www.pwc.com/my PwC Alert Tax Appeals Getting it right from the start Issue 105 October 2012 PP 9741/10/2012 (031262)
The appeals process in Malaysia is covered by the law under sections 98 to 102 of the Income Tax Act 1967 (ITA). In practice, it is heavily guided by the public rulings and administrative procedures issued by the Inland Revenue Board (IRB). However, the Special Commissioners of Income Tax (SCIT) decision in the MN Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (2011) case has taken both the IRB and taxpayers by surprise. 2 Tax Challenges Appeals of today s Getting businesses: it right from Measuring the start and managing carbon PwC PwC Alert Alert Issue Issue 105, 97, October June 2012
Acceptance of objection letter in lieu of Form Q Before the decision in the MN Sdn Bhd case, IRB s administrative procedure in tax appeals included acceptance of an objection letter. This practice was stated in paragraph 3.3.3 of Public Ruling No. 3/2001 dated 18 January 2001. In the MN Sdn Bhd case, the aggrieved taxpayer had relied on Public Ruling No. 3/2001 to submit a letter of objection within 30 days from the date of notices of additional assessment (Forms JA) for the years of assessment (YAs) 2002 to 2004, to appeal against the additional assessments raised by the IRB. The taxpayer requested that the IRB review its decision on the assessments in two instances (for 13 September 2007 and 28 November 2007) but the IRB maintained its stand for both occasions. The taxpayer finally filed an official appeal by submitting the prescribed Form Q to the IRB on 5 August 2008 (almost a year after the date of Forms JA) and the IRB forwarded Form Q to SCIT on 2 June 2009. When the case was heard before the SCIT, the commissioners struck out the case on the grounds that Form Q was not filed within the 30 day period (from the date of Forms JA); so it was not a valid appeal. PwC Alert Issue 105, 97, June October 2012 2012 Challenges of today s businesses: Tax Appeals Measuring Getting and it right managing from the carbon start 3
Acceptance of objection letter in lieu of Form Q Sequence of events in the MN Sdn Bhd case Within 30 days from issue date of Forms JAs 7 Aug 07 29 Aug 07 12 Nov 07 28 Nov 07 16 Jun 08 5 Aug 08 27 Oct 09 Additional assessments (JAs) raised for YAs 2002 to 2004 Taxpayer filed objection letter IRB maintained stand on JAs Taxpayer requested review of IRB's decision IRB maintained stand on JAs Taxpayer filed Form Q IRB forwarded case to SCIT For this article s purpose, the legal arguments on the validity of applying a subsidiary legislation with regard to the primary legislation will not be deliberated on. Rather, the implications on those taxpayers who had followed the appeal process/procedure (under Public Ruling No. 3/2001) by submitting an objection letter in lieu of a Form Q will be examined. Following this decision, IRB issued a new public ruling, Public Ruling No. 3/2012 Appeal Against An Assessment, on 4 May 2012 to supersede Public Ruling No. 3/2001. This means that any notification of objection/appeal in a letter will no longer be considered as a first step in the appeals process. 4 Tax Challenges Appeals of today s Getting businesses: it right from Measuring the start and managing carbon PwC PwC Alert Alert Issue Issue 105, 97, October June 2012
Is there a valid appeal? Update: A new development in the MN Sdn Bhd court case took place after this article was written. The High Court has ruled in favour of the taxpayer. However, at printing time, no written judgement has been made available and we are not sure whether the IRB is going to appeal to the Court of Appeal. Despite the fact that both the IRB and taxpayer agreed that there was a valid appeal, the SCIT, by a majority decision, struck out the case. This was on the grounds that the Form Q was not filed within the 30 day period (from the date of Forms JA), so it was not a valid appeal. The decision by the SCIT was that an appeal against an assessment must be made within the 30 day period in Form Q according to section 99(1) of ITA; paragraph 3.3.3 of Public Ruling No. 3/2001 was ultra vires as it allows an appeal to be filed by way of an objection letter in place of Form Q. However, there was a dissenting view that the objection letter and the subsequent Form Q constitute a valid notice of appeal this is on the grounds that the taxpayer has a legitimate expectation that the objection letter is a prescribed form for the purpose of section 99(1) based on paragraph 3.3.3 of Public Ruling No. 3/2001. The taxpayer has since appealed to the High Court but the decision is still pending. The SCIT decision in this case has a huge impact on the appeals process as many taxpayers would have used objection letters to appeal against IRB s assessment since this practice was accepted by the IRB prior to Public Ruling No. 3/2012. For this group of taxpayers, they will now face a situation whereby if their disputes with the IRB cannot be resolved and the IRB has to forward their cases to the SCIT, they may be subject to the same fate as MN Sdn Bhd, that is, their cases could be struck out by the SCIT. PwC Alert Issue 105, 97, June October 2012 2012 Challenges of today s businesses: Tax Appeals Measuring Getting and it right managing from the carbon start 5
What can the affected taxpayers do now? The filing of a Form Q would now be too late as it would have already exceeded the 30 day period from the date of notice of assessment. It appears that these taxpayers are in a disadvantaged position as they may lose their rights to appeal unless the High Court overturns the decision of the SCIT in the MN Sdn Bhd case above. However, it should be noted that section 100(1) of ITA provides that: A person seeking to appeal against an assessment may at any time make to the Director General a written application in the prescribed form for an extension of period within which notice of appeal against the assessment may be given under section 99(1). 6 Tax Challenges Appeals of today s Getting businesses: it right from Measuring the start and managing carbon PwC PwC Alert Alert Issue Issue 105, 97, October June 2012
Under section 100(2) of ITA, the Director General of Inland Revenue (DGIR) is given the discretionary power to extend the period of time for taxpayers to file their notice of appeal in the prescribed Form N if he is satisfied with the reason for the delay. Perhaps the DGIR could rely on the above provisions to grant an extension of time to these taxpayers to submit their Form Q to appeal to the SCIT. The DGIR should consider approving the application for extension of time since the taxpayer had followed the public ruling and administrative procedures of the IRB. After the DGIR approves the extension of time, the taxpayer should file Form Q before the extended deadline to make his appeal valid so as to avoid the risk of his appeal being struck out by the SCIT. In this regard, a taxpayer who had previously followed the administrative procedures and Public Ruling No. 3/2001 by submitting an objection letter to the IRB within 30 days from the date of notice of assessment instead of a Form Q, should now apply to the IRB in the prescribed Form N for extension of time to file Form Q. The taxpayer can make this application on the grounds that an objection letter was submitted to the IRB previously within the permitted period, as required by the appeal procedures in Public Ruling No. 3/2001. PwC Alert Issue 105, 97, June October 2012 2012 Challenges of today s businesses: Tax Appeals Measuring Getting and it right managing from the carbon start 7
Tax appeals procedure in other countries In Australia, how the objections are to be made are spelt out under section 14ZU of the Taxation Administration Act, 1953. It states that taxpayers wishing to object against an assessment must submit it in an approved form. Despite the reference to the submission of an approved form, in practice, the Commissioner of Taxation has accepted an objection in writing, so long as it contains the necessary signed declaration, the required information and is lodged within the stipulated timeframe. Under the existing tax appeals system in Singapore and Hong Kong, the legislations provide that the appeal must be made in writing but do not specify if it must be in a prescribed form or an approved form. In practice, even though the tax authorities have provided a special form (as well as an online form) for taxpayers to submit their appeals, they do not insist that taxpayers submit their appeals in this form. If the specified form is not submitted, the tax authorities accept an objection letter as long as all the details required for the filing of an appeal, such as grounds of objection to the assessment, are clearly stated in the objection letter. The practical approach adopted by such countries is to accept a written objection letter in respect of an appeal. If this approach gives taxpayers more flexibility to file an appeal and provides a more efficient manner to resolve tax disputes, then perhaps Malaysia should also consider following suit which requires making the necessary legislative changes. 8 Tax Challenges Appeals of today s Getting businesses: it right from Measuring the start and managing carbon PwC PwC Alert Alert Issue Issue 105, 97, October June 2012
Conclusion The SCIT decision in the MN Sdn Bhd case, which surprised both the IRB and taxpayers, has affected many taxpayers who had submitted an objection letter instead of Form Q to the IRB within 30 days from the date of notice of assessment. It would be most unfortunate if the affected taxpayers were to lose their right of appeal to the SCIT, simply because they had followed the previous public ruling and administrative procedures required by the IRB. Under the circumstances and pending the High Court decision, the affected taxpayers should now put in a Form N. It would be reasonable to expect the DGIR to approve an extension of time to appeal, ensuring that the taxpayers appeal is valid in the eyes of the SCIT. If the IRB takes this corrective step, it would go a long way in enhancing voluntary compliance under the Self-Assessment System where taxpayers are confident that the right of appeal is at their disposal in the event of a tax dispute. PwC Alert Issue 105, 97, June October 2012 2012 Challenges of today s businesses: Tax Appeals Measuring Getting and it right managing from the carbon start 9
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