You’re the law abiding citizen that abides by the rules and follow the GST guide to a tee. Then one day you wake up to find the taxes that you were once exempted from, given relief or zero-rated for is now taxable-and out of nowhere you are slapped with a 6% tax. That is the reality when it comes to GST guidelines, according to Nicolaos Giannopoulos. The positions are subject to changes should the Royal Malaysian Customs Department (RMCD) decide to reissue or redraft the GST guide: “It is inevitable that the guides will change from time to time. It’s not something you have any control over.”
He asks, “So how do we mitigate the risks prior to such changes? And if they do make changes, what other alternatives do we have to safeguard our business?”
In the event that there are changes to GST positions by the RMCD, Giannopoulos suggests for businesses to come up with a strategy starting by reviewing their technical position(s) first before even considering any next move with the RMCD-especially if the positions are risky or ambiguous.
You next move is to identify the issues that are likely to be disputed and vet the issues just like anything else you do in business. This will allow you to determine the arguments for and the arguments against the position that you’ve taken, and make an assessment whether the position that you can take and is recently argued should be taken in front of a magistrate. The next step is to estimate the tax shortfall, the potential penalties you may be facing and the legal fees a dispute may entail. Once you’ve taken all of these measures into consideration, you can make a more learned call about what to do-whether you want to hold your ground (disclose positions) or wave the white flag and appeal (and dispute) with RMCD.
MITIGATING THE RISKS
Giannopoulos identified two strategies that can be taken in order to nip this in the bud: one is by way of obtaining an Advance Ruling and the other is by way of obtaining a legal opinion.
Applying for an Advance Ruling from the Customs gives you an advantage whereby the Director General of RMCD will give his interpretation of how the provisions of the GST Act will apply to your specific transactional business or business arrangement. The Advance Ruling issued is final-once the decision has been made, the Director General is bound by it and no appeal shall be lodged by any person against the Advance Ruling. So that gives you certainty on the position that the Director General will take when need be. The catch is that it’s a non-appealable decision therefore you are also bound by that decision.
“But the greatest limitation of the Advance Ruling,” according to Giannopoulos, “is that you can only apply for it to propose a transaction or project. It cannot be applied for something that you have already entered into today.”
An Advance Ruling can be applied for the following:
• Status of supply
• Transfer of going concern
• Apportionment rules
• Registration eligibility
The Advance Ruling will cease to apply if there’s a change in the guide that affects the provision(s) pertaining to your arrangement, starting from the date the law was changed. The Director General may also withdraw any Advance Ruling by giving a notice in writing at any point of time.
Alternatively, Giannopoulos suggests to seek legal opinion. These legal beagles are in the best position to provide analysis and conclusions on the application of the GST laws upon a particular transaction or arrangement from the legal standpoint. Similarly, consider getting a legal opinion for transactions that are ambiguous or where the GST treatment on that transaction is significant and pose a potential reputational risk to the business in the event of an audit from Customs.
THE BIG FOUR
“But if you have no intention in bringing the matter to court, you can also seek advice from professional services firms like us,” says Giannopoulos. While professional services firms are unable to give you the same level of comfort and expertise as qualified lawyers, they can however provide you advice on GST treatment, tax planning, restructuring, GST cost reduction, tax recovery and administrative matters.
WHAT IF THERE IS A CHANGE?
Fortunately, in Malaysia, there exists a doctrine referred to as Doctrine of Legitimate Expectations – which was adopted from the UK – that protects the public and taxpayers’ rights regarding statements that are issued by the government agencies in black and white for the public’s perusal and for them to rely on as a guide. So therefore, in such cases taxpayers have the right to expect consistency and fairness from the Customs in relation to the application in terms of adverse GST penalties or implications. And since the doctrine is legitimate the RMC can’t turn their back on the existence of this doctrine. He stresses, “It’s the perfect solution to be used in these scenarios.”
If all else fails, Giannopoulos suggests to go back to your strategy and examine if the changes in position is detrimental. This should then be followed by a letter to the Director General to confirm his stance. What else can I do if all of the above has been done? “Appeal to the GST Tribunal,” he says.
The application for appeal must be made within 30 days from the date the disputed decision was made known to the taxpayer. The Tribunal will then come up with a decision within 60 days from the first day of the hearing whether to affirm, vary or set aside the decision of the Director General and in the case of the latter, provide a new decision. “The Tribunal’s decision is final. Almost every decision made by the Director General is appealable except those listed in the Fourth Schedule of the GST Act 2014,” shares Giannopoulos.
And finally, there are provisions under the GST Act for application for a remission of the tax and penalties. According to the Act, two separate applications have to be made-one to the Ministry of Finance for the remission of the tax and the other to the Customs for the remission of the penalties. “But in considering these provisions for relief, if you read the preamble to the GST Act, you’ll notice that these are texts designed to impose and collect GST. So, bearing that in mind I expect this provision and remission of penalties and tax are the exception under very limited circumstances.”
This article was first published in the iProperty.com Malaysia August 2016 Magazine. Get your copy from selected news stands or view the magazine online for free at www.iproperty.com.my/magazine. Better yet, order a discounted subscription by putting in your details in the form below!