Ernst & Young Tax Consultants Sdn Bhd Malaysia tax managing partner Farah Rosley said: “We should be nimble in our approach to granting tax incentives, as large multinationals may no longer require or prefer a 0% tax rate in Malaysia if they just have to pay a top-up tax elsewhere. Our tax incentives must be carefully tailored based on the requirement of the individual investor."
PETALING JAYA: The proposed global minimum corporate tax (GMT), to curtail tax competition and shifting of profits, is set to benefit Malaysia if it follows international tax developments and does not forgo taxing rights on the profits generated here to other countries.
Initially set to roll out next year, the global tax has been delayed until 2024, according to the Organisation for Economic Co-operation and Development (OECD).
On Oct 8, 2021, 136 countries and jurisdictions agreed to a proposal developed by the OECD that includes establishing a 15% global minimum tax rate.
Ernst & Young Tax Consultants Sdn Bhd Malaysia tax managing partner Farah Rosley said: “We should be nimble in our approach to granting tax incentives, as large multinationals may no longer require or prefer a 0% tax rate in Malaysia if they just have to pay a top-up tax elsewhere. Our tax incentives must be carefully tailored based on the requirement of the individual investor.
“It is also important to assess what the corporate income tax rate should be going forward. Malaysia’s statutory income corporate tax rate is currently at 24%.
“This is higher than the 15% global minimum tax rate and is also higher than the tax rates in neighbouring countries, which generally do not exceed 20%.
Tricor's Veerinderjeet Singh
“Having a lower corporate income tax rate may help the country to become more attractive to foreign investors,” she said.
With the impending introduction of the GMT, she said the country’s tax system should be competitive. It must also continue to develop and improve policies to encourage fresh domestic and foreign direct investments (FDIs), whilst retaining existing investments.
There is a need to ensure the tax system, including the tax incentive framework, remains effective and relevant, Farah said.
Shedding light on the GMT, Tricor Malaysia chairman Veerinderjit Singh said it is meant to end tax competition among countries which keep lowering their corporate tax rates and to end profit shifting by multinational companies (MNCs) by moving profits to low tax jurisdictions.
Veerinderjit, who is also the vice chair of Paris-based Global Commission on Taxation, International Chamber of Commerce, said under this proposed tax, it is a good thing for nations as all qualifying MNCs would be treated the same.
“But the issue lies, for example, if a MNC needs to pay additional tax so that it meets the 15% level on the whole, then which country would collect that so-called top-up tax? The proposed rules state that the home base of the MNC is entitled to collect the tax in the absence of any other domestic tax provisions stating otherwise.
“That is why Malaysia is considering looking at amending its tax legislation or rules to enable it to collect that top-up tax where relevant,” he said.
The global tax applies to MNCs operating in at least two countries with an annual consolidated group revenue of at least 750 million euros (RM3.5bil) in at least two of the four immediate preceding financial years.
He said a number of countries are also looking at legislation to announce a qualifying domestic minimum top-up tax (QDMTT).
For this purpose, he said if Malaysia were to introduce the QDMTT, it would benefit in terms of some additional tax being collected.
Veerinderjit did not expect the tax to put an end to tax incentives as the global tax only applies to very large MNCs.
“If Malaysia wants large MNCs to invest in the country, that could be a possibility that it may impose a minimum corporate tax of 15% instead and do away with all the previous tax incentives.
“The adoption of the GMT may lead to the possibility of focusing on non-tax incentives in the future. These include quality labour resources, free or cheap land, better and efficient industrial estates, speeding up approvals and specific grants,” he noted.
Deloitte South-East Asia International Tax Leader Tan Hooi Beng
Meanwhile, Tan Hooi Beng, who is Deloitte South-East Asia International tax leader, said having an early understanding of the GMT’s impact and being prepared, is key to an effective and efficient implementation.
To ensure effective implementation, among others, it is essential to perform impact assessment from a group-wide perspective and identify risk areas, he said.
He added it is necessary to identify entities within the group that would be obliged to pay the top-up tax (whether to the Malaysian or foreign tax authorities) and determine the impact on cash-flows and functions.
“There is also a need to analyse if there is a need to renegotiate tax incentives granted or to replace them with non-tax incentives such as grants. A company in a country that enjoys tax incentive is likely to have an effective tax rate (ETR) that is below 15%.
“However, this does not mean that there will be a top-up tax as one needs to compute ETR on a jurisdictional basis, meaning ETRs of other companies in the same country will also need to be factored in. The significance of economic substance needs to be understood as it is useful to minimise the top-up tax,” Tan said.
Sunway University professor of economics Yeah Kim Leng
Sunway University professor of economics Dr Yeah Kim Leng said the global tax would help to improve government revenue levels, especially in emerging countries where generous fiscal incentives such as tax-free pioneer status have been granted or the use of tax haven countries by global corporations to avoid paying higher taxes to the country of origin or domiciled country.
There could be some negative effects to developing countries that are highly dependent on foreign investors, especially if they are unable to compete or retain the foreign investments without providing the tax advantage.
“These countries, including Malaysia, will have to offer compensating advantages to attract the desired foreign direct investments but on the whole, a level playing field in tax regimes, will be positive for the global community in ensuring that global corporations treat fair and equitable tax obligations as a social responsibility rather than a bottom-line imperative,” Yeah noted.
AmBank Group chief economist Anthony Dass
AmBank Group chief economist Anthony Dass stressed that MNCs must be mindful and be fully aware of the impact of the GMT and start preparing for it.
“Although we are not a member of the OECD, we are still a member of the OECD’s inclusive framework. So, we are likely to support and implement the global tax. We feel there is no reason for us to avoid it.
“The taxes that could have been collected here will be ceded to other jurisdictions. But we will need to amend our domestic tax legislation to implement this. The GMT is aimed at ensuring MNCs pay the right amount of taxes regardless of where they operate,” Dass said.
Centre for Market Education CEO Carmelo Ferlito is, however, against the establishment of the GMT. He viewed the tax as a move by the developed countries, who are unable to compete internationally, to impose limitations on the ability to compete from other countries.
Centre for Market Education CEO Carmelo Ferlito
“Furthermore, it is a violation over the policy freedom of individual countries and therefore, a violation of sovereignty.
“Moreover, it is going to penalise those countries that are stronger in fiscal discipline and therefore can impose lower taxes on their citizens, while at the same time is a reward for less virtuous countries, always looking for more taxes because of their inability to use efficiently their resources,”
“In general the GMT could affect investors’ moves, as taxation erodes investment opportunities and depresses profit expectations. It will be an-anti business regulation, which will end up creating a negative investment mood, and therefore less investment and less job opportunities,” he said.
