Labuan Malaysia Country-by-Country Reporting Guidelines 2019
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.
Who Needs to Prepare CbCR under Labuan Regulations?
The Labuan Regulations are applicable to a multinational enterprise (“MNE”) Group:
- That has a total consolidated group revenue in the financial year preceding the first reporting financial year of at least RM3 billion; and
- 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:
- The ultimate holding entity is not a resident in Malaysia and is not obligated to file a CbCR in its jurisdiction.
- 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.
- 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. http://www.hasil.gov.my/bt_goindex.php?bt_kump=6&bt_skum=2&bt_posi=1&bt_unit=3&bt_sequ=1
Actions to be taken
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.
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Contributed by our Consultant Mun Yee Wong
Mun Yee Wong has over four years of experience in transfer pricing. She played a role in working closely with the clients in developing the transfer pricing practices in Malaysia, Singapore and Australia.
She specialises in the area of transfer pricing where she handles various transfer pricing engagements for companies from a broad range of industries such as mining; electrical and electronics; construction and property development; hotels; real estate; oil and gas; food and beverages amongst others.
She has prepared transfer pricing documentation (Master File and Local File) for the Asia Pacific region, in particular, Australia, Malaysia, Singapore and the Philippines.
Mun Yee is also a piano teacher in Yamaha and she enjoys teaching. She spends her free time practising yoga. She speaks and writes well in Mandarin, Cantonese and Malay.