Indonesia. On 19 December 2018, PTMKH filed an appeal to tax court in Jakarta, Indonesia. On 10 June 2020, PTMKH received official verdict letter from the DGT for year of assessment 2013’s tax appeal. The entire net realised and unrealised foreign exchange losses of IDR144,470 million, equivalent to RM45.4 million is allowable to claim as expenses in the tax return submitted by PTMKH. Notes to the Financial Statements FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2020