Wednesday, 17 February 2016

Corporate Tax Audits and Voluntary Disclosure Routes

An article by: Renganathan Kannan, Partner of TraTax Malaysia

(Speaker for the upcoming Wolters Kluwer workshop, Navigating through Corporate Tax Audits & Investigation – Taxpayers’ Fundamental Rights held in Kuala Lumpur and Penang)

The Prime Minister, YAB. Dato' Sri Mohd Najib Bin Tun Abdul Razak has announced plans to enhance revenue collection and reduce tax leakages as part of the recalibration exercise of the 2016 Federal Budget. In order to reduce tax leakages, the Inland Revenue Board of Malaysia (IRB) plans to double tax compliance and audit efforts on tax evaders as well as give special consideration on relaxation for penalties on taxpayers who come forward and declare their past years’ income and settle their arrears before 15th December 2016 vide voluntary disclosure routes. The IRB issued an Operational Guideline (GPHDN 1/2016) on 10-02-2016 in line with the Prime Minister’s announcement on 28-01-2016.
Tax audit is an essential element of any self-assessment system. During the audit process, with is carried out with the objective of increasing the rate of voluntary compliance, the IRB applies numerous techniques and tools to examine the taxpayers’ records, financial affairs, documentations, substance of documentations and business practices.
The IRB has expressed in its recent tax audit framework that it expects the tax agents representing the taxpayers to be professional, honest, cooperative and highly knowledgeable on the law as well as practices in order to handle the tax audit process effectively and efficiently. It is also to the interest of the taxpayers that the audit is completed cooperatively, timely and efficiently. Taxpayers have the responsibility to produce sound and valid documentations during a comprehensive tax audit process.
Upon completion of an audit process, the IRB will monitor the taxpayers under the Monitoring Deliberately Tax Defaulters (MDTD) Programme. This programme was previously introduced by the IRB in January 2014. The IRB also indicated in their media release on 18-04-2014 that 121 taxpayers and/or cases were listed under this programme between 01-01-2014 and 31-03-2014.
Taxpayers listed under the MDTD programme will be labelled as non-compliant taxpayers and a penalty of 100% will be imposed on the taxes undercharged and/or willful evasion. Such taxpayers will only be delisted if the IRB is satisfied with the compliance level for subsequent year of assessments.
At this course, you will learn the following:

Pre Audit
  • Taxpayers - rights and responsibilities
  • Preliminary assessment by a tax officer
During Audit
  • Methods to carry out business tests & capital vs. revenue test
  • Risk profiling of an entity, group base and/or industry basis
  •  Capital Statement analysis vs. Gross Profits Margin analysis
  • Three layer documentation analysis – the intention, transaction & subsequent documentation
Post Audit
  • The value of Business Malaysian Standard Industrial Classification (MSIC) 2008 codes
  • Back to compliance - reciprocal basis (transform from black to white category list within two year of assessments)
  • The effect of being an audited taxpayerIRBM’s  Monitoring Deliberately Tax Defaulter (MDTD) Programme
  •  Capitalising the voluntary disclosure options


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Renganathan is a partner of Thenesh, Renga & Associates (a.k.a. TraTax Malaysia), a firm of chartered accountants dedicated for providing tax advisory services.
Renganathan is a fellow member of the Association of Chartered Certified Accountants (ACCA, UK), member of the Malaysian Institute of Accountants (MIA), the Chartered Tax Institute of Malaysia (CTIM), the Chartered Management Institute (CMI, UK) and the International Fiscal Association (IFA). He is a licensed tax agent - both under the Income Tax Act 1967 and the Goods and Services Tax Act 2014.
Renganathan has been a member of the CTIM’s Membership Committee and a member of ACCA’s Marking Panel for a Malaysian variant tax examination. He has also spoken at various tax forums and seminars.
Renganathan specialises in tax advisory and has vast experience representing clients from diverse industries on tax audit and investigation cases.

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