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The Inland Revenue Board of Malaysia (IRBM) has issued Tax Corporate Governance Framework (TCGF) dated 11 April 2022 and the Guidelines, in the initiatives to implement TCGF Program in Malaysia and promoting good governance practices.
Good tax governance is a subset of good corporate governance. A strong and an effective TCGF can assist an organisation:
· Articulate its attitude towards tax risks
· Achieve greater certainty with respect to its tax affairs
· Promote early resolution of tax issues
· Save time, money and effort in managing tax affairs
The six principles in developing a good TCGF identified by the Organisation for Economic Co-operation and Development (OECD) are as follows:
1. Tax strategy established
2. Applied comprehensively
3. Responsibility assigned
4. Governance documented
5. Testing performed
6. Assurance provided
The IRBM encourages organisations to develop their TCGF accordingly in respect of the following:
(a) Income tax
(b) Petroleum tax
(c) Real Property Gains tax
(d) Transfer pricing / Advanced Pricing Arrangement (APA)
(e) Withholding tax
(f) Tax payment
(g) Monthly tax deduction of employees
(h) Stamp duty
(i) Taxation on Labuan Business Activities
(j) Tax incentives
(k) Tax strategies
(l) Public Ruling compliance
(m) Tax rules and regulations
(n) Advanced Ruling
Below are the key focus areas and some examples of evidence required by the IRBM:
• Roles and responsibilities
- Roles and responsibilities are clearly documented
- Clear lines of authorization and sign-off for tax decisions and administration
- Business owners, board of directors, senior management and tax functions understand their respective tax obligations, including registrations, lodgement, reporting, payment and record keeping
- Board Of Director induction pack for directors to incorporate briefings on key accounting and tax issues
• Control framework
- Formalise the organisation’s tax strategy by the Board
- Document controls and processes that identify, assess and mitigate tax risks
- Ascertain decision points and communication processes to escalate tax risks
- Develop a control list of tax documents for record keeping
- Review and update the TCGF annually
· Control testing
- Develop plans for testing systems and controls relating to tax functions
- Document process for retaining working papers, reconciliation processes and error exception processes
· Management of tax risks
- For early identification of potential risk of dispute that may potentially have significant tax implications, to document communication protocols to management and formulate steps taken to manage the risk identified
- Develop templates with key details of identified tax risks to be reported to the Board for decision making
· Significant or new transactions
- Document process to identify and map major categories of transactions to relevant tax classifications
- Assess the potential impact due to the change of tax landscape
· Tax and accounting results
- Reconciliations of tax computation to financial statement and explanations for any variances which may have tax impact
- Audit reports
Processes of the TCGF Programme:
Step 1: Getting ready
Step 2: Review by Independent Reviewer
Step 3: Submission to the IRBM
Step 4: Evaluation by the IRBM
Step 5: Conclusion of assessment by the IRBM
The proposed timeframe from the acceptance of the participant by the IRBM (Step 1) to the award of participation status (Step 5) is 8 – 12 months, with a potential extension of time application subject to IRBM’s approval. Validity of the awarded status is generally 3 years.
Upon participation in the TCGF Programme, organisations will be able to enjoy benefits include:
· Reduced scrutinization of compliance activities
· No/lesser tax audits will be conducted
· Higher materiality or reduced sample size
· Expedite tax refunds
· Appointment of a dedicated tax officer
· Priority consideration
Organisations are strongly encouraged to adopt and implement a robust TCGF within the organisation.
