Top 5 Tax Cases in Malaysia 2021

Our guest writer, Khong Siong Sie, writes on the top 5 tax cases in Malaysia for the year 2021.

Siong Sie returns with his review of the top 5 tax cases in Malaysia in 2021. This follows the earlier 2020 review of the top 5 tax cases.

The commentary covers the determination of a real property company, release of Bumiputra quota, the director’s liability for tax, personal data protection versus the tax authority, and the solicitor-client privilege versus the tax authority.

#1: Continental Choice Decision – Court of Appeal Determination of a Real Property Company

Grounds by: Darryl Goon JCA

(Continental Choice Sdn Bhd & Anor v Ketua Pengarah Hasil Dalam Negeri [2021] 4 MLJ 796, CA and grounds of judgment dated 11 May 2021)

Why is the case important?

The main issue was whether real property gains tax (RPGT) is payable upon the disposal of shares in a company whose total tangible assets consist mainly of land. The case dwelled primarily in the construction of revenue legislation and interpreting Paragraph 34A of Schedule 2 of the Real Property Gains Tax Act 1976 (RPGTA).

In determining a real property company (RPC) under Paragraph 34A of Schedule 2 of the RPGTA, the Court of Appeal held that an RPC is as defined, and not based on the intention or objective of a person who acquired or disposed of shares in such a company. The company turns into an RPC once the defined value of its real property and/or shares in RPC exceeds 75% of its total tangible assets. The intention and purpose for acquiring the shares in the company are irrelevant.

This case put to rest the ghost of Binastra Holdings Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2001] 5 MLJ 481. In Binastra, the High Court accepted the taxpayer’s argument that the intention for acquiring the shares in the company is relevant and that the lands were held by the company as stock in trade and not as real property. The tax authority appealed in that case and the Court of Appeal overruled the High Court decision in Binastra. But no grounds were made available. We now have the Court of Appeal in Continental Choice setting out its grounds in determining an RPC.


#2: Taman Equine Decision – Payment for Release of Bumiputera Quota is Deductible

Grounds by: Noorin Badaruddin J

(Taman Equine (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri) [2021] MLJU 2303, HC and grounds of judgment dated 25 October 2021)

Why is this case important?

This decision provides certainty on the deductibility of payment to state authorities as a condition for permitting the property developers to sell bumiputera units to non-bumiputera purchasers. This issue was first decided in Prima Nova Harta Development Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (Kuala Lumpur High Court Case Number: WA-14-7-12/2019); however, the grounds of judgment in that case were not available.

In this appeal, the High Court reversed the decision of the Special Commissioners of Income Tax. The High Court held that the payment to the state authority to obtain the release of bumiputera quota (Payment) is directly related, incidental, and relevant to the Appellant’s principal activity in its entirety as a property developer. Without such Payment, the Appellant would not have been able to sell the bumiputera units to the non-bumiputera purchasers and generate its income – hence such Payment is wholly and exclusively incurred in the production of the Appellant’s gross income.

Further, the Court held that such Payment is neither capital nor penalty in nature. It is simply a normal business payment to produce income. Therefore, it was wrong for the tax authority to characterise such Payment as a penalty and subject it to restriction under section 39(1) of the Income Tax Act 1967 (ITA), which expressly provides for the disallowance of the deduction of penalty. Moreover, nowhere in the circular issued by the state authority states the payment for the release of bumiputera quota as a penalty.

The tax authority has appealed to the Court of Appeal.


#3: Mahawira Decision – Court of Appeal Decision on Director’s Liability for Tax

Grounds by: Abu Bakar Jais JCA

(Government of Malaysia v Mahawira Sdn Bhd & Anor [2021] 4 AMR 883, CA and grounds of judgment dated 12 March 2021)

Why is the case important?

The Court of Appeal recapped the two key elements to make a director of a company jointly and severally liable for the tax due and payable by the company. First, the director can only be held liable for the period the director was appointed as a director of the company. Second, for the liability to kick in, the assessment must be served on the director according to sections 96(1) and 103(2) of the Income Tax Act 1967 (ITA).

In 2014, the tax authority raised four tax assessments (Notices) on the company for the years of assessment (YA) 2001 to 2004. The Notices were served on the company but not the directors. The tax authority proceeded with civil recovery actions and was granted judgment in default against the company. However, the High Court dismissed the claim against the director for YA 2001 to 2003 and only granted it for YA 2004 because she was only made a director in December 2003.

Dissatisfied, the tax authority appealed against the partial judgment. The Court of Appeal made, among others, three crucial findings:-

  • Section 75A of the Income Tax Act 1967 does not apply retrospectively. It is harsh and unreasonable to hold a director liable for the company’s tax for the years of assessment preceding the person’s appointment as a director.
  • A director is defined as someone occupying the position of director (by whatever name called) who had more than 50% (the threshold was amended to 20% in 2014) ordinary share capital of the company. Between 2001 to 2004, the director only held 20% ordinary share capital. Since there was no evidence that she had more than 50% ordinary share capital, she cannot be considered a director and therefore is not liable.
  • The Notices must be served on her before she can be held liable. Therefore, since it was not done, she is not liable.

Despite the above, the director was still liable for YA 2004 as she magnanimously did not appeal against the High Court’s finding. In defending a civil recovery suit by the government, many may overlook the argument on proper service of notice of assessment on the director personally.


#4: Genting Malaysia Decision – Protection of Personal Data From Tax Authority

Decision by: Noorin Badaruddin J

(Genting Malaysia Berhad v Ketua Pengarah Hasil Dalam Negeri  (Kuala Lumpur High Court Case Number: WA-25-83-02/2020), HC)

Why is the case important?

This is the first case on the interaction between the protection of personal data afforded by the Personal Data Protection Act 2010 (PDPA) and the powers granted to the tax authority under the Income Tax Act 1967 (ITA) to request such personal data.

Without commencing any investigation, the Director-General of Inland Revenue (DGIR) requested the entire database of Genting Malaysia’s customers’ personal data. The DGIR wanted to gather big data to enlarge its tax base. The DGIR’s request was subsequently revised to personal data of selected individuals with transaction values above a certain threshold.

Despite Genting Malaysia’s protestation that such requests did not comply with the PDPA, the DGIR persisted. To make matters worse, the Deputy Personal Data Protection Commissioner took the position that: (i) the ITA empowers the DGIR to request such information; (ii) the PDPA allows the disclosure of personal data required or authorised by any law; and (iii) such disclosure does not contravene the disclosure principle under the PDPA.

Genting Malaysia commenced a judicial review against, among others, the DGIR, the Personal Data Protection Commissioner, and his Deputy. The judicial review challenge was on the basis that the PDPA allows disclosure only if such disclosure is necessary to prevent or detect a crime or for investigations. However, the DGIR had not commenced an investigation. The personal data requested were intended for the tax authority’s data warehouse to broaden its tax base. Hence, the DGIR’s request for information did not fall within the PDPA exception.

On 27 July 2021, the High Court ruled in favour of Genting Malaysia. At the time of writing, the grounds of judgment are yet to be available. This matter is pending before the Court of Appeal.


#5: Bar Malaysia Decision – Court of Appeal Confirms Solicitor-Client Privilege Trumps the Income Tax Act

Grounds by: Darryl Goon JCA

(Ketua Pengarah Hasil Dalam Negeri v Bar Malaysia [2022] 1 CLJ 81; [2021] 8 AMR 872, CA and grounds of judgment dated 27 October 2021)

Why is the case important?

This decision characterises the interplay between the evidential provisions in Section 142(5) of the ITA and the solicitor-client privilege provided under Section 126 of the Evidence Act 1950 (EA).

This action started due to the divergent views of the tax authority and the Malaysian Bar and their disagreement as to whether the law relating to solicitor-client privilege was being ignored and under threat by the tax authority’s actions complained of. The Malaysian Bar complained that the tax authority had been carrying out raids on law firms to conduct audits on the firms’ clients’ accounts and insisting on having sight of accounting books and records pertaining to these accounts. The Malaysian Bar was of the view that this was in breach of solicitor-client privilege.

The Malaysian Bar brought a judicial review challenge against the tax authority. The Malaysian Bar won (reported at Bar Malaysia v Ketua Pengarah Hasil Dalam Negeri [2018] 9 MLJ 557).

On appeal by the tax authority, the Court of Appeal upheld the High Court’s decision. The Court of Appeal decided, among others, the following.

First, Section 142(5)(b) of the ITA had not overridden section 126 of the EA in its entirety. The solicitor-client privilege in section 126 of the EA remains.

Second, the solicitor-client privilege in section 126 of the EA covers three identifiable classes of information, namely:

  1. Communication made to an advocate and solicitor;
  2. Contents or condition of any document with which the advocate has become acquainted; and
  3. Advice given by the advocate to his client;

Under the term ‘communication’, financial information or data exchanged between an advocate and his client, and any such data contained in any document and kept in respect of the client’s account for the advocate’s employment as an advocate, would fall within the ambit of solicitor-client privilege.

Third, and nonetheless, the tax authority may still gain access to the clients’ accounts of advocates and solicitors by invoking the proviso to section 126 of the EA. This proviso is where the privilege under section 126 of the EA does not apply, essentially, in a case of illegal purpose, crime or fraud. The Court of Appeal noted that that the ITA creates a host of offences including making incorrect tax returns or willful evasion. If the tax authority has a legitimate basis to gain access to information in the advocate’s clients’ account, the tax authority can invoke the proviso to section 126 of the EA.

This decision is pending before the Federal Court. For now, the sanctity of solicitor-client privilege on clients’ accounts remains.


Siong Sie is the tax partner at the law firm Jason Teoh & Partners. He is ranked as a leading tax practitioner in Malaysia in Chambers Asia-Pacific 2020 – 2022.


2 thoughts on “Top 5 Tax Cases in Malaysia 2021

  1. Sheila 14 February, 2022 / 10:10 am


  2. MVD International 15 March, 2022 / 3:23 pm

    Really useful stuff. Keep on posting related topics. Waiting for your next update.

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