MKH Annual Report 2018

182 MKH Berhad Annual Report 2018 31. FINANCIAL GUARANTEE The Company 2018 2017 RM 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 646,246,556 781,034,663 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. 32. CONTINGENT LIABILITY 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 o cial 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 o ce in Balikpapan, Indonesia. On 19 December 2018, PTMKH filed an appeal to tax court in Jakarta, Indonesia. Based on consultation with the local tax experts, the directors of PTMKH are of the opinion that PTMKH has a valid defense against DGT’s assessments for both years of assessment 2012 and 2013. Accordingly, PTMKH has not made any adjustments in respect of the tax assessments in the financial statements. FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2018 NOTES TO THE FINANCIAL STATEMENTS