LHDN Ordered To Refund RM286 Million In Taxes To A Penang Company

The Court of Appeal also ordered LHDN to pay RM20,000 in costs to the company.

Cover image via Delaine Tam & Kosmo

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The Inland Revenue Board (LHDN) has to now refund a whopping RM286 million in taxes and RM20,000 in costs to a Penang company

This comes after the Court of Appeal recently ruled in favour of the Penang-based Keysight Technologies Malaysia Sdn Bhd in a tax dispute against the revenue collecting agency under the Finance Ministry.

The Court of Appeal found that the Special Commissioners of Income Tax (SCIT) in March 2020 and a High Court decision in May 2021 had erred in upholding the tax assessment issued by LHDN.

According to the facts of the case, LHDN taxed Keysight Technologies for RM286 million on the RM821.6 million they earned selling technical knowledge to Agilent Technologies International.

While LHDN argued that the sale generated income, Keysight Technologies contended that the proceeds from the sale of intellectual property (IP) rights are a capital receipt instead of income, FMT reported.

Justice Collin Lawrence Sequerah, in delivering the unanimous decision of a three-member bench, agreed with the company that the proceeds from the sale of IP rights were not income in nature, and not taxable.

Image via Bernama

The Court of Appeal also found that LHDN's attempt to tax the sale fell outside the allowable timeframe as the assessment was issued past the expiry of the five-year period under the Income Tax Act 1967

According to the bench, the tax agency waited too long to assess the tax on the IP sale.

There's a five-year limit, and LHDN issued the bill in 2017, exceeding the 2013 deadline.

The court rejected LHDN's argument that the company was negligent, observing that the company was frank in its disclosure of the tax returns and had sought professional advice in preparing its tax returns.

Meanwhile, Wong & Partners, which acted for Keysight Technologies, hailed the ruling as a significant legal victory against LHDN

"The Court of Appeal has affirmed the application of the 'Badges of Trade' test in Malaysia on capital versus income issue, and limited LHDN's ability to confine the applicability of the test to real property cases, ensuring a consistent and fair approach across all types of transactions," the firm said.

It added that the ruling adds to a body of existing case law that restricts LHDN's ability to use the "negligence" excuse to lift the time bar, providing greater certainty and safeguards for businesses in Malaysia.

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