In a landmark decision, the Court of Appeal (CoA) in Kuala Lumpur ruled that the gains from the transfer of technical know-how by Keysight Technologies Malaysia Sdn Bhd to Agilent Technologies International, amounting to RM821.6 million, are capital assets and thus not subject to taxation. This ruling overturned a previous High Court decision that affirmed the Inland Revenue Board’s (LHDN) stance that these gains were taxable income under Section 4(f) of the Income Tax Act 1967.
The case revolved around LHDN’s attempt to classify the gains from the transfer as income, demanding taxes totaling RM286 million from Keysight Technologies Malaysia Sdn Bhd. However, the CoA found in favor of Keysight, highlighting that the gains constituted a capital transaction rather than income. This judgment is a significant legal victory for Keysight Technologies and sets a precedent in Malaysian tax law, especially concerning the treatment of intellectual property and other technical know-how transactions.
Wong & Partners, the law firm representing Keysight Technologies, emphasized that the CoA’s decision disrupts a recent trend by LHDN to tax the capital sale of intellectual properties. The ruling affirms the application of the “Badges of Trade” test, a key principle used to differentiate between capital and income. This test, which has traditionally been applied primarily to real property cases, has now been confirmed by the CoA as applicable to a broader range of transactions, ensuring a consistent and fair approach.
The firm added that the CoA’s ruling also limits LHDN’s ability to use the “negligence” excuse to lift the time bar on tax assessments, which can prevent LHDN from reassessing taxes beyond the usual statutory time limits.
The Court of Appeal, in overturning the earlier judgments, further found that LHDN’s assessment was time-barred as it was issued past the expiry of the five-year limitation period under the Income Tax Act 1967. LHDN issued the tax assessment and demanded payment in 2017, although the five-year limitation expired in 2013.
Source: here
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