KPMG report: Tax governance frameworks in Singapore and Malaysia, related income tax and GST benefits

Two new tax governance programs were launched

Two new tax governance programs were launched

The Inland Revenue Authority of Singapore (IRAS) officially launched two new tax governance programs – the Tax Governance Framework (TGF) and Tax Risk Management and Control Framework for Corporate Income Tax (CTRM) – in February 2022. These programs encourage companies, particularly large companies and multinational enterprises (MNEs), to demonstrate good tax governance by maintaining and improving their tax governance and control framework and bringing attention to tax matters to the board level. These new initiatives complement Singapore’s GST Assisted Compliance Assurance Program (ACAP), which the IRAS introduced in 2011.

The Inland Revenue Board of Malaysia (IRBM) in April 2022 issued the Tax Corporate Governance Framework (TCGF) and related guidelines to assist organizations in designing and operating their TCGF and encouraging voluntary participation in the TCGF program. The release of the TCGF and the related guidelines represents a step towards fostering a cooperative relationship between organizations, particularly large businesses, and the IRBM, and development of a more consultative and transparent compliance regime.

Tax governance trend

These new programs in Singapore and Malaysia are part of an increasing focus by tax authorities on tax governance. Like many other revenue authorities (including the Australian Tax Office (ATO) with its Justified Trust regime), the IRBM and IRAS are assessing the level of confidence that the right amount of tax is being paid by looking at an organization’s tax governance. Organizations with a strong tax control framework (TCF) then receive less tax authority attention and/or benefits from adopting a TCF.

The Organisation for Economic Co-operation and Development (OECD) released a publication on Co-operative Tax Compliance that outlines the essential features of a TCF, and many of the features in the OECD publication are captured in these initiatives in both Singapore and Malaysia.

What is a tax control framework and why adopt one?

The TGF in Singapore is built around three essential building blocks:

  • Compliance with tax laws – the company is committed to comply with the relevant tax laws, regulations and requirements and respect the intent of laws and regulations
  • Governance structure for managing tax risks – the board is apprised of the governance structure and policy for managing tax risk
  • Relationship with tax authorities – the company supports a collaborative and transparent relationship with tax authorities based on mutual trust and respect

While the TGF provides companies with the opportunity to demonstrate that it has good tax governance and tax risk management, the CTRM allows companies to perform a more holistic review of their controls and tax risk management for corporate income tax matters.

In Malaysia, the IRBM’s TCGF sets out several focus areas and examples of evidence that organizations can present to show that their TCF is in place and effective, including:

  • Roles and responsibilities – assignment of roles and responsibilities for each stakeholder in the management of tax risk
  • Control framework – systems and controls are in place to ensure accurate reporting and transparency of decision making
  • Control testing – regular testing of the effectiveness of the TCF
  • Management of tax risks – a reasoned approach is adopted when assessing tax risks and making decisions
  • Significant or new transactions – are identified, well documented and subject to review and sign-off for tax risk purposes
  • Tax and accounting results – are subject to review processes, reflect economic performance or variances, are understood and can be explained

The benefits of an organization having a TCF are set out in the guidance, are similar to those set out in the ATO’s Tax Risk Management and Governance Review Guide (ATO Guide) and include:

  • Greater certainty in tax compliance
  • Better tax risk management and transparency
  • Reduced compliance costs

Specific benefits from participating in the various programs vary between Singapore and Malaysia are summarized in the chart below.

Singapore

Malaysia

TGF

CTRM

ACAP

TCGF

Extended grace period of two years for voluntary disclosure of corporate income tax/withholding tax/GST errors

 

One-time extended grace period of three years for voluntary disclosure of GST errors for ACAP companies

 

Improved taxpayer’s standing with IRAS

One-time waiver of penalties once for voluntary disclosure of prior years’ corporate income tax errors

 

Step-down on corporate income tax compliance activities

Step-down on GST compliance activities

 

Accelerated GST refunds

 

Dedicated team to handle GST rulings and resolve GST issues

 

Auto renewal of GST schemes

Accelerated tax refunds

 

Reduced scrutiny – no or fewer tax audits, higher materiality or reduced sample size

 

Appointment of a dedicated IRBM officer

 

Priority consideration for compliant participants with no penalty imposed

 

Participation in the initiatives

Participation in these tax governance initiatives is voluntary. For Singapore, any company can commit to the TGF, although it is particularly suited for companies that have complex structures, recognize the importance of tax accountability and transparency and are willing to commit to good tax governance practices. Companies need to publish their tax governance policy, detailing the three building blocks, publicly and complete a declaration form. The application for TGF status is subject to IRAS’ approval and is valid for as long as the tax governance policy is publicly available and adheres to the three building blocks.

In Malaysia, organizations that meet the IRBM’s requirements (typically medium to complex structures, large volumes of transactions and an established internal control system) are encouraged to submit a participation form and satisfy the requirements of the TCGF, including appointment of an independent reviewer to perform a review assessment of their TCGF. The IRBM then award participation status which is valid for three years.


For more information, contact a KPMG tax professional:

Phil Beswick | pbeswick@kpmg.com.au

Michael Canvin | mcanvin@kpmg.com.au

 

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. 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. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.