The Taxpayer’s Claim
In Labuan, a taxpayer employed by Three Sixty Financial Inc. found himself in the middle of a contentious tax battle. As a Financial Advisor and Senior Manager, he had claimed a 50% exemption on his gross income under the Income Tax (Exemption) (No. 8) Order 2011 [P.U. (A) 420] (“the Exemption Order”). The Exemption Order granted this benefit to non-Malaysian individuals working in managerial capacities for Labuan entities.
However, in January 2018, the Director General of Inland Revenue (DGIR) rejected the claim, issuing Notices of Additional Assessments for the Years of Assessment (YAs) 2015 and 2016 and a Notice of Advance Assessment for YA 2017. The DGIR concluded that the taxpayer’s role did not qualify as a “managerial capacity” under the Exemption Order.
The Clash of Interpretations
The taxpayer vehemently disagreed. “I managed the sales team and was responsible for their performance. I reported directly to the Board of Directors,” he argued. “Managerial capacity doesn’t mean being the most senior person in the company. Organizations have multiple levels of management.”
The DGIR countered, claiming the taxpayer had failed to prove his case. “The title of ‘Financial Advisor/Senior Manager’ does not inherently qualify as a managerial role. The taxpayer has provided no evidence—no witnesses, no corroborating documents—to substantiate his claims. His testimony is uncorroborated and, therefore, unreliable,” the DGIR argued.
Compounding matters, the taxpayer cited the COVID-19 pandemic as a reason for his inability to call witnesses to testify.
The Decision
The case reached the Special Commissioners of Income Tax (SCIT), who ruled in favor of the DGIR. The SCIT found that the taxpayer had failed to meet the burden of proof required under Paragraph 13, Schedule 5 of the Income Tax Act 1967.
The taxpayer’s appeal to the High Court followed but met the same fate. On 21 April 2024, the High Court dismissed the appeal, confirming the SCIT’s decision that the taxpayer’s role did not meet the definition of “managerial capacity” under the Exemption Order. The court issued no order as to costs.
The Lesson Learned
This case underscores the critical importance of substantive evidence in claiming tax exemptions. Titles alone are insufficient; taxpayers must demonstrate the actual scope of their duties and responsibilities with corroborating documentation and testimony.
For taxpayers: The lesson is clear: ensure that all claims for exemptions are well-documented and supported by credible evidence.
For employers: It’s essential to clearly define roles and responsibilities to align with tax regulations.
Ultimately, this case serves as a cautionary tale: in tax matters, proof isn’t just helpful—it’s indispensable. The absence of strong evidence can turn a promising claim into an uphill legal battle.
