When the global minimum corporate tax will come into force in 2023…

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MALAYSIA has agreed to participate in the implementation of the global minimum corporate tax of 15% from 2023. This will only apply to large multinational enterprises (MNEs) and Malaysian conglomerates whose turnover annual worldwide exceeds EUR 750 million (RM 3.4 billion).

This tax is likely to be adopted in 139 countries and possibly more in the future to counter the aggressive tax planning adopted by multinationals, where it is perceived that the total taxes they pay around the world are not not commensurate with the growth in their profits. In many cases, the total worldwide tax they pay is less than 15%.

The impact on Malaysia

The introduction of this tax will force Malaysia to rethink its tax incentive regime where Malaysia allows companies to benefit from 0% tax or rates below 15%. If this continues under the global minimum tax regime, the country in which the MNE’s ultimate parent company resides will be entitled to tax waived by Malaysia. By default, Malaysia will cede the right to collect 15% of the tax to the country of origin under the complementary taxation mechanism.

To prevent tax leakage to the foreign country, Malaysia is considering introducing a qualified supplementary national minimum tax so that Malaysia collects the 15% minimum tax rather than remitting the tax to the foreign country. Whether it will be acceptable to other countries remains to be discovered and is still a question that is still under discussion.

Will this also affect Malaysian businesses?

Yes, but this will only apply to large Malaysian conglomerates whose annual worldwide turnover exceeds approximately RM3.4 billion in the two of the four fiscal years immediately preceding the current fiscal year. This may apply to less than 100 Malaysian companies.

Will this have an impact on individuals?

Yes and no. It will have no direct impact on individuals. However, indirectly, multinational companies and Malaysian conglomerates might try to pass on the additional tax costs to consumers through price increases.

Application difficulties

The mechanism for calculating aggregate income, aggregate taxation, effective tax rates, entities to be included, adjustments to be made, treatment of hybrid entities, transparent entities such as partnerships and permanent establishments are complex and there are many ambiguities in the rules that can lead to potential disputes between the MNE and tax jurisdictions around the world. Different tax jurisdictions may also have difficulty aligning the application of rules across borders.

Where are we at now?

A public consultation document was released on the implementation of the global rules in Malaysia on August 1, 2022. It appears that Malaysia will implement these rules in the upcoming 2023 budget.

Implementing the rules in 2023 via the 2023 budget looks rather ambitious as many concepts in the mechanism will be new to Malaysia’s large taxpayers and to the tax authorities. This requires extensive discussions among stakeholders in Malaysia, and Malaysian authorities such as the Inland Revenue Board and the Ministry of Finance may also need to consult the Organization for Economic Co-operation and Development for advice on many aspects of these rules.

Another significant departure from the norm in Malaysia is the use of accounting information based on international accounting standards as the tax base for charging global minimum tax.

Final Thoughts

Significant work addressing many of the concepts contained in the calculation and application of the global minimum tax must be completed by January 2023. Finally, another important issue to consider is the interaction between the national tax system and the tax system. introduction of the global minimum tax. tax. Will global minimum tax rules prevail over national legislation or will they run parallel to each other?

This article is contributed by Thannees Tax Consulting Services Sdn Bhd Managing Director SM Thanneermalai (www.thannees.com).

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