Resolving Disputes Through Negotiation

𝐓𝐡𝐞 𝐓𝐚𝐱 𝐀𝐮𝐝𝐢𝐭 𝐖𝐚𝐬𝐧'𝐭 𝐭𝐡𝐞 𝐏𝐫𝐨𝐛𝐥𝐞𝐦. 𝐀 𝐌𝐢𝐬𝐮𝐧𝐝𝐞𝐫𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠 𝐨𝐟 𝐈𝐅𝐑𝐒 15 & 𝐈𝐅𝐑𝐒 16 𝐖𝐚𝐬. A few years ago, I worked on a tax audit for a real estate company. The tax authority had reviewed the company's bank statements and concluded that revenue had been understated by almost 200%. Their position was straightforward: if the money came into the bank, it must be revenue. At first, the assessment looked difficult to challenge. But as I dug deeper into the business, I discovered something important. The company was not only earning rental income. It was also selling properties through finance lease and hire purchase arrangements. That changed everything. Instead of arguing that "𝐧𝐨𝐭 𝐚𝐥𝐥 𝐛𝐚𝐧𝐤 𝐢𝐧𝐟𝐥𝐨𝐰𝐬 𝐚𝐫𝐞 𝐫𝐞𝐯𝐞𝐧𝐮𝐞," we went back to the fundamentals and analysed the transactions using IFRS 15 and IFRS 16. The analysis revealed that a significant portion of the inflows represented repayments of principal and finance lease recoveries, not revenue. More importantly, the revenue and profit on some of those transactions had already been recognised when the properties were originally sold. Taxing the subsequent instalment receipts as revenue would have meant taxing the same transaction twice. We documented the accounting treatment, supported it with detailed schedules, and presented the analysis to the tax authority. The issue was eventually resolved, not through lengthy arguments, but through a proper understanding of IFRS 15 and IFRS 16. By correctly interpreting the transactions and supporting our position with robust analysis, we helped the company avoid an additional tax assessment running into billions of naira. 𝐌𝐲 𝐓𝐚𝐤𝐞𝐚𝐰𝐚𝐲 That experience reinforced a lesson I will never forget: Tax disputes are rarely solved by writing longer letters. They are solved by understanding the business, the accounting, and the tax implications of the transaction. A tax professional who understands tax law is valuable. A tax professional who understands both tax law and accounting standards becomes a problem solver. ✅ Understand the client's business model; ✅ Understand the accounting standards (IFRS); and ✅ Understand the tax laws In tax resolution, value is not created by writing more. Value is created by knowing more and proving it with facts.

Earlier today, the Shah Alam High Court allowed Toh Puan Naimah Khalid’s leave application to commence judicial review application to challenge the RM 313 million tax assessment issued by the Revenue. The Attorney General’s objection was dismissed by the High Court. The High Court also granted a stay order against the payment of income tax in favour of the taxpayer. Tax disputes generally don’t get much media coverage but this case is an exception, where for various reasons, the media closely follows the progress. I must also say that this is not a straightforward tax dispute as a number of novel points are being raised for the first time in Malaysia. Due credit to RDS Partnership tax partners D P Naban & Amira Azhar for their input in developing the legal arguments and my younger colleagues especially Dharshini Sharma for her legal research. In addition to arguing that domestic remedy doesn’t bar taxpayer’s right to pursue judicial review, we also raised the following arguments to establish that the application is not frivolous and vexatious: (a) The Revenue failed to appreciate that Ss 78, 79, 80 and 81 of the ITA 1967 are not blanket provisions to enable it to collate information on the income of the taxpayers accrued outside Malaysia. These provisions must be read in conjunction with Section 3 of the ITA to harmoniously embody the spirit of the ITA. The Revenue has no basis to use these provisions to request for information on matters which beyond its taxing jurisdiction. (b) As the taxpayer has not received any income in Malaysia from the foreign assets in question, there is no basis in law for the Revenue to require the taxpayer to report on these assets or disclose any related information. This is especially when the Revenue is unable to show that the taxpayer had indeed received income in Malaysia from those assets. (c) There are no provisions in the ITA empowering the Revenue to demand documents on financial ability to acquire them. (d) The Revenue had acted in excess of its jurisdiction by arbitrarily deeming that the foreign assets were acquired in 2018 and arbitrarily treating the 2018 market value as the acquisition price when the assets were acquired by the taxpayer in the 1990s. (e) The Revenue failed to take into account that pursuant to S 45(4) of the ITA, in cases of joint election, upon raising an assessment against the taxpayer’s spouse, the taxpayer has no chargeable income by operation of law. (f) The Revenue cannot demand documents in relation to foreign assets which were purchased by the taxpayer more than 30 years ago. Section 82A of the ITA only requires taxpayers to retain documents for up to 7 years. It is well-settled law that every exercise of statutory power cannot be arbitrarily exercised. If exercise of power under a statute exceeds the four corners of that statute, it would be ultra vires and a court of law must be able to hold it as such.

11 Strategies That the Best Tax Advisors Use To Reverse Unfair Tax Assessments. 1. Understand the Assessment Basis. Study the reasoning, computations, and legal basis of the assessment in detail. You can only challenge what you truly understand. 2. Recognize the Presumption of Correctness. URA’s assessment is presumed correct until you prove otherwise. The burden is on you to demonstrate that the assessment is wrong—not on URA to justify it. 3. Gather All Relevant and Credible Evidence. Compile complete and reliable documentation that directly addresses every issue raised in the assessment. 4. Seek a Second Opinion Have a seasoned tax advisor independently review your objection and evidence. A fresh perspective can reveal gaps or strengthen your case. 5. Base Your Objection on the Law and Verifiable Facts. Anchor every argument in the law and support it with factual, provable data. File Clear, Concise, and Evidence-Based Arguments 6. Avoid general or emotional claims. Structure your objection logically, supported by facts and credible documentation. 7. Follow Up Physically. Don’t rely solely on emails or online submissions. Visit the URA office when necessary to ensure your matter receives attention. 8. Anticipate URA’s Counterarguments. Expect pushback. Think through URA’s likely responses and prepare well-reasoned rebuttals in advance. 9. Observe Deadlines and Procedures Religiously. Tax objection timelines and procedures are strict - understand them and adhere to them. 10. Respond Promptly to URA Requests Timely responses demonstrate seriousness and prevent your objection from being dismissed for non-compliance. 11. Remain Calm and Professional Even when disputes become tense, maintain composure. Professionalism builds credibility and often earns respect from URA officers.

Tax Disputes: Is the "Question of Law" Barrier a Myth? For many Sri Lankan taxpayers, the Tax Appeals Commission (TAC) is seen as the final arbiter of truth. Conventional wisdom suggests that once the TAC makes its determination, a taxpayer can only move to the Court of Appeal if they have a "pure" legal argument—a dispute over the interpretation of a single word in a statute or a clash of legal principles. However, a deep dive into the Inland Revenue Act, No. 24 of 2017 and landmark judicial precedents reveal a far more nuanced reality. The "Question of Law" barrier is not an impenetrable wall; it is a gateway that often allows the Court of Appeal to scrutinize, and even overturn, the very facts upon which a tax assessment is built. According to the determination in Collettes Ltd. v. Bank of Ceylon, a question of fact is generally distinguished from a question of law, but there are specific legal thresholds where the two "disentangle" and a factual matter is elevated to a question of law. The Supreme Court identified the following circumstances where this transition occurs: 1. The "Legal Effect" of Facts * The proper legal effect of a proved fact is necessarily a question of law.
 * Every question of legal interpretation that arises after the primary facts have been established is considered a question of law.

 2. Inferences and Reasonable Conclusions * Inferences drawn from the primary facts found by a tribunal are matters of law.
 * A factual conclusion becomes a question of law if the tribunal reached a conclusion which no reasonable tribunal, directing itself properly on the law, could have reached.
 * If a tribunal has gone "fundamentally wrong" in its reasoning or misunderstood the facts, it becomes a legal issue.

 3. Sufficiency of Evidence * Whether the evidence is, in a legal sense, sufficient to support a determination of fact is a question of law.
 * The question of whether there is or is not evidence to support a finding is a question of law.
 * If a determination is inconsistent with or contradictory to the evidence, or if the "true and only reasonable conclusion" contradicts the determination, it involves a substantial question of law.

 4. Document Construction * If it is necessary to construe a document of title or correspondence to arrive at a conclusion on facts, the construction of that document becomes a question of law.
 5. Misdirection in Process * A factual finding becomes a question of law if the tribunal: * Misdirected itself on the facts. * Took into account irrelevant considerations. * Failed to take into account relevant considerations. * Misapplied the burden of proof.