CCS

When Documentation Fails: Lessons from EWSB’s Loss in the Bilateral Tax Credit Dispute

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This case concerns EWSB v. Director General of Inland Revenue, which involves issues related to bilateral tax credits under Section 132 of the Income Tax Act 1967 (ITA 1967). The key points are:

1. The case relates to Years of Assessment 2013-2018, where EWSB claimed bilateral tax credits under Section 132 ITA 1967 for income allegedly taxed in both Malaysia and Thailand.

2. The Director General of Inland Revenue (DGIR) denied the bilateral credit claims, stating that EWSB failed to provide sufficient documentation to support the claims as required under Public Ruling No. 11/2011.

3. The Special Commissioners of Income Tax (SCIT) ruled in favour of the DGIR, dismissing EWSB’s appeal.

Section 132 of ITA 1967 deals with double taxation arrangements. Key aspects include:

1. It allows the Minister to declare arrangements made with other countries to provide relief from double taxation.

2. Such arrangements have effect in relation to Malaysian tax, notwithstanding anything in other laws.

3. It allows for disclosure of information to authorised representatives of the foreign government as required under the arrangements.

4. Schedule 7 of the ITA 1967 applies to allow foreign tax to be credited against Malaysian tax under these arrangements.

5. The arrangements can include provisions for relief, exemptions, and other matters related to taxation.

Advice to taxpayers regarding Section 132 and bilateral tax credits:

1. Ensure you have proper documentation to support any claims for bilateral tax credits, including notices of assessment or receipts from foreign tax authorities.

2. Familiarise yourself with the requirements outlined in relevant Public Rulings (e.g., PR No. 11/2011) regarding bilateral credits.

3. Maintain clear records of foreign income received and foreign taxes paid.

4. If operating in multiple countries, stay informed about the double taxation agreements Malaysia has with those countries.

5. Seek professional tax advice if unsure about the applicability or requirements of bilateral tax credits.

6. Be prepared to provide detailed evidence to support claims that the same income has been taxed in two jurisdictions.

7. Understand that the burden of proof lies with the taxpayer to demonstrate eligibility for bilateral tax credits.

8. Consider the timing of foreign tax payments and Malaysian tax assessments when claiming credits.

9. Be aware that failure to provide adequate documentation may result in denial of bilateral credit claims.

10. Stay updated on any changes to tax laws or rulings related to international taxation and bilateral credits.

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