Malaysia vs Executive Offshore Shipping SDN BHD, December 2022, High Court, Case No WA-25-388-12/2021

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Executive Offshore Shipping SDN BHD is in the business of chartering offshore support vessels. It is related to another company, one Eagle High (L) Limited which is a ship-owning company registered in the special tax zone of Labuan where transfer pricing provisions were first introduced in 2020.
Eagle High (L) Limited provided (i) charter hire of vessels and (ii) crew management services to Executive Offshore Shipping for the Years of Assessment – 2014 to 2016. In consideration for these services Executive Offshore Shipping paid a cost-plus mark-up rate of 35% as the charter hire and crew management fee.

Following an audit the tax authorities asserted that Executive Offshore Shipping SDN BHD had underreported the its taxable income for FY 2014 to 2016. An assessment was issued where additional income of RM19,808,218.39 had been determined by reference to the arm’s length principle. The tax authorities rejected the benchmark study and transfer pricing methods applied by Executive Offshore Shipping.

Executive Offshore Shipping filed an application for leave for judicial review with the High Court.

The tax authorities submitted that the application should not be granted. “As a general rule, when there is an alternative remedy by way of an appeal, in the instant case, under s 99 of the ITA, it should have been exhausted first before an applicant could commence an application for judicial review.”

Judgement of the High Court

The High Court Judge granted the application for leave for juridical review.

Excerpts
“Applying the law to the facts of the case, in para 15(g) of AIS-2, Ms Ling affirmed as follows:
The Respondent also failed to take into account that EHLL is governed by the Labuan Business Activity Tax Act 1990 (“LBATA”) in which case the arm’s length principle does not apply prior to the coming into effect of Section 17D of the LBATA on 1.1.2020.
This assertion of failure to abide by the statutory provision remains unrebutted, at least at this leave stage. In any event, Ms Ling further alleged that the DGIR had failed to provide supporting transfer pricing documentation to support the DGIR’s contention the applicant’s transfer pricing documentation is inappropriate. This too, is not contradicted by the DGIR, again, at least at this leave stage.”

“For the aforesaid reasons, my findings are as follows:
(a) Although there is an alternative remedy in the form of an appeal to the SCIT under s 99 of the ITA, the applicant has established exceptional circumstances that justify the grant of leave.
(b) One of the exceptional circumstances is that there is an allegation that the putative respondent had ignored the statutory provision under the LBATA.
(c) At least at this leave stage, the allegation stands unrebutted.”

“In the instant case, the issue that is of significance is whether the DGIR is under a legal obligation to provide supporting transfer pricing documentation to support his contention that the applicant’s transfer pricing documentation is inappropriate. That calls for further arguments at the substantive stage.”

“It is, therefore, plain to me that the applicant has crossed the low threshold for leave in a judicial review application.”

 
Click here for English translation.

Malaysia vs Executive Offshore Shipping SDN BHD, December 2022 wa-25-388-122021

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