KUALA LUMPUR: The Court of Appeal (CoA) has overturned a High Court decision from three years ago and ruled that gains from a transfer of technical know-how is considered a capital asset and therefore not taxable.

In a case between Keysight Technologies Malaysia Sdn Bhd and the director general of the Inland Revenue Board (IRB), IRB had sought to classify gains on transfer of technical know-how worth RM821.6 million to Agilent Technologies International as income and claim taxes totalling RM286 million from Keysight Technologies Malaysia Sdn Bhd.

The CoA overturned an earlier High Court ruling which affirmed the decision of the Special Commisioners of Income Tax (SCIT) that gains from the transfer of technical know-how of RM821.6 million by Keysight Technologies was assessable as income under section 4(f) of Income Tax Act 1967.

Wong & Partners which acted for Keysight Technologies said the ruling is a significant legal victory against the IRB.

In a statement issued today, Wong & Partners, as counsel representing Keysight Technologies Malaysia, said the decision made by the CoA disrupts the recent trend of the IRB attempting to tax the capital sale of intellectual properties.

"In a crucial aspect of the decision, the CoA has affirmed the application of the "Badges of Trade" test in Malaysia on capital versus income issue, and limit the IRB's ability to confine the applicability of the test to real property cases, ensuring a consistent and fair approach across all types of transactions," it said.

The firm added that the ruling adds to a line of existing case law that limits the IRB's ability to use the "negligence" excuse to lift the time bar, providing greater certainty and safeguards for businesses operating in Malaysia.

It emphasised that this outcome sets a critical benchmark for future cases, ensuring a predictable legal and tax environment.

"Wong & Partners remains committed to advocating for our clients' rights and upholding the principles of fair taxation," it said.

The Wong & Partners team for the case included tax disputes partner Jason Liang and associates Yeoh Yao Huang, Jeff Sum and Tan Wen Ying.

https://www.nst.com.my/business/corporate/2024/05/1055963/court-appeal-overturns-high-court-ruling-says-gains-transfer