Lifting the corporate veil : director's liability on company's tax debts

Abstract

The company’s law doctrine of separate legal entity and limited liability generally exempting the directors from being liable for their company’s debts. However, the corporate veil has to be lifted to find the alter ego behind the lifeless company, and making the directors liable for the company’s tax debts. This study examines the application of section 75 and section 75A of the Malaysian Income Tax Act 1967 in making directors jointly and severally liable for the taxes and debts of their companies while comparing to legislative provisions and best practices in another jurisdictions, particularly in Canada and Australia. It also investigates the existing application of the Malaysian tax law and the director’s duties in the Companies Act 2016, with similar comparison to Canadian and Australian company laws and tax laws regarding the director duties and imposition of liability on directors for corporations tax debts. This study utilizes a mixed qualitative approach comprising of two methodologies; firstly, library research of the existing laws, articles, books, journals, reports, studies and other information pertaining to tax law on director’s duties and personal liability for company’s tax debts and also tax law of Canada and Australia. This data constitutes the primary data for this research. Secondly, the data on implementation of legal actions against the directors in Malaysia for the company’s tax debts are requested and collected from Jabatan Pungutan Hasil and Jabatan Teknologi Maklumat of the Inland Revenue Board of Malaysia (IRBM) headquarters in Cyberjaya as secondary data to support the theory of efficiency of this law in Malaysia.