[TAX] DTA vs ITA: Is It Royalty?

Double Taxation Agreements¹ (DTAs) have become increasingly important in regulating taxation matters when cross-border businesses are involved. DTAs safeguard taxpayers by preventing them from being taxed twice on the same transaction or income source, i.e., both in their country of residence and in another country in which they have business dealings.

In our previous LHAG Insights of 1 September 2022, we discussed the decisions made by 2 separate judges at the Kuala Lumpur High Court (KLHC) to grant leave for judicial review in applications by taxpayers involving a DTA dispute. The dispute pertains to a recurring issue in DTA matters i.e., whether it is the definition of royalty in the Income Tax Act 1967 (ITA) or a DTA that should prevail in the event of a conflict. This issue arises because the Director General of Inland Revenue (DGIR) insists on applying the ITA, despite the primacy given by Parliament to DTAs in Section 132 ITA.