Within the blink of an eye, we have come to the end of 2020. Although the greater part of 2020 was spent in quarantine, it has not stopped the Inland Revenue Board (“IRB”) from conducting tax audits and neither has it prevented the Courts from conducting hearings of tax cases via Zoom or Skype.
With that being said, there are a few noteworthy tax cases that laid down important principles and applications of the law. This post outlines 7 influential tax cases in 2020.
- IBM Malaysia Sdn Bhd v KPHDN
This case concerns the legal status of an advance ruling under Section 138B of the Income Tax Act 1967 (“the Act”).
Briefly, the taxpayer executed a software distribution agreement with a related company which allowed the taxpayer to distribute the software programs produced by the latter in Malaysia. The taxpayer made an application for an advance ruling to the IRB for a determination on whether the distribution payment is subjected to withholding tax as being “royalty”. The IRB issued its decision and stated that payment was considered royalty and hence was subject to withholding tax. Aggrieved, the taxpayer filed a judicial review application to appeal against the IRB’s decision.
The entire edifice of the objection made by the IRB was that the judicial review application was filed prematurely. The High Court allowed the judicial review application. However, the Federal Court and Court of Appeal overturned it but no grounds have been issued by the Federal Court. In the grounds of judgment, the Court of Appeal agreed with the IRB and held that the judicial review was premature as an advance ruling “has not adversely affected the (taxpayer) until the (taxpayer) has filed its tax return and tax was assessed.”
With all due respect, I find doubt in the decisions by the Court of Appeal and Federal Court and a fortiori the High Court position. It is apposite to note that the tax administration regime in Malaysia is a self-assessment system. The taxpayer decides the appropriate treatment of a certain transaction under the pre-existing laws. If in doubt, taxpayers may apply for an advance ruling to obtain clarification. This is the purpose of the advance ruling system. An advance ruling further behoves the taxpayer to be bound by the ruling with no remedy.
One of the arguments advanced by the IRB was premised upon its “Guidelines on Advance Rulings” which stated that the taxpayer may appeal under Section 99 of the Act if aggrieved by an Advance Ruling decision. A closer inspection of Section 99 does not allow for an appeal of an Advance Ruling. Therefore, there ought not to be any other remedy available to a taxpayer other than judicial review. The Court of Appeal’s decision is flawed in this perspective.
Nevertheless, unless the waters are tested once again by the apex court in Malaysia, the case as it stands, whether rightly or wrongly decided, is the law.
2. G Sdn Bhd v Ketua Pengarah Kastam Dan Eksais
This case was significant as it was a landmark decision by the Court of Appeal in recognising the application of the principle of De-minimis rule in tax cases.
In this instant case, the taxpayer was in the business of operating a chain of supermarkets and hypermarkets. Due to the change in the indirect tax regime from Sales and Service Tax to Goods and Service Tax, Section 190 and 191 of the Goods and Services Tax Act 2014 was enacted to prevent double taxation. The taxpayer made a Special Refund Application under Section 190 (“Application”) with the accompanying required documents. The Director-General of Customs refused the Application because of alleged errors made in the Application. The margin error allegedly made by the taxpayer was around the ballpark figure of 0.001388% – 0.015%. The High Court disallowed the Application and dismissed the judicial review application due to non-compliance.
The Court of Appeal reversed the decision of the High Court and allowed the claim. This is the first tax case in Malaysia that recognised the cardinal principle of De minimis Non Curat Lex This case now imbues revenue officers to exercise discretion proportional to the alleged mistakes made and are restrained from raising meagre non-compliance as grounds to reject refund claims in the entirety.
3. Uniqlo (Malaysia) Sdn Bhd v Ketua Pengarah Kastam Dan Eksais
Uniqlo was a decision by the Court of Appeal which enumerated the duty to give reasons by tax officers. The case is currently under appeal to the Federal Court.
The taxpayer in this case was retail business and imports garments. Similar to the above case, the taxpayer made an application for the special refund of sales tax under Section 191 of the Goods and Service Tax Act. The Customs Officer rejected the claim and the only reason given was “Keptusan Ketua Pengarah” and nothing else. Aggrieved, the taxpayer applied for judicial review to challenge the decision. The High Court rejected the taxpayer’s claim.
Relying on the case of Kesatuan Pekerja-pekerja Bukan Eksekutif Maybank Bhd v Kesatuan Kebangsaan Pekerja-pekerja Bank, the Court of Appeal held that there is a duty to give reasons for decision notwithstanding that the said duty is absent in statute. The guise of exercising absolute discretion offends the principle of natural justice.
This case confirms that tax officers cannot, without justifiable and express reasons, raise assessments, refuse refunds or vary transactions which prejudice the taxpayer who is left in the lurk to search for the reason. Discretion by public officers must be exercised judiciously to instill public confidence in the administration of governmental functions. The absence of providing reasons to be averse to interference and exculpate itself of liability will do more harm than good to the law-abiding citizens.
4. GCVSB v Ketua Pengarah Kastam Dan Eksais
A full analysis of the case can be found in an earlier analysis of the case here.
In essence, the case concerns the timing in which the taxpayer made its claim for the exceptional input tax claim. The taxpayer was in the business of property development and had purchased a piece of land (GST-inclusive) and thereafter sold the land on. Due to the sale of the land, the taxpayer registered to be a GST registered person and made an application (“Application”) to claim Exceptional Input Tax Claim for the refund of input tax incurred for the purchase of the land.
The GST Repeal Act was enacted which mandated all input tax claims to be made before 29 December 2018. However, the Respondent instructed the Applicant to not make an application for the Exceptional Input Tax Claim in the GST Return Form unless and until the Respondent had approved. The taxpayer obediently held its hands and submitted the first and only GST return form in September 2018, without stating the claim.
Approval was only given in March 2019 and the taxpayer accordingly claimed. However, the claim was denied on the ground that the claim ought to have been made in December 2018 as under the GST Repeal Act.
The High Court granted relief to the taxpayer and ordered that the taxpayer’s Exceptional Input Tax Claim be allowed. The Court found that the Applicant was acting at the behest of the Respondent and it would not be unconscionable for the Respondent to take a U-turn and required that the application be made before approval was given, in defiance of its own instructions. The Court established that the Taxpayer had made its claim to the Exceptional Input Tax Claim when it had submitted its tax return, therefore it was protected as an accrued right.
5. Prima Nova Harta Development Sdn Bhd v KPHDN
The taxpayer was in the business of property development. The taxpayer had applied to release housing units reserved for Bumiputera to be available for sale to non-Bumiputera. In return, the taxpayer had to pay a sum equivalent to the bumiputra discount to the state government and claimed the aforementioned payment as a deduction. The IRB and SCIT disallowed the sum as a deduction by finding that the payment was penal in nature for breaching the Bumiputra Quotas.
The High Court reversed the decision by the SCIT and allowed the payment to be deducted. In reliance of the case British Insulated and Helsby Cables Limited v Atherton, the Court found that the main purpose of the developer’s application was to allow the additional sale of houses. Without making the payment, the taxpayer would not earn any income and therefore the payment was closely connected to the generation of income of the taxpayer’s business.
6. BX Steel Posco Cold Rolled Sheet Co Ltd v Minister of Finance and others
This was a decision by the High Court in the determination of export prices to impose anti-dumping duties.
BX Steel Posco Cold Rolled Sheet Co Ltd was a company incorporated in the People’s Republic of China and exports Flat Rolled products to Malaysia. Various discussions between the parties were unfruitful and the Investigative Authority recommended an anti-dumping duty of 5.47% and this came into realisation vide Customs (Anti-Dumping) Duties Order 2019 P.U.(A) 69. Aggrieved, BX Steel applied for judicial review to quash the decision.
In allowing the judicial review application, the High Court found that there was no evidence to support the imposition of the 5.47% anti-dumping duty. It was admitted by the Respondents that the said rate had arrived using a wrong formula but no action was taken to reduce it accordingly. In the premise, the Ministry of Finance fell into error in failing act upon the uncontroverted admission when it was made known.
Furthermore, the High Court favoured BX Steel’s submission that the export price is the price paid by Malaysian importers based on a plethora of commentary support. In this case, a lower export price was used and as such artificially inflated the dumping margin.
Finally, the Ministry of International Trade and Industries’ (MITI) actions of signing the Notice of Affirmative Determination before a Final Determination Report was released falls as being Wednesbury unreasonableness. This was due to the lack of consideration given to relevant circumstances and MITI had unreasonably pre-judged the matter.
7. Bintulu Lumber v DGIR
I’ve discussed the case of Bintulu Lumber previously in this post.This case concerns the interpretation of the word “fruit” and whether it includes “palm oil fruit”. The taxpayer applied for judicial review which was dismissed by the apex court of the country.
The Federal Court held that there were no grounds appealable by way of judicial review and the matter was not a matter of public importance that would give rise to exceptional circumstances.
It is important to note that this case did not shut the doors to judicial review for tax matters. Many subsequent tax cases demonstrated that judicial review is an available relief if the taxpayer could prove that the assessments were illegal, irrational, and procedural impropriety. In this instant case, there was previous case law which held that palm oil fruit was not a fruit eligible to claim reinvestment allowance and therefore the statutory appeal to the Special Commissioners of Income Tax is the suitable forum to ventilate this matter.