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Deloitte Malaysia urges MNCs to prepare for implementation of global minimum tax

Publish date: Wed, 31 May 2023, 06:44 PM

KUALA LUMPUR (May 31): Taxpayers should prepare for any eventuality, including a 2024 implementation of the global minimum tax (GMT), said Deloitte Malaysia and Southeast Asia international tax leader Tan Hooi Beng.

He said GMT is arguably the largest tax reform in history and large multinational corporations (MNCs) will need to pay a minimum tax of 15% in every country in which they operate.

“In essence, an MNC is free to operate in high or low-tax jurisdictions, tax havens, and countries that offer a generous tax holiday.

“While Singapore, Hong Kong, and Thailand have deferred their implementation to 2025, South Korea, the United Kingdom, Japan, Australia, Canada, European Union and Switzerland, among others, have chosen 2024 as their starting year,” he said.

Malaysia has basically agreed to implement a GMT of 15% on some MNCs and Malaysia is among the 136 countries announced by the Organisation for Economic Cooperation and Development (OECD) previously as countries that are ready to reform the international taxation system.

The implementation of the tax system is to ensure that business entities pay taxes fairly in the host country and avoid tax leakages.

As the market waits for a firmer announcement from the Malaysian government, it is important for taxpayers to mitigate any eventualities, Tan noted.

“Large Malaysian-headquartered corporate groups, especially the listed ones, including the pension fund and certain government entities as well as inbound investments of large foreign-based MNCs are likely to be affected.

“Any top-up tax to 15% will be collected under the Qualified Domestic Minimum Top-Up Tax, followed by the Income Inclusion Rule and also the Undertaxed Profits Rule, all of which operate on highly complex mechanisms,” he said.

GMT applies to MNCs operating in at least two jurisdictions, with an annual consolidated group revenue of at least €750 million (RM3.7 billion) in at least two of the four immediately preceding fiscal years.

Even if no top-up tax is required, various compliance obligations need to be met, Tan said, adding that since GMT is a form of taxation, the knee-jerk reaction is that the tax division must be responsible.

“However, this should not be the case as GMT factors into various accounting rules and most of the data owners for GMT are finance and accounting personnel.

“Additionally, in a large organisation, the efficacy of data collection would also depend on the effectiveness of its accounting system,” he said.

It is, therefore, imperative to establish a GMT project steering committee comprising leaders from tax, accounting, finance, and information technology, chaired by the group chief financial officer, and supported by external tax advisors, Tan said.

“Only a well-coordinated approach will ensure a successful GMT implementation,” he added.

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