RDS Partnership Secures Key Tax Ruling On INED Fees In OCP v Ketua Pengarah Hasil Dalam Negeri

RDS Partnership secures key tax ruling on INED fees in OCP v Ketua Pengarah Hasil Dalam Negeri

The commercial law firm based in Malaysia with a global reach, RDS Partnership successfully represented the taxpayer in the Court of Appeal in OCP v Ketua Pengarah Hasil Dalam Negeri, where the Court held that fees received by Independent Non-Executive Directors (INEDs) do not constitute employment income under the Income Tax Act 1967 (ITA), but instead fall within the scope of business income.

Background of the dispute

The taxpayer challenged the treatment of fees received as an INED, arguing that such fees should not be classified as employment income for taxation purposes. The Court of Appeal examined the nature of INEDs under corporate law and the underlying purpose of their appointment as independent fiduciaries.

Court ruling and significance

The Court affirmed that INED fees are business income and not subject to employment taxation. The ruling highlights the need for coherence between tax law and corporate governance principles. Company law recognises INEDs as independent fiduciaries, appointed to stand apart from management. Treating them as employees for tax purposes would create a conceptual contradiction, whereby a director is deemed independent for governance but subordinate for taxation.

Legal representation

The taxpayer was successfully represented by S. Saravana Kumar (Partner, Tax, SST & Customs), together with Felicia Wong (Associate) from RDS Partnership.

Conclusion

This decision reinforces the distinction between governance and taxation frameworks, providing clarity for companies and INEDs on the proper classification of director fees under Malaysian tax law.

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