CATA Member Countries Serious In Tackling TP And BEPS Issues

MELAKA, Nov 17 (Bernama) — The Inland Revenue Board (IRB) has highlighted the transfer pricing (TP) and abuse of treaties in base erosion and profit shifting (BEPS) issues at the 36th Commonwealth Association of Tax Administrators Conference (CATA) here today.

IRB, in a statement today, said CATA members were serious in overcoming TP and BEPS issues as they were widespread.

“These issues are currently faced by tax administrators globally where multinational companies are taking advantage to minimise their tax payable and to evade tax in certain countries,” it said.

IRB said for the TP issue, action taken included placing a general tax avoidance provision under Section 140 of the Income Tax Act (ITA) 1967 in order to combat tax avoidance.

“We have also introduced a specific TP legislation under Section 140A of the ITA 1967 in 2009, which is supplemented by the Income Tax (TP) Rules 2012 (P.U. [A] 132), to address transfer pricing related issues,” it said.

IRB released the 2012 Malaysian Transfer Pricing Guidelines (TPGL) on July 20, 2012 to replace the original Transfer Pricing Guidelines issued in 2003.

“The revised TPGL provides further guidance for the application of the transfer pricing legislation in Malaysia and the administrative requirements of IRB on the types of records and documentation to maintain,” it said.

IRB had also issued the Audit Framework 2013, which superseded the previous framework issued in January 2009. This framework provides guidance on how TP audits would be conducted and enforced in Malaysia.

“Since 2003, we have conducted numerous audits on multinational companies to scrutinise their TP practices in an effort to ensure that they pay their fair share of taxes,” it said.

In 2012, IRB solved 78 audit cases and collected RM116.44 million, while in 2013, 156 cases were solved with RM160.67 million collected, and last year 160 cases solved with RM156.60 million collected.

Meanwhile, IRB said BEPS were caused by rapid cross-border transactions, which were not in line with the development of tax legislation between countries.

“Such disadvantage is an opportunity for all multinational companies to exploit the gap and differences in current tax laws to shift their profits to low-tax rate or tax-free countries,” it said.

In order to overcome BEPS issue, IRB will update and revise the ITA and other relevant provisions, to align with international standards, where such standards are applicable and relevant locally.

“Currently, IRB is in the process of reviewing the relevant tax legislations to keep abreast with the changes and development of BEPS projects under the mandate of the Organisation for Economic Co-operation and Development (OECD).

“IRB is also actively involved in selected BEPS Working Party (WP) and OECD meetings to discuss the BEPS Action Plan,” it said.

In its point of view, IRB said the BEPS Action Plan may not be applicable in all instances for Malaysia, given that its tax system and policy goals are different from any developed countries.

“However, the fact that we largely rely on corporate income tax, particularly from multinationals reflects the importance of handling the transfer pricing and BEPS issues,” it added.

Therefore, it is important for IRBM to follow closely the development of the TP and BEPS issues in order to overcome the existing gap in the current provision tax law, maintain the basis of taxation and reduce leakages in the collection.

The five-day CATA Conference ends on Friday.