In Malaysia, the Income Tax (Advance Pricing Arrangement) Rules 2012 (hereinafter referred to as “APA Rules 2012”) was gazetted on 11 May 2012. The Rules, however, are retrospective in application from 1 January 2009.
Advance Pricing Arrangement (“APA”) refers to an arrangement made to determine in advance the appropriate set of criteria to ascertain the arm’s length transfer prices of a covered transaction. A taxpayer who carries on a cross-border transaction may apply to the Director General for an APA in relation to a covered transaction, subject to meeting certain terms and conditions.
Recently, the MIRB has released an amendment to the APA Rules 2012 on 29 December 2017 which is referred to as the Income Tax (Advance Pricing Arrangement) (Amendment) Rules 2017 (“APA Rules 2017”). The salient points are as follows:
New Rule 23
The APA Rules 2012 are amended by inserting a new Rule 23 which allows the MIRB to charge an application fee and any expenses as the Director General may determine in the course of the APA application.
The APA Rules 2017 come into operation on 1 January 2018.
Mutual Agreement Procedure Guidelines
The MIRB has recently released the updated Mutual Agreement Procedure (“MAP”) Guidelines (“hereinafter referred to as
“updated MAP Guidelines”) on its website.
The MAP Guidelines was first announced in January 2015. In line with the announcement of the final report on OECD BEPS Action
14 – Making Dispute Resolution Mechanisms More Effective, Malaysia has updated its MAP Guidelines to be aligned with the BEPS Action 14 minimum standards.
The Article on MAP in Malaysia’s Tax Treaties allows the Malaysian Competent Authority (“CA”) to interact with CAs of Treaty Partner with the intent to resolve taxation not in accordance with the provisions of the tax treaty. The MAP mechanism is independent from the legal remedies available under domestic law.
The salient features of the updated MAP Guidelines are briefly discussed below:
· Taxpayer shall make a written request for a pre-filling meeting prior to making a formal request for MAP.
· Adequate documentation to facilitate the preliminary assessment of the case should be submitted together with the request.
· The taxpayer shall attend and make a presentation on the issues that require CA’s assistance.
Submitting a formal request
Regardless in which jurisdiction the taxpayer wishes to invoke its MAP, both CAs should be notified on the intention of the request.
Competent Authority Proposal
· Upon acceptance of the MAP request, the Malaysian CA shall endeavor to resolve the case via unilateral agreement with the taxpayer if the objection in the MAP request appears to be justified.
· If the Malaysian CA is not itself able to arrive at a satisfactory solution, the case will be resolved by mutual agreement with the CA of the other Contracting Jurisdiction via bilateral agreement.
Confirmation by taxpayer before agreement
Where it is recognised that an Agreement will be reached with the CA of the Treaty Partner, the Office of MAP shall inform the taxpayer of the contents of the proposed Agreement in writing. The taxpayer shall confirm in writing his acceptance within 30 days from the notification date.
Once the MAP agreement has been reached and accepted by the taxpayer, the implementation will be made within 3 months after the determination of the case.
Interaction between MAP and domestic appeal process
· The taxpayer must inform the relevant branch in writing that an MAP request has been made. Section 102(1A) of the Act will be applied where no appeal shall be forwarded to the Special Commissioners of Income Tax (“SCIT”) until the determination of the MAP. If the taxpayer does not agree to the outcome of the MAP, that taxpayer may, within 30 days from the determination of MAP, request to the Director General (“DG”) in writing to forward such appeal to the SCIT.
· MAP application is not eligible for the situation below:
i. for appeal cases where a SCIT/court decision has been made;
ii. a composite assessment was raised under Section 96A of the Act; or
iii. for cases with elements of tax evasion or tax avoidance.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
If you require further clarification, please contact Mr Bob Kee at +603 7721 7029, Ms Chang Mei Seen at +603 7721 7028, or Mr Ivan Goh at +603 7721 7012.