The Inland Revenue Board of Malaysia (IRBM) has released a statement highlighting the key steps taken by the Government to overcome base erosion and profit shifting (BEPS) and transfer pricing abuse.

The statement was released in the Commonwealth Association of Tax Administrators’ (CATA’s) 36th Annual Technical Conference held from November 16-20, 2015. In this conference the Inland Revenue Board of Malaysia (IRBM) shared a list of actions taken by Malaysia to overcome both the transfer pricing and BEPS issues.

As for the transfer pricing issue the following are the actions taken:

1) The IRBM is using a general tax avoidance provision, Section 140 of the Income Tax Act (ITA), 1967 in order to combat tax avoidance.

2) In 2009 the IRBM introduced specific transfer pricing legislation under Section 140A of the ITA, 1967 which is supplemented by the Income Tax (TP) Rules 2012 (P.U. [A] 132), to address transfer pricing related issues.

3) The IRBM released the 2012 Malaysian Transfer Pricing Guidelines (TPGL) on 20th July 2012 to replace the original Transfer Pricing Guidelines issued in 2003. The revised TPGL provide further guidance for the application of the transfer pricing legislation in Malaysia, as well as the administrative requirements of IRBM on the types of records and documentation to maintain.

Malaysia has now established a BEPS Action Committee to discuss the results from various BEPS meetings. It will consider domestic legislative changes and provide recommendations to the Government on tackling BEPS. Currently, the IRBM is in the process of reviewing the relevant tax legislation to keep abreast of the changes and development of the BEPS projects under the mandate of the Organisation for Economic Co-operation and Development (OECD).

The IRBM comments that the BEPS Action Plan may not be applicable in all instances for Malaysia given that tax system and policy goals are different from those of developed countries. However, the fact that Malaysia has great reliance on corporate income tax, particularly from multinationals, reflects the importance of handling the transfer pricing and BEPS issues. Therefore, it is important for the IRBM to follow closely the development of the transfer pricing and BEPS issues in order to overcome the existing gap in the current provisions of the tax law, maintain the basis of taxation and reduce leakages in tax collection.