1. Implementation of BEPS – the Malaysian Scenario
May 2016
Speaker David

2. Country by Country Reporting (CbCR)1
Implementation of BEPS – The Malaysian Scenario
May 2016

3. Country-by-Country Reporting – A Comparison
OECD
Malaysian Inland Revenue Board (IRB)
Who?
Initially, multinational enterprises (“MNE”s) headquartered in G20 and OECD countries with revenue > 750M euros ($860M); expansion to CIAT, ATAF and others.
Any multinational enterprises (MNEs) with total consolidated revenue > 750M euros (exchange rate as at 1 January 2016 = about RM3.5 billion).
Reporting entity: Ultimate parent entity who is tax resident in Malaysia.
What?
Country by Country (CbC) report, master file and local file to be submitted annually.
The IRB will be using the OECD recommended template for CbCR. However, additional information may be requested in the future.
CbC report to be submitted annually to the International Department of the IRB (master file and local file to be submitted within 30 days of the IRB’s request.)
Where?
CbC report to be filed with ultimate parent’s home tax authority; master file and file local file to be filed directly with relevant tax jurisdictions.
Implementation of BEPS – The Malaysian Scenario
May 2016

4. Country-by-Country Reporting – A Comparison
OECD
Malaysian Inland Revenue Board (IRB)
When?
The first CbC reports would be filed no later than December 31, (i.e. one year from the close of the related fiscal year).
Companies with fiscal years ending on a date other than December 31st would be required to file 12 months after the close of the relevant fiscal year.
CbC report required for fiscal years starting on or after 1 January 2017 to be filed one year from the close of the related fiscal year (i.e., no later than 31 December 2018).
How?
MNE will file the CbC report with the tax authority of the ultimate parent of the MNE who will share it via treaty network; master file and local file will be filed directly with local tax administrations in local jurisdictions.
Transmission with the tax authorities of other countries depends on the extent to which the OECD community successfully implements the Common Transmission Systems.
Why?
To aid tax administrators in assessing transfer pricing and other BEPS-related risks at a high level.
Implementation of BEPS – The Malaysian Scenario
May 2016

5. The Future of Transfer Pricing Documentation: A Three-Tiered Approach
Provides aggregated financial and tax data by tax jurisdiction to facilitate risk assessments
Country by country report
Local file
Master file
Provides more detailed information relating to specific intercompany transactions. Assures compliance with the arm’s length principle in material transfer pricing positions impacting a specific jurisdiction
Provides a complete picture of the MNE’s global operations, including an analysis of profit drivers, supply chains, intangibles, and financing
Speaker David
Implementation of BEPS – The Malaysian Scenario
May 2016 5

6. Tax Co-operation Agreement
As at 27 January 2016, 31 countries have signed the tax co-operation agreement to allow automatic sharing of CbC information.
Australia
Austria
Belgium
Chile
Costa Rica
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Ireland
Italy
Japan
Liechtenstein
Luxembourg
Malaysia
Mexico
Netherlands
Nigeria
Norway
Poland
Portugal
Slovakia
Slovenia
South Africa
Spain
Sweden
Switzerland
United Kingdom
Implementation of BEPS – The Malaysian Scenario
May 2016

7. How will the IRB use the CbC Report?
The CbC Report is meant to assist the IRB with the following:
Assessing high-level transfer pricing risks and other BEPS-related risks.
Economical and statistical analyses (e.g. across a period).
Basis for further inquiry into the MNE group’s transfer pricing arrangement or into other tax matters in the course of an audit.
The IRB has assured that the CbC Report will not be used:
As a substitute for a detailed transfer pricing documentation.
For transfer pricing adjustments for the purposes of formulary apportionment.
Implementation of BEPS – The Malaysian Scenario
May 2016

8. The Challenges of CbCR Increased compliance burden
Availability of resources to prepare the transfer pricing documentations in a timely manner
Readiness of existing information systems and processes for data extraction globally
Local tax authorities could question information presented in the template if it does not match information filed locally
Accounts within the group are prepared under different accounting standards
Accounting periods for entities within the MNE group do not match
The group transacts in multiple currencies, requiring numerous foreign currency conversions
OECD has not defined ‘income tax’, ‘current tax accrual’ and other terms in the CbC Reporting template
Implementation of BEPS – The Malaysian Scenario
May 2016

9. 2 Other BEPS Measures Implementation of BEPS – The Malaysian Scenario
May 2016

10. Transfer Pricing Outcomes with Value Creation (Actions 8, 9 and 10)
Revisions to OECD Transfer Pricing Guidelines: Chapters 1, 2, 6, 7 and 8.
Delineate the actual transactions of tested party based on 5 economically relevant characteristics:
Contractual term
Characteristics of products
Functional analysis: Functions, Assets and Risks (risk analysis framework)
Economic circumstances
Business strategy
Identification and definition of intangibles – legal owner alone does not determine entitlement to returns from exploitation of intellectual property.
Definition of low value-added services (LVAS) and corresponding elective, simplified approach – profit mark-up of 5% of relevant cost
Implementation of BEPS – The Malaysian Scenario
May 2016

11. Treaty (Action 6), Dispute Resolution (Action 14) and Multilateral Instrument (Action 15)
The Malaysian authorities will possibly review treaties concluded by Malaysia with regard to the inclusion of Principal Purpose Test, Limitation on Benefits and/or Services Permanent Establishment clauses.
The inclusion of mandatory binding mutual agreement procedure (MAP) is probably not on the immediate agenda of the Malaysian authorities.
Malaysia will likely participate in the process of developing the multilateral instrument but any final decision will depend on the provisions contained in the multilateral instrument.
Implementation of BEPS – The Malaysian Scenario
May 2016

12. Thank you Aurobindo Ponniah Executive Director +60 (3) 2173 3771
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