Day: September 9, 2023

  • HASiL Revised Operational Guideline on Special Voluntary Disclosure Programme 2.0

    HASiL Revised Operational Guideline on Special Voluntary Disclosure Programme 2.0

    HASiL – Operational Guideline 2/2023 on Special Voluntary Disclosure Programme 2.0 (Amended) dated 22 August 2023 replaces the Guideline on SVDP 2.0 dated 2 June 2023.

    The key difference between Guideline 2/2023 on Special Voluntary Disclosure Programme 2.0 (Amended) dated 22 August 2023 and the previous Guideline on SVDP 2.0 dated 2 June 2023 is related to the circumstances under which audit or investigation actions can be taken in the future for the year of assessment in which voluntary disclosure is made. Here’s a comparison of the two guidelines:

    Guideline 2/2023 on Special Voluntary Disclosure Programme 2.0 (Amended) dated 22 August 2023

    5.10. Audit/investigation action will not be carried out in the future for the year of assessment in which the voluntary disclosure is made. However, audit/investigation action can be taken for the year of assessment involved in the following circumstances:

    1. If voluntary disclosure is made on non-transfer pricing issues only and it is found that there is a risk on transfer pricing issues, audit/investigation action can be taken on the transfer pricing issues, and if voluntary disclosure is made on transfer pricing issues only, audit and investigation can be taken on issues other than transfer pricing.
    2. Tax payment on the voluntary disclosure has been failed to be made within the stipulated time period.

    Guideline on SVDP 2.0 dated 2 June 2023

    5.10. Audit/investigation action will not be carried out in the future for the year of assessment in which the voluntary disclosure is made. However, audit/investigation action can be taken for the year of assessment involved if the tax payment on the voluntary disclosure has been failed to be made within the stipulated time period.

    The key difference is that the amended guideline (Guideline 2/2023) introduces an additional circumstance under which audit or investigation actions can be taken.

    In the previous guideline, audit or investigation actions could only be taken if the tax payment on the voluntary disclosure was not made within the stipulated time period.

    However, the amended guideline allows for audit or investigation actions in two specific cases:

    1. When a voluntary disclosure is made on non-transfer pricing issues only, it is found that there is a risk on transfer pricing issues. Audit or investigation action can be taken on the transfer pricing issues in this case.
    2. When a voluntary disclosure is made on transfer pricing issues only, audit and investigation can be taken on issues other than transfer pricing.

    Scenario

    Here’s an illustration of the difference:

    Company X makes a voluntary disclosure for the year of assessment 2021 on non-transfer pricing issues on 1 August 2023.

    Under the previous guideline (2 June 2023): Audit or investigation action could only be taken if the tax payment on the voluntary disclosure was not made within the stipulated time period.

    Under the amended guideline (22 August 2023): Audit or investigation action can be taken if it is found that there is a risk in transfer pricing issues, even though the voluntary disclosure was made on non-transfer pricing issues. So, in this case, if there is a transfer pricing risk, an audit or investigation can be initiated on transfer pricing issues.

    This change allows tax authorities to be more proactive in addressing potential issues, even if the voluntary disclosure was not specifically related to those issues, as long as they are in the same year of assessment.

    References:-

    233.1-Operational-Guideline-2_2023-on-Special-Voluntary-Disclosure-Programme-2.0Download
    233.2-Operational-Guideline-2_2023-on-Special-Voluntary-Disclosure-Programme-2.0-AmendedDownload

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  • Are You an Employee or an Independent Contractor? Understanding the Legal Distinction

    Are You an Employee or an Independent Contractor? Understanding the Legal Distinction

    In a recent legal battle that made its way to the High Court, a multinational company found itself at the centre of a critical question: Are certain individuals rightfully classified as employees, or should they be considered independent contractors?

    The outcome of this case has far-reaching implications for the company involved and businesses that engage individuals in various capacities.

    Court Decision: The Contract for Service

    The heart of the matter revolved around the alleged failure to pay Social Security Organisation (SOCSO) contributions by the company for a specific individual.

    Under Section 5 of the Employees’ Social Security Act 1969, employers must make these contributions for their employees.

    However, the company argued that the individual in question was, in fact, an independent contractor, falling outside the purview of the Act.

    The Court’s decision hinged on a crucial distinction: whether the relationship between the company and the individuals constituted a contract for service, signifying an independent contractor arrangement.

    Several vital factors weighed in favour of this classification:

    1. Flexibility in Working Arrangements: Independent contractors did not have fixed working schedules, and their service appointments were dictated by the company’s customers rather than the company itself.
    2. Payment Structure: The allowances provided to independent contractors were directly tied to the number of services they rendered each month. There were no guaranteed minimum payments; earnings depended on the volume of services or jobs undertaken.
    3. Lack of Control: The company exercised minimal control over the independent contractors, who had complete autonomy over their working hours, duration, methods, and even the choice of jobs. Other independent contractors could step in if one chose not to take up an assignment.
    4. Separation from Company’s Core Business: Independent contractors were not considered integral to the company’s core operations.

    High Court Decision: Upholding the Subordinate Court’s Verdict

    The High Court upheld the Subordinate Court’s decision, emphasising that a comprehensive evaluation of all available evidence had been conducted.

    The factors that contributed to this verdict included:

    • The absence of fixed hours and work locations for independent contractors.
    • The independence enjoyed by contractors to decide when and whether to work.
    • The absence of guaranteed payments.
    • Independent contractors register their own companies and engage in other business endeavours.
    • The lack of exclusivity allows contractors to take on multiple jobs simultaneously.
    • Independent contractors are responsible for procuring their own tools and spare parts.

    Example: Sarah’s Cleaning Services

    Sarah runs a small cleaning services company. She engages workers to provide cleaning services to meet her growing client base.

    Let’s examine two scenarios to illustrate the difference between employees and independent contractors in her business.

    Scenario 1: Employee

    Sarah hires Emma as an employee:

    1. Control: Sarah determines Emma’s work schedule, assigns her specific cleaning tasks, and provides all the necessary cleaning supplies and equipment.
    2. Payment: Emma receives a fixed hourly wage, and Sarah deducts taxes and social security contributions from her paycheck.
    3. Exclusivity: Emma exclusively works for Sarah’s Cleaning Services and cannot take on cleaning jobs from other companies.
    4. Training: Sarah provides Emma with training on company-specific cleaning procedures.
    5. Termination: Sarah can terminate Emma’s employment at any time, and Emma must adhere to the company’s policies and rules.

    In this scenario, Emma is an employee because Sarah exercises significant control over her work, provides her with a fixed wage, and dictates the terms of her employment.

    Scenario 2: Independent Contractor

    Sarah contracts John as an independent contractor:

    1. Control: Sarah hires John on a per-project basis, specifying only the general cleaning services required. John can decide when, where, and how he completes the cleaning tasks.
    2. Payment: John invoices Sarah for his services and is responsible for handling his own taxes and contributions.
    3. Exclusivity: John can simultaneously take on cleaning jobs from other companies or individuals while working with Sarah’s Cleaning Services.
    4. Training: John is an experienced cleaner and does not require training on basic cleaning procedures.
    5. Termination: Sarah can terminate the contract with John once the project is completed, but she cannot dictate how he manages his work beyond the project’s scope.

    In this scenario, John is an independent contractor because he operates with high autonomy, sets his rates, and can undertake work for multiple clients simultaneously.

    These examples demonstrate the fundamental differences between employees and independent contractors based on control, payment structure, exclusivity, training, and termination.

    It’s crucial for businesses to correctly classify their workers to ensure compliance with labour laws and avoid legal disputes.

    Key Takeaways: Implications for Employers and Businesses

    The consequences of misclassifying employees as independent contractors can be severe, resulting in significant penalties.

    Companies that engage agents or contractors must ensure that contractual arrangements genuinely reflect an independent contractor relationship rather than an employer-employee one under the guise of independence.

    In light of recent amendments to the Employment Act 1955, which establish a set of criteria for presumed employment relationships, it’s essential for businesses to review and refine their contractual agreements to align with legal requirements.

    Clear classification of workers can prevent costly legal disputes and ensure compliance with labour laws.

    In conclusion, the distinction between employees and independent contractors is a legal matter that carries substantial weight.

    Understanding and correctly categorising individuals can protect businesses from potential liabilities and safeguard the rights and benefits of workers.

    The recent High Court decision serves as a reminder of the importance of getting this classification right from both legal and ethical standpoints.

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  • Landmark Ruling: Compulsory Acquisition Compensation Exempt from Income Tax

    Landmark Ruling: Compulsory Acquisition Compensation Exempt from Income Tax

    Introduction:

    In a historic decision, the Federal Court of Malaysia has ruled that compensation received for properties or land forcefully acquired by the government should not be subject to income tax.

    This landmark ruling marks the first time a provision of the Income Tax Act has been struck down for violating the Federal Constitution.

    Let’s delve into the details of this significant legal development.

    Background:

    Section 4C of the Income Tax Act 1967, introduced in the Finance Act 2014, extended the scope of income tax to cover amounts receivable arising from stock in trade that had been parted with under compulsion, including through requisition or compulsory acquisition.

    Before this amendment, income tax did not apply to properties acquired under such circumstances.

    The Legal Challenge:

    A taxpayer, Wiramuda (M) Sdn Bhd, challenged the constitutionality of Section 4C after receiving a notice of assessment from the Director-General of the Inland Revenue.

    Wiramuda argued that Section 4C violated Article 13(2) of the Federal Constitution, which ensures that no law shall provide for the compulsory acquisition or use of property without adequate compensation.

    The crux of the argument was that Section 4C subjected the compensation for compulsory acquisitions to taxation, thus undermining the right to adequate compensation guaranteed by the Federal Constitution.

    The High Court and Court of Appeal:

    The High Court initially dismissed Wiramuda’s judicial review application, holding that the Income Tax Act did not contravene Article 13(2) of the Federal Constitution.

    This decision was subsequently upheld by the Court of Appeal, which found Section 4C to be in line with constitutional principles.

    The Federal Court’s Landmark Decision:

    The case ultimately reached the Federal Court, which, in a groundbreaking decision on December 9, 2022, ruled in favour of Wiramuda.

    The Federal Court declared Section 4C of the Income Tax Act unconstitutional, contending that it violated Article 13(2) of the Federal Constitution.

    The court held that compensation received for properties or land acquired by the government under compulsion should not be subject to income tax.

    This ruling marks a significant shift in the interpretation of tax laws and property rights in Malaysia.

    It underscores the principle that individuals forced to part with their properties under compulsion, whether through requisition or compulsory acquisition, should not be further burdened by income tax on the compensation received.

    Conclusion:

    The Federal Court’s decision to strike down Section 4C of the Income Tax Act sets an important precedent in protecting property owners’ rights and upholding the principles of the Federal Constitution.

    This landmark ruling ensures that individuals who have their properties taken by the government receive just compensation without the additional income tax burden.

    It is a testament to the judiciary’s commitment to safeguarding constitutional principles in tax matters. It clarifies an issue that has long been a subject of legal debate in Malaysia.

    References:-

    High Court in Metacorp Development v Ketua Pengarah Hasil Dalam Negeri [2011] 5 MLJ 447

    234.3-Metacorp-Development-v-Ketua-Pengarah-Hasil-Dalam-Negeri-2011Download
    234.4-Wiramuda-M-Sdn-Bhd-v.-Ketua-Pengarah-Hasil-Dalam-NegeriDownload
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  • Entering Employment in Malaysia: A Simple Guide for Employers and Employees

    Entering Employment in Malaysia: A Simple Guide for Employers and Employees

    Introduction:

    Entering into an employment relationship in Malaysia involves a series of considerations, from contract terms to probationary periods and legal requirements.

    Whether you’re an employer looking to hire or an employee seeking clarity on your rights, understanding the basics is crucial.

    This article explores the essentials of the employment landscape in Malaysia, offering insights into contract types, probationary periods, and legal obligations.

    Basics of Entering into an Employment Relationship:

    i. Employment Relationship:

    • Employment contracts can be written or oral but a contract of service for a specified period of time exceeding one month or for the performance of a specified piece of work, where the time reasonably required for the completion of the work exceeds or may exceed one month, shall be in writing.
    • Terms of employment may also be found in an employment handbook, often referenced in the contract.
    • Fixed-term contracts are recognised but can be considered permanent if repeatedly renewed.
    • The Minimum Retirement Age Act sets limits on fixed-term contracts.

    ii. Probationary Periods:

    • Probationary periods are recognised in Malaysia.
    • There’s no statutory minimum notice for probationer dismissal; termination depends on the contract.
    • All employees, including probationers, are governed by the EA.
    • Probationers have the right to lodge complaints for unfair dismissal under the Industrial Relations Act 1967

    iii. Establishing a Presence:

    • Foreign companies can hire employees in Malaysia without official registration.
    • However, actively soliciting business or concluding contracts may be considered conducting business in Malaysia.
    • Engaging independent contractors or employees might create a permanent establishment (PE) in Malaysia.
    • Having a PE in Malaysia subjects income generated to Malaysian income tax.
    • Employers must pay benefits under various schemes, including employee provident funds, SOCSO, and employment insurance.

    iv. Employment Act 1955

    The Employment Act 1955 is a cornerstone of labour law in Malaysia, providing crucial protections and regulations for both employees and employers.

    v. Industrial Relations Act 1967

    The Industrial Relations Act 1967 is pivotal in managing workplace relations and resolving disputes between employers and employees in Malaysia.

    Conclusion: Understanding the basics of entering an employment relationship in Malaysia is essential for both employers and employees.

    It encompasses contract types, probationary periods, and legal requirements.

    Employers must navigate these aspects while ensuring compliance with local laws, and employees should be aware of their rights and protections under the law.

    By adhering to these principles, both parties can foster a fair and productive working relationship within the Malaysian employment landscape.

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