Malaysia's Response to BEPS

The Government has taken key steps to overcome base erosion and profit shifting (BEPS) and transfer pricing abuse.

In a statement released alongside the Commonwealth Association of Tax Administrators' (CATA's) 36th Annual Technical Conference held on November 16-20, 2015, the Inland Revenue Board (IRB) announced that it is currently reviewing the relevant tax legislation to keep abreast of changes from the BEPS project.

Malaysia has introduced a general anti avoidance provision — Section 140 of the Income Tax Act, 1967 ("the Act") — to combat tax avoidance; introduced specific TP legislation in Section 140A of the Act in 2009, which was supplemented in 2012; introduced transfer pricing guidelines on July 20, 2012, to replace the existing 2003 guidelines; and introduced a new audit framework in 2013, which superseded the previous framework issued in January 2009.

A BEPS Action Committee has been established to discuss the results from various BEPS meetings. It will consider domestic legislative changes and provide recommendations to the Government on tackling BEPS.

The IRB mentioned that the OECD's BEPS Action Plan "may not be applicable in all instances for Malaysia given that our tax system and policy goals are different from any developed countries. However, the fact that we have large reliance on corporate income tax, particularly from multinationals, reflects the importance of handling transfer pricing and BEPS issues."

"Therefore, it is important for IRB to follow closely the development of the transfer pricing and BEPS issues to overcome the existing gap in the current [tax provisions], maintain the basis of taxation, and reduce leakages in the collection," it added.