YLC's visit to Taylor's College

The External Liaison Committee ("ELC"), a committee under the purview of the Kuala Lumpur young Lawyers Committee ("KLYLC") embarked on its last visit for the year when the volunteer lawyers visited Taylor's University College ("Taylors") on 31.10.2009.

The volunteer lawyers that attended the workshop in Taylors were Lai Chee Hoe, Sandesh Kabir, Fam Yu Min, Kenneth Wong Poh Lim, Chan Kit Keong, Andrew Liew, Samuel, Choo Mun Wai, Aston Paiva, and Foong Cheng Leong.

The session, which was attended by over 30 first year law students, was lively and interactive. The session was opened by Sandesh Kabir delivering a short welcoming speech to the students explaining the objectives of the visit i.e. to manage their expectations in view of practicing law in future. The students were then segregated into different tutorial halls and the volunteer lawyers were dispatched into the respective halls to proceed with workshop agenda. During the workshop, students were welcomed to ask any questions related to chambering, practice, in-house practice, areas of laws, etc. This session lasted about one hour.

Subsequently, the students were ushered back into the main hall and were invited to give their feedback on the session. The feedback was positive and the students requested that the ELC visit Taylors again next year. Pursuant to all the positive feedback from the various Universities and Colleges visited this year, the ELC will continue in its efforts for the betterment of law students in Malaysia.

Prepared by

Sandesh Kabir Singh

Parking at MATRADE car-park and Shuttle Service

The Civil Court Liaison Committee is pleased to announce that arrangements have been made with a shuttle service operator to provide shuttle service to and from the MATRADE car park and the Kuala Lumpur Court Complex. The service has commenced on 16.11.2009 (Monday). The shuttle service will run from Mondays to Fridays, from 8.00 a.m. to 5.00 p.m. The cost of the service is RM1.00 for a two-way ticket.

All members attending Court are strongly encouraged to park at the MATRADE car park and utilise the shuttle service to get to the Court Complex to help ease the traffic congestion and parking problem at the Court Complex. The parking fee at the MATRADE car park is RM2.50 for the first hour and RM1.00 for every subsequent hour or part thereof to a maximum charge of RM5.00.

With this in place, vehicles will no longer be allowed to be parked along the side of the roads leading to the Kuala Lumpur Court Complex. Those found to be parking their vehicles along the said roads may be issued summonses.

Regards,

Reggie MS Wong

Chair

Civil Court Liaison Committee

Our Children. Our Hope. Our Future

By Bar Council Human Rights Committee

It’s that time of the year again when the Bar Council, Malaysia puts together an annual event to commemorate International Human Rights Day.

This year’s theme is “Our Children. Our Hope. Our Future”, in recognition of our role not merely as custodians of society but also as those who shape its values. We believe that every child has economic, social and cultural rights, related to the conditions necessary to meet his or her basic human needs such as food, shelter, education and healthcare.

Therefore, we are holding a Children’s Homes Fundraising Dinner this year, whereby proceeds will go to seven children’s homes - Desa Amal Jireh, The Pure Life Society, Gurpuri Foundation, Rumah Solehah, An-Najjah, All Ethnic Group Refugee Children Education Centre and Rumah Sayangan.

Donations received will help to maintain and improve the conditions of the homes and create a better environment for the children, some of whom are orphans or living with HIV/AIDS and other forms of terminal disease and disability.

Please come and support this important and meaningful event because it is up to all of us to make it right for our children.

“Our Children. Our Hope. Our Future” Children’s Homes Fundraising Dinner

Grand Ballroom, Sunway Hotel, Resort and Spa

10 December 2009, 6:30pm

Dinner ticket @ RM200 per ticket/ RM2, 000 per table

Dress code: Formal

We welcome individual donations, in cash or in kind, and corporate sponsorship.

For tickets and further information, please contact Lim Ka Ea at 03-2031 3003, ext. 127, email: kaea@malaysianbar.org.my, or Siti Kasim at 012-223 3371, email: sitikasim@gmail.com.

RELEVAN ONLINE

FREEDOM OF SPEECH ON THE NET - AN ILLUSION OR REALITY?

By Joanna Loy

In an unprecedented development which occurred on 13 March 2009, six persons were charged under Section 233(1) of the Communications and Multimedia Act 1998 (“CMA”) and Section 34 of the Penal Code for posting various comments relating to the Sultan of Perak on various websites on the Internet.

Section 233(1) of the CMA inter alia renders it an offence to make or initiate the transmission of any obscene, indecent, false, menacing or offensive comment or communication with the intention to annoy, abuse, threaten or harass any person.

One of the accused pleaded guilty and was fined RM10,000-00. The others, from various parts of the country, are claiming trial.

Malaysians will recall that about 7 months ago, all 21 Internet Service Providers (ISPs) in the country were ordered by the Malaysian Communications and Multimedia Commission (“MCMC”) to block the controversial Malaysia Today website.

Approximately two weeks after the censorship and after much public outcry, the Cabinet ordered the MCMC to reinstate access to the blocked website.

The latest brouhaha being the recent controversial “Cow’s Head Protest” where the MCMC directed Malaysiakini, an independent news portal, to remove footage and videos of the controversial “Cow’s Head Protest” from its website.

The question which begs to be answered here is this: "Is a free Internet merely an elusive dream in Malaysia?"

Internet censorship has been defined as the control or suppression of the publishing or accessing of information on the Internet. The legal issues in the Internet i.e. an online setting are similar to offline censorship. Hence, the online environment is not a legal vacuum. In general, if something is illegal “offline”, it will also be illegal “online”. In such cases, the relevant existing laws would apply; such as the Sedition Act, the Defamation Act, the Penal Code and Section 233 of the CMA.

THE ROLE OF THE MCMC

The MCMC is entrusted with the role of promoting and regulating the communications and multimedia industry and to enforce the communications and multimedia laws in Malaysia.

The MCMC’s website at www.skmm.gov.my declares that the primary role of the MCMC is to “implement and promote the Government's national policy objectives for the communications and multimedia sector. The MCMC also oversees the new regulatory framework for the converging industries of telecommunications, broadcasting and on-line activities, in accordance with the national policy objectives set out in the CMA …”

The relevant portions of the national policy objectives under Section 3(2) of the CMA are:

(a) to establish Malaysia as a major global centre and hub for communications and multimedia information and content services;

(b) to promote a civil society where information-based services will provide the basis of continuing enhancements to quality of work and life;

(c) to grow and nurture local information resources and cultural representation that facilitate the national identity and global diversity;

(d) to regulate for the long-term benefit of the end user.

Netizens have questioned whether the MCMC has exceeded its statutory powers by ordering the blocking of the Malaysia Today website as Section 3(3) of the CMA expressly stipulates that "nothing in this Act shall be construed as permitting the censorship of the Internet".

Further, the MCMC's actions have cast doubts on the Government's promise in the MSC Malaysia 10-Point Bill of Guarantees to “ensure no Internet censorship”.

CENSORSHIP TOOLS

Malaysians are not alone in their struggle with Internet censorship. All around the world, countries and corporations are finding it to be an uphill task to monitor and restrict access to websites due to the many ways to bypass restrictions for accessing websites.

According to Dmitri Vitaliev of The Guardian, the modus operandi of many nations appears to be to ban access to websites by installing “blacklists” on the entry/exit point of the network i.e. the gateway. These lists contain the names of sites (their URL) and often the IP address of the webserver they are hosted on. Requests for blacklisted sites are processed by the gateway and rejected.

Vitaliev further noted that some countries have taken the extra step to introduce a list of words and phrases to the blacklists. This is how it works: when a blacklisted word or phrase is found on a website’s name or search query, the request to pass through the gateway will be denied. For instance, an Iranian blogger who researched on “annmarie, chandice, chastity, bath, belly, dita or ebony”, found that these terms were disallowed from passing through his internet connection.

How workable this is in reality is another question altogether. Blacklists are only effective when a website is requested directly. If a third party is called to fetch a page’s content, then these lists become irrelevant.

Netizens in censored internet environments cleverly resort to the use of online translations and caching services to access a website indirectly. Others have relied on anonymisers – to conceal your identity from a website – to hide your true destination through the censoring filters. Those who can afford it prefer to skip their country’s network altogether by installing a satellite internet connection. This enables them to circumvent the national gateway and gain entrance into the unrestricted territory.

Be that as it may, governments and corporations continue to play a cat-and-mouse game by blocking translation websites, anonymisers and other proxy servers. Filtering software manufacturers add a “circumvention tools” category to their blacklists, to reside beside pornography and extremism. Netizens continue to use RSS (a method used for the syndication of web content), traffic compression tools and chat rooms to continue the free flow of information. These are blocked by governments and corporations too.

Given the number of tools that can be utilized to circumvent these blockades, the MCMC’s efforts to censor the websites may be futile.

FREE INTERNET - FREEDOM OF SPEECH

The ability to go “undercover” by writing anonymously in an online environment and the advent of blogging have been catalysts for individuals to express their grievances more openly. Ideas and information flow freely and can be transmitted much faster than ever before.

It must be recognised that this new found freedom does not mean the absence of rule of law. Article 10 of the Federal Constitution which guarantees the right to freedom of speech and expression recognises that Parliament may enact laws to restrict this freedom in the interest of security, public order, morality and to prevent defamation.

Likewise, Articles 29(2) and 30 of the Universal Declaration of Human Rights (UDHR) are also clear on this:

· rights and freedoms may be limited by law solely for the purpose of securing due recognition and respect for the rights and freedoms of others;

· rights and freedoms may be limited by law solely to meet the just requirements of morality, public order and the general welfare in a democratic society;

· no State, group or person has the right to engage in any activity or to perform any act aimed at the destruction of any rights and freedoms set forth in the UDHR.

Section 233(1) of the CMA may be an attempt to balance an individual's right to freedom of speech against the legitimate right of others, as recognised by the qualifications to Article 10 of the Federal Constitution and the UDHR.

In view of the qualifications embodied in Article 10 of the Federal Constitution, it would appear that arguments by bloggers that the charges filed against the 6 users of the Internet on 13 March 2009 erode the constitutional right to freedom of speech and expression may not be entirely justified.

Given the many challenges and difficulties with the abuse of the Internet, particularly by extremists and terrorists to further their propaganda and cause, the desire by governments to impose some form of control on the Internet is understandable and perhaps, justifiable.

Unfortunately, legislators are finding it a challenge to keep up. For instance, Section 58 of the Terrorism Act 2000 of the United Kingdom renders it an offence to download material which may be useful to a terrorist. This unfortunately led to the detention of a junior academic at Nottingham University who was legitimately researching terrorism.

Perhaps it is timely, as opined by Jonathan Heawood of The Guardian, for an international treaty on the Internet to underwrite freedom of speech. This may also require the creation of a new body, and an amendment to Article 19 of the International Covenant on Civil and Political Rights to spell out our right to use the Internet, and to expect that use to be as free as it appears to be.

In the absence of greater transparency and accountability on the part of governmental bodies, it remains to be seen how effective state censorship can be. The MCMC’s act of censorship only breeds public resentment and animosity against itself and ultimately the government of the day.

Perhaps the best method of censorship is social censorship as described by Digby Anderson of The Guardian, where it acts against the writers rather than their works and is as concerned with their behaviour as much as their views. In other words, censorship is done by way of social pressure as opposed to state coercion and law. Whether we are ready for it is another matter altogether.

This article originally appeared in Skrine’s Legal Insights Issue 1/2009 and is reproduced with permission.

RELEVAN ONLINE

Unravelling Practical Issues Surrounding Thin Capitalisation Law in Malaysia

by S. Saravana Kumar

It has been several months since the legislation of thin capitalisation law in Malaysia[1]. The announcement on the introduction of thin capitalisation law was first made in August 2008 by then prime minister Tun Abdullah Ahmad Badawi in his Budget 2009 speech.

Although the government did not initiate any public discourse on this matter, the announcement did not come as a surprise. The local tax industry was abuzz with the government’s intention to introduce thin capitalisation law. Unfortunately, there was no explanation from the authorities as to the need for such law in Malaysia. This is all the more necessary as other trading nations in the Association of Southeast Asian Nations (or Asean) region such as Singapore, Vietnam, Thailand and Indonesia do not have or intend to introduce such legislation in the near future. Both the Budget 2009 speech and Hansard (i.e. minutes of Parliamentary proceedings) are silent in this respect.

Further, it is also very disappointing that the government did not openly engage the public or local tax industry in a dialogue prior to the introduction of that law. Shortly after the announcement, some respectable quarters within the industry questioned the government’s wisdom of introducing thin capitalisation.

This article is not devoted to questioning whether Malaysia requires thin capitalisation law or not. Instead, the focus is on practical issues that remain unresolved in relation to thin capitalisation law in Malaysia. To the best of the author’s knowledge, neither the government nor the Inland Revenue Board of Malaysia (“IRB”) has made an attempt to address these issues.

Firstly, the thin capitalisation provision came into effect on 1 January 2009. That means, legally speaking, the Director General of the Inland Revenue (“DGIR”) may disallow the deduction of “excessive” interest payment as revenue expenditure from 1 January 2009 onwards. That said, the rules or regulations pertaining to the implementation of thin capitalisation law have yet to be issued by the government until today.

The first and foremost question is, “What is the acceptable debt and equity ratio?” The ratio adopted by other jurisdictions is 3:1. Will Malaysia adopt the same ratio or would it opt to be different?

It is likely that details such as this will be contained in the regulations. Eventually, when the thin capitalisation rules are issued, when will it take effect? Will it take effect retrospectively from 1 January 2009?

Since s.140A(4) of the Income Tax Act 1967 [Act 53] (“the ITA”) is already in force, taxpayers are anxious and seeking advice from tax practitioners, despite the fact that thin capitalisation rules have yet to be issued. This puts tax practitioners in a dilemma as the advice or proposal that they suggest may be contrary to the thin capitalisation rules.

This is all the more evident in instances where the taxpayer is subject to higher taxes if the thin capitalisation rules are followed. In such a case, the taxpayer may be subjected to additional taxes and penalty if the IRB decides to apply the thin capitalisation rules retrospectively.

Furthermore, the tax practitioners are also exposing themselves to a possible action under s.114(1A) of the ITA as their advice can be construed by the IRB to have resulted in the understatement of the taxpayer’s tax liability. In light of these potential problems, it would be welcomed if the government does not implement the thin capitalisation rules retrospectively from 1 January 2009.

The IRB has also yet to issue any guidelines or public ruling to guide taxpayers on how it intends to implement the thin capitalisation law. Such guidelines or public rulings are necessary as it provides an insight to the taxpayer on the approach taken by the IRB in enforcing the law.

The self-assessment system, which was introduced in Malaysia in 2001, requires taxpayers to determine their taxable income, compute their tax liability and submit their tax returns. In principle, the self-assessment system has shifted a substantial burden of responsibility from the IRB to the taxpayers. In that regard, it will be helpful if the IRB issues a Guideline or a Public Ruling on thin capitalisation before the thin capitalisation rules are issued.

The key words in the thin capitalisation law, namely, “interest”, “Financial assistance” and “fixed capital”, are not defined. These words are not interpreted in s.2 of the ITA. Recently, at a tax seminar organised by the IRB, the participants were advised that the term “interest” for thin capitalisation law includes guarantee fees, commitment fees, representation fees, commission and borrowing bond fees. However, this definition of IRB contradicts its policy as these types of payments are not recognised as interest for the purposes of business deduction.

Businesses are only allowed deduction for actual interest payment and not other expenditure that are akin or incidental to interest. It is certainly unfair to taxpayers as the IRB seems to be blowing hot and cold on the definition of interest. When it suits the IRB, a wide interpretation is given to the word “interest”. Such an approach is certainly not professional and the IRB must be professional by being consistent with its views. If interest is treated to include guarantee fees for thin capitalisation rules, then it is only appropriate that the IRB allows the taxpayers to deduct guarantee fees paid in the course of business as business expenditure.

Interest paid by a Malaysian taxpayer to a non-resident is subject to withholding tax in Malaysia. If the IRB decided to disallow the Malaysian taxpayer from claiming deduction for the “excessive” interest paid to the non-resident, would the IRB refund the withholding tax on the excessive interest portion to the non-resident?

Otherwise, the IRB will be “benefiting” twice in the sense that the Malaysian taxpayer is not allowed to deduct the “excessive” interest paid to the non-resident but nevertheless, the IRB gets to tax the excessive interest by imposing withholding tax on it. It is only appropriate in circumstances where the excessive interest is disallowed that the IRB refunds the withholding tax on that portion back to the non-resident.

Further, since s.140A reads “in the basis period for a YA the value or aggregate of all financial assistance granted by a person to an associated person who is a resident”, the question arises as to whether s.140A(4) applies to financial assistance that was rendered before 1 January 2009.

The author’s view is that if a loan was made in 2008, it will mean the financial assistance was granted in YA 2008 and not in YA 2009. In that regard, the IRB should not disallow the excessive interest (if any) that is payable in YA 2009 and subsequent years of assessment as the financial assistance was granted before s.140A(4) took effect. Any attempt by the IRB to invoke s.140A(4) on financial assistance that was granted before 1 January 2009 would be ultra vires and against the principles of natural justice. In such circumstances, the taxpayer should consider challenging the IRB’s decision by way of judicial review.

Interestingly, s.140A(4) states that the DGIR may disallow the deduction in cases where he is of the opinion that the financial assistance rendered is excessive. The language used is different from the one used for s.140A(3), which is the transfer pricing provision. Section 140A(3) states that the DGIR may adjust a transaction between associated persons where he has the reason to believe that the transaction is not at arm’s length.

Notwithstanding the difference in the phraseology used for sections 140A(3) and 140A(4), the author opines that the DGIR must state the grounds that influenced him to invoke s.140A(4) against the taxpayer. This will surely enable the taxpayer to understand better why s.140A(4) was invoked and assist the taxpayer in preparing his defence.

Conclusion

The foundation for thin capitalisation rules in Malaysia is weak and it is disappointing that deep thought was not given to this area before legislation was enacted. There are too many questions that remain unanswered and if they are not resolved soon, it will just create confusion among taxpayers, which is clearly not healthy under the self-assessment system.

^* This article was first published in the inaugural issue of TaxViews Asia (July 2009), a tax magazine published by CCH Singapore.

[1] The thin capitalisation provision was inserted via the Finance Act 2009. The newly inserted s.140A(4) to the Income Tax Act 1967 reads:

“Where the Director General, having regard to the circumstances of the case, is of the opinion that in the basis period for a year of assessment the value or aggregate of all financial assistance granted by a person to an associated person who is a resident, is excessive in relation to the fixed capital of such person, any interest, finance charge, other consideration payable for or losses suffered in respect of the financial assistance shall, to the extent to which it relates to the amount which is excessive, be disallowed as a deduction for the purposes of this Act.”