On 26 December 2017, Malaysia Inland Revenue Board (“IRB”) gazetted the Country-by-Country reporting (“CbCR”) regulations for Labuan entities. The implementation of CbCR will take effect for the financial year starting on and after 1 January 2017. On 1 January 2019, IRB published CbCR Guidelines for Labuan entities.
In Malaysia, CbCR is governed by two separate regulations as follows:
Labuan is a Federal Territory of Malaysia that maintains its own independent corporate laws and taxation regime from the rest of Malaysia.
The Labuan Regulations are applicable to a multinational enterprise (“MNE”) Group:
(a) That has a total consolidated group revenue in the financial year preceding the first reporting financial year of at least RM3 billion; and
(b) Its ultimate holding company or any of its constituent entities is a Labuan entity
carrying on a Labuan business activity.
An MNE Group that fulfils the criteria above is required to prepare the CbCR beginning from the financial year 2017 and furnish it to the Director-General Inland Revenue (“DGIR”) annually. The CbC report has to be filed with the DGIR within 12 months after the end of the respective reporting financial year of the MNE group.
Under the Labuan Regulations, the obligation to file a CbCR lies with the ultimate holding entity (a Labuan entity carrying on a Labuan business activity) alone as the Labuan Regulations do not provide for the appointment of a surrogate holding entity.
A surrogate holding entity can be appointed in cases where:
(a) The ultimate holding entity is not a resident in Malaysia and is not obligated to file a CbCR in its jurisdiction.
(b) The ultimate holding entity is resident in a country which has an international Agreement to which Malaysia is a party of (e.g., it is a member in the Convention on Mutual Administrative Assistance in Tax Matters) but does not have a Qualifying Competent Authority Agreement to exchange CbCR with Malaysia.
(c) There has been a systemic failure in the country of tax residence of the ultimate holding entity.
Keep in mind:
The CbCR also requires a listing of all the constituent entities (including permanent establishment) for which financial information is
reported to be included in the CbC report.
The ultimate holding entity or the surrogate holding entity has the obligation to notify the DGIR in writing of their responsibility as a reporting entity for their group. The notification has to be made on or before the last day of the reporting financial year.
Similarly, the constituent entity of an MNE Group that is resident in Malaysia or is a Labuan entity carrying on a Labuan business activity but is not the reporting entity has to notify DGIR in writing the identity and tax residence of the reporting entity, on or before the last day of the reporting financial year.
The table below provides an example of action to be taken by the ultimate parent entity or surrogate holding entity which has been updated by IRB as at 8th January 2019:
The relevant forms can be downloaded from Section CbCR on the IRB website. Please refer to the following link.
|Information incomplete/ incorrect
||Fine not exceeding RM1,000,000 or imprisonment for a term not exceeding two years or both may be imposed.
|Failure to submit
||Fine not exceeding RM1,000,000 or imprisonment for a term not exceeding two years or both.
|Failure to notify DGIR
||Fine not exceeding RM1,000,000.00 or imprisonment for a term not exceeding two years or to both.
Additional resources will be required to collect the data for the CBC report. This requires coordination of accounting teams from various countries. Who will take responsibility for coalition and filing?
The CbCR will be used for high-level transfer pricing risk assessment purposes. It
may also be used in evaluating other BEPS-related risks. Hence, it is important to have an assessment of your company’s tax approach at the
strategic level. As CbCR are automatically exchanged between tax authorities that will not only draw Malaysia IRB’s attention but also other
country’s tax authority.
Singapore introduced compulsory transfer pricing documentation effective from the year of assessment (YA) 2019. A new penalty regime was also included for non-compliance with the TP documentation requirements.
We are thrilled to announce that Transfer Pricing Solutions is shortlisted for the International Tax Review Asia Tax Awards 2020 with several nominations.
The Inland Revenue Authority of Singapore (IRAS) recognises the diversity in the commodity marketing/trading (CMT) activities undertaken by CMT entities in Singapore and the wide-ranging values they could bring to their multinational enterprise (MNE) group.