Final rules for annual country-by-country (CbC) reporting by certain taxpayers are effective in Malaysia from 1 January 2017.
In general, these CbC rules align closely with recommendations under the base erosion and profit shifting (BEPS) project’s report on Action 13. The final rules also clearly state that the CbC report will be used by the tax authorities in assessing the level of transfer pricing risks and other BEPS-related issues in Malaysia.
Still, the CbC report is not a substitute for a detailed transfer pricing analysis.
The CbC rules apply to Malaysian-parented multinational corporate groups with total consolidated group revenue of at least Malaysian Ringgit (RM) 3 billion in the financial year preceding the reporting financial year. For example, for a multinational group with financial year ending 31 December 2017, the total consolidated group revenue as of 31 December 2016 will be considered for determining whether the taxpayer group exceeds the RM 3 billion threshold.
The reporting entity will be either the ultimate holding company or, in certain situations, the surrogate holding company. If applicable, the surrogate holding company will be a Malaysian resident entity of the multinational enterprise (MNE) group appointed as such by the MNE group to file the CbC report as a substitute for the ultimate holding company.
Each Malaysian resident entity of the MNE group that is subject to the CbC reporting requirement must notify the Director General, in writing, of who is the MNE group’s reporting entity on or before the last day of the reporting financial year. For example, for an MNE resident in Malaysia with a financial year ending 31 December 2017, the notification deadline would be on or before 31 December 2017.
The CbC report itself is to be filed with the Director General on or before a date that is 12 months from the last day of the reporting financial year. The first submissions of the CbC report will be due by 31 December 2018 for those MNEs with a financial year ending 31 December 2017.
The CbC report must include information on a country-by-country basis relating to the multinational group including information about income, taxes paid, employees, and the nature of business activity.
Given that Malaysia and other countries are preparing to simultaneously exchange CbC reports, there is an increased likelihood for more transfer pricing controversies, in part depending on how tax authorities across the world use the information in CbC reports. Thus, prudent taxpayers and MNEs will take an opportunity to revisit their global value chain and evaluate where their profits/income are reported and whether these are commensurate with the level of economic activities and value creation at the respective locations. Any mismatches in these data points could raise red flags for tax authorities to conduct further examinations.
Read a January 2017 report [PDF 90 KB] prepared by the KPMG member firm in Malaysia
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