Petronas Penapisan obtains leave to challenge RM2.8 bil tax bill in closely watched transfer pricing dispute

Petronas Penapisan obtains leave to challenge RM2.8 bil tax bill in closely watched transfer pricing dispute
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KUALA LUMPUR (May 25) : Petronas Penapisan (Terengganu) Sdn Bhd on Wednesday (May 25) was granted leave by the High Court to commence judicial review of a RM2.8 billion tax assessment issued by the Inland Revenue Board, proceedings which are being closely monitored by corporations over the court's interpretation of the application of transfer pricing law.

Moreover, the Petronas Penapisan case is said to be the largest transfer pricing dispute in Malaysia and the region.

Justice Datuk Wan Ahmad Farid Wan Salleh, who heard the application, dismissed the IRB's objection and gave Petronas Penapisan — which is a unit of Petroliam Nasional Bhd (Petronas) — a stay order from paying the disputed tax amount until the disposal of the judicial review hearing. A date will be fixed by the High Court to hear the full merits of the application.

In judicial review cases, leave or permission has to be gained in order to avoid applications deemed frivolous, vexatious and an abuse of the court process.

The court's decision was confirmed by counsel S Saravana Kumar from Messrs Rosli Dahlan Saravana Partnership to theedgemarkets.com. Saravana Kumar appeared with Yap Wen Hui in the matter.

He told theedgemarkets.com that this case is being watched closely, as it is perceived to be the largest transfer pricing dispute in Malaysia and the region.

“Petronas Penapisan is challenging the transfer pricing methodology employed by the IRB, where the IRB insisted on applying the profit split method without providing any comparability analysis.

“The IRB in raising the tax assessment invoked Section 140A of the Income Tax Act 1967, on the basis that Petronas Penapisan’s transactions with its related parties were not at arm’s length,” he explained.

Saravana Kumar said he told the court in his submissions that leave should be granted as the matter is a legal issue revolving around the application of transfer pricing law.

He added that as there was no transfer pricing report produced by the IRB to rebut the transactional net margin method applied by Petronas Penapisan, the IRB had acted arbitrarily in raising the large tax assessment.

He also highlighted that the existence of the domestic tax remedy in the form of the Special Commissioner of Income Tax (SCIT) does not prohibit Petronas Penapisan from commencing the judicial review which was filed in April last year.

The IRB was represented by Ashrina Ramzan Ali and Kwan Huey Shin.