Contributed by Joanne Leong and Janet Chai, with photo by HR Dipendra
Kuala Lumpur, 31 July 2010: Day 3 of the 15th Malaysian Law Conference 2010 included a session, wherein developments in tax law were discussed. Moderated by Yang Berbahagia Tan Sri Hasmah Abdullah, Chief Executive Officer, also the Director General, of the Inland Revenue Board Malaysia, the panel speakers consisted of advocates and solicitors, Datuk DP Naban of Lee Hishammuddin Allen & Glenhill and Anand Raj of Shearn Delamore & Co, and accountant Ms. Yeo Eng Ping of Ernst & Young Tax.
Kuala Lumpur, 31 July 2010: Day 3 of the 15th Malaysian Law Conference 2010 included a session, wherein developments in tax law were discussed. Moderated by Yang Berbahagia Tan Sri Hasmah Abdullah, Chief Executive Officer, also the Director General, of the Inland Revenue Board Malaysia, the panel speakers consisted of advocates and solicitors, Datuk DP Naban of Lee Hishammuddin Allen & Glenhill and Anand Raj of Shearn Delamore & Co, and accountant Ms. Yeo Eng Ping of Ernst & Young Tax.
Yeo started her presentation by expressing her appreciation in the invitation to speak at the Conference, to be given the opportunity to rekindle her relationship with the legal fraternity. Her presentation focused on the global trends in tax law and how those trends have affected or will affect Malaysia. That in the last 10 to 15 years, in her view, Malaysia has seen the most fascinating changes and developments in tax law, and in this regard, referred to the goods and services tax, the implementation of which is still being debated.
Yeo’s presentation included examples of global trends – the amendments in tax laws in Australia and the United Kingdom in which directors can now be penalised for as much as £5,000 if they failed to adhere to the tax accounting procedures.
Other global developments include countries like South Korea implementing blacklisting tax legislation and also Australia with its anti–abuse tax provisions. Another vital global development mentioned is the fall in income tax rates, and on this, commented that Malaysia has adopted the global trend in lowering the tax rates quite substantially over the last few years.
Datuk DP Naban focused his presentation on the non–discretionary and discretionary powers available to the Director General of the Inland Revenue Board under the Income Tax Act. Examples of discretionary powers include imposition of penalties by the Director General for incorrect returns; waiving the requirement of an employer having to give written notice when an employee intends to leave Malaysia for more than 3 months; granting extension of time; entering into advance pricing arrangement with taxpayers.
On the question whether the discretion available to the Director General is an unfettered discretion, he highlighted to the audience authorities propounding the principle that discretion should be exercised for a proper purpose and that it should not be exercised unreasonably. Datuk Naban emphasised that clients must be advised on the limits to the discretion of the Director General, and if ever misused, should be challenged.
The last speaker for the session was Anand Raj who started his presentation by highlighting to the audience the case of Inland Revenue v Malaysian Bar (2009), wherein the Court of Appeal affirmed the decisions of the Special Commissioners of Income Tax and the High Court in holding that subscriptions, contributions and donations received from members of the Malaysian Bar, interest income on deposits of various funds as well as income derived from the Compensation Fund are not taxable.
Anand’s presentation was however focused on the provisions in relation to transfer pricing and thin capitalisation under the Income Tax Act. On transfer pricing, Anand questioned the need for the implementation of section 140A(3) when there was already in place the existing section 140, which in his view, is a more than adequate provision. In relation to thin capitalisation, he stated that the “financial assistance” in section 140A(4) is unclear. On these issues, he invites the Minister to formulate rules and regulations using the power given under the Income Tax Act, to clarify the position.
Anand concluded his presentation with an in–depth analysis on the proposed goods and services tax soon to take effect and remarked that Malaysia is one of the few countries left in ASEAN which has yet to impose such tax.
Tan Sri Hasmah ended the session by announcing that Malaysia has complied with international protocols in the exchange of information, which she acknowledged is necessary for Malaysia to attract more foreign investors to the country.
Yeo’s presentation included examples of global trends – the amendments in tax laws in Australia and the United Kingdom in which directors can now be penalised for as much as £5,000 if they failed to adhere to the tax accounting procedures.
Other global developments include countries like South Korea implementing blacklisting tax legislation and also Australia with its anti–abuse tax provisions. Another vital global development mentioned is the fall in income tax rates, and on this, commented that Malaysia has adopted the global trend in lowering the tax rates quite substantially over the last few years.
Datuk DP Naban focused his presentation on the non–discretionary and discretionary powers available to the Director General of the Inland Revenue Board under the Income Tax Act. Examples of discretionary powers include imposition of penalties by the Director General for incorrect returns; waiving the requirement of an employer having to give written notice when an employee intends to leave Malaysia for more than 3 months; granting extension of time; entering into advance pricing arrangement with taxpayers.
On the question whether the discretion available to the Director General is an unfettered discretion, he highlighted to the audience authorities propounding the principle that discretion should be exercised for a proper purpose and that it should not be exercised unreasonably. Datuk Naban emphasised that clients must be advised on the limits to the discretion of the Director General, and if ever misused, should be challenged.
The last speaker for the session was Anand Raj who started his presentation by highlighting to the audience the case of Inland Revenue v Malaysian Bar (2009), wherein the Court of Appeal affirmed the decisions of the Special Commissioners of Income Tax and the High Court in holding that subscriptions, contributions and donations received from members of the Malaysian Bar, interest income on deposits of various funds as well as income derived from the Compensation Fund are not taxable.
Anand’s presentation was however focused on the provisions in relation to transfer pricing and thin capitalisation under the Income Tax Act. On transfer pricing, Anand questioned the need for the implementation of section 140A(3) when there was already in place the existing section 140, which in his view, is a more than adequate provision. In relation to thin capitalisation, he stated that the “financial assistance” in section 140A(4) is unclear. On these issues, he invites the Minister to formulate rules and regulations using the power given under the Income Tax Act, to clarify the position.
Anand concluded his presentation with an in–depth analysis on the proposed goods and services tax soon to take effect and remarked that Malaysia is one of the few countries left in ASEAN which has yet to impose such tax.
Tan Sri Hasmah ended the session by announcing that Malaysia has complied with international protocols in the exchange of information, which she acknowledged is necessary for Malaysia to attract more foreign investors to the country.