The RM199mil tax penalty on a Malaysian is set to have implications for other businessmen and even pensioners living in Australia.
NOTHING can be said to be certain, except death and taxes. American revolutionary Benjamin Franklin noted this 227 years ago, and it remains largely true.
There is certainly no escape from death now, as then. But when it comes to taxes, there is a big difference today between avoidance and evasion.
Evasion is a serious crime. It means not paying taxes, under-reporting incomes, filing fake expenses or hiding tax liabilities.
Avoidance, however, is a legal means of lowering tax by structuring transactions to get the largest relief benefits.
Unlike wage earners, it is common practice for business people to exploit loopholes in the law to minimise the payment of taxes.
But if one is very rich and happens to be linked to countries where “world tax” is imposed, there is also the possibility of being taxed on all forms of income earned from anywhere in the world.
The United States, France, Australia and to a certain extent, Canada, have such taxation laws. They can be imposed on non-residents through the discretionary process of “deeming” people linked to the country as “tax residents”.
Last week, I bumped into a Malaysian faced with such a quandary.
Sibu-born timber and mining tycoon Sir Hii Yii Ann (he was knighted by Queen Elizabeth in 2007) probably faces what may be the highest tax penalty in the world.
The Australian Tax Office (ATO) is demanding RM199.16mil (A$60.7mil) from him and the bill is still running at A$13,000 (RM42,640) a day as interest on the sum.
And it will continue to run, pending the outcome of his suit filed in the Kuala Lumpur High Court on Sept 29.
He was appraised as an Australian resident for tax purposes between 2001 and 2009 and accused of tax evasion in several courts.
In March, the Australian Supreme Court gave the ATO powers to seize and sell his house in Brisbane and impose caveats on two other properties.
Hii, 56, who has businesses in Papua New Guinea, Hong Kong, Singapore and the Philippines, filed a suit against the government of Australia, the country’s commissioner of taxation and the deputy commissioner.
He is seeking a declaration that he is a Malaysian and tax resident of the country, as he was between 2001 and 2009, and that the move by the ATO in deciding that he had abandoned his Malaysian domicile in favour of Australia on Dec 20, 2013, was null and void.
He wants the unilateral changing of his status as a tax resident of Malaysia to tax resident of Australia declared null and void and contrary to law, along with the original demand of RM162.8mil (A$49.8mil).
Hii is also seeking a decision that the defendants have failed, neglected or breached the spirit and intent of the Dual Tax Agreement signed by both countries in 1980 and that the claims against him are contrary to principles of natural justice under the Malaysian Constitution and the United Nations Universal Declaration of Human Rights.
The ATO has replied to the summons through its affidavit, to which Hii’s lawyers have responded with their assertions. The ATO has sought an extension of time to respond to it.
It is an unprecedented case involving constitutional and extra-territorial judicial issues.
Among others, the court would determine whether the ATO has the power to declare a citizen of another country as tax resident without consulting Malaysia’s Inland Revenue Board.
Hii described his lawsuit as a “David vs Goliath” case.
“I decided not to return to fight the case because I felt that I would not get a fair trial.
“There is already a trial by the media there, with inferences made that I am some kind of an environmental fiend,” he said.
Hii said he had been diligently filing his tax returns as a non-resident in Australia and also in Malaysia, where he has always been a taxpayer.
In Australia, a person is considered an Australian resident for tax purposes if he or she lives in the country. Based on the 183-day test, one can be regarded as a resident for staying for more than half a year.
There is also the test of superannuation (money put aside for retirement), which ensures that residents working overseas are treated as Australian taxpayers.
Hii, whose former wife and children still live in Brisbane, said he had fulfilled all the conditions for a non-resident and filed his returns accordingly.
He said he moved to Australia through a business visa because he wanted his children to study there just like he did, but had no intention of staying there permanently as he had business interests in several countries.
But he was still deemed a resident, based on his social life records, which included the use of a casino card and expenses for his ex-wife’s graduation party many years ago.
“They decided that I was a resident and backdated the taxes to 15 years. Now there are efforts to make me a bankrupt in Australia and in Papua New Guinea.
“Because of this, my businesses and my reputation have been hard hit. I have no choice, but to seek justice in Malaysia.”
The trial promises to be an interesting one, especially for the many Malaysians who have bought houses in Australia, either for investment or for their children studying there.
Even the pensions of Malaysian civil servants residing Down Under are regarded as assessable incomes under the country’s tax laws.
The fundamental question is: can a citizen of one country be arbitrarily “claimed” as a taxpayer of another country and when challenged, cite sovereign immunity to do so?
Media consultant M. Veera Pandiyan likes this quote by author Laurence J. Peter: Few of us ever test our powers of deduction, except when filling out an income tax form.