Malaysia: Effective tax rate; country-by-country reporting data used for transfer pricing purposes

A public consultation paper issued is part of the government’s efforts to obtain feedback regarding policy proposals considered for budget 2023

The consultation process invites comments on certain simplification measures

A public consultation paper—Implementation of Globe Rules in Malaysia—issued 1 August 2022 by the Ministry of Finance is part of the government’s efforts to obtain feedback regarding the government's policy proposals that will be considered for the budget for 2023.

The consultation process invites comments on certain simplification measures including whether country-by-country (CbC) reporting data used for transfer pricing purposes is appropriate for determining when an effective tax rate (ETR) exceeds a nominated safe harbour minimum. In such cases, a full ETR calculation would not be required for that jurisdiction.

Other matters for consultation include:

  • The feasibility of the implementation date, currently set for 2023
  • The need for clarification of scope of the OECD’s Pillar Two model global anti-base erosion (GloBE) rules in domestic legislation
  • The practicalities of computing a constituent entity’s accounting profit
  • Administrative challenges and transition rules

The consultation paper also seeks feedback as to how Malaysia can incorporate its current tax incentives into the reform framework to determine that these incentives remain attractive to foreign direct investments.

KPMG observation

While the consultation paper does not appear to include details on how the “undertaxed payment rule” (UTPR) will be implemented in Malaysia, the Ministry of Finance has requested comments about how top-up tax allocated to Malaysia under the UTPR would be charged. This might include views on carrying forward excess amounts that cannot be charged in any given tax year.

The consultation paper also mentions the possibility of Malaysia introducing a “qualified domestic minimum top-up tax” (QDMTT), similar to that in Hong Kong and Singapore, to protect Malaysia’s tax base and minimize the impact of the UTPR on low-taxed profits.

Comments are due by 15 August 2022.


For more information, contact the head of KPMG’s International Tax practice, Asia Pacific region:

Dean Rolfe | deanrolfe@kpmg.com.sg

 

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.