Ketua Pengarah Hasil Dalam Negeri v SUDHAKARAN A/L KESAWAN

Case Significance

Confirms that under Public Ruling No. 1/2011 all seven factors must be satisfied cumulatively before an overseas secondment is incidental to Malaysian employment for section 13(2)(c) of the Income Tax Act 1967, and restates the limited scope for a court to disturb the Special Commissioners' findings.

This High Court decision in the Special Powers Division at Kuala Lumpur concerns an appeal by the Director-General of Inland Revenue against a decision of the Special Commissioners of Income Tax. The taxpayer, an employee of Malayan Banking Berhad, had been seconded to the bank's operations in Papua New Guinea from 2009 to 2015, and the Inland Revenue had issued a notice of assessment for tax on the income he received during that secondment. On appeal, the Special Commissioners set aside those assessments, and the Inland Revenue appealed to the High Court. The central question was the tax treatment of income received while on overseas secondment, and in particular whether it attracted section 13(2)(c) of the Income Tax Act 1967 so as to be deemed to have been received from Malaysia — which turned on whether the overseas assignment was incidental to the taxpayer's employment in Malaysia. The applicable test, drawn from Public Ruling No. 1/2011, requires seven factors to be considered cumulatively, and the secondment can only be regarded as incidental to Malaysian employment if all seven are answered in the affirmative. The Court noted that the Special Commissioners had answered only two of the seven factors affirmatively. On the argument that the identity of the taxpayer's employer was decisive because the bank remained his employer throughout the secondment, the Court found the Special Commissioners' position supported by Malaysian industrial-law jurisprudence. Applying the settled approach that an appellate court will not lightly interfere with the findings of the Special Commissioners on the evidence they considered, and holding that all seven factors would need to be satisfied before the secondment could be treated as incidental, the Court found no error of law in the decision below and declined to intervene. The decision reinforces that the burden of showing that all seven factors are met rests on the party asserting that the secondment was incidental to Malaysian employment, and that partial satisfaction of the test is insufficient to bring the overseas income within the deeming provision.