The Malaysian Reserve

Tax practitioners find their footing with advent of BEPS

Practitioners need to be aware and have a better understanding of these changes and how these impact their clients, says Veerinderjit (Pic: TMRpic)

Developing nations have joined in and are looking at what the BEPS recommendations are before selecting those that may suit them, says Veerinderjit

By HABHAJAN SINGH

The playing ground for the accounting and tax practitioners is seeing momentous changes.

Some are keeping up with the changes, while others are panting along the way as they try to get their bearings right in view of the slew of changes, both locally and internationally.

One boggy ground comes in the shape of the base erosion and profit shifting (BEPS) project. Mention BEPS and you would get all kinds of reactions: From excitement to bewilderment.

But there is no denying that the tax practitioners, for example, face major challenges in view of the extensive legislative changes being introduced.

At the same time, they are hard pressed to keep up with the new guidelines and rulings issued by the tax authorities, dramatically increasing the tax compliance burden.

When asked what is the one major issue facing tax practitioners today, a local tax observer alluded to the above: Extensive legislative changes and numerous new guidelines and rulings.

In his years of experience, are these set of changes the most extensive yet?

“Yes. And this is linked to the BEPS project of the Organisation for Economic and Cooperation Development (OECD) which has taken on traction among many developing countries which aim to protect their tax base,” accomplished author and tax observer Dr Veerinderjeet Singh told The Malaysian Reserve.

Malaysia Joins BEPS

BEPS is a massive tax regime change initiative led by the OECD.

In a nutshell, the OECD/G-20 BEPS project delivers solutions for governments to close the gaps in existing international rules that allow corporate profits to “disappear” or be artificially shifted to low or no tax environments, where companies have little or no economic activity.

Malaysia is now on board as well. The nation has joined the international community in taking collective measures to make it more difficult for large corporations to artificially shift their profits to low or no tax jurisdictions.

The signing of the dotted lines took place earlier this year. On Jan 24, Malaysia signed a multilateral instrument to execute what is deemed as the best tax practices under the international standards, including the implementation of the BEPS action plans.

The convention updates the existing network of bilateral tax treaties and reduces opportunities for tax avoidance by multinational enterprises, according to an OECD statement. Deputy Finance Minister I Datuk Othman Aziz represented

A panel session at the Malaysian Tax Conference 2018 will feature (from left) Sathya, Ponniah and Chow as the panellist, speaker and moderator respectively

Malaysia at the signing ceremony held at OECD headquarters in Paris, France. The move comes in the wake of nations experiencing budget short-falls and large corporations devising ways and means to avoid paying taxes in jurisdictions where they operate.

In response, the OECD has devised the multi-step plan, sponsored by the Group of 20 (G-20) governments to reshape international tax rules for countries to implement.

Some countries are already using ideas being considered in the BEPS project for tax examinations and to change tax laws in a manner inconsistent with current rules, noted a report by global accounting firm PricewaterhouseCoopers (PwC).

“These events are causing additional tax uncertainty for companies, increasing significantly the risk of double taxation and protracted cross-border disputes, with inadequate procedures for intergovernmental dispute resolution,” it said.

New reporting requirements for larger companies will make detailed country-by-country tax and financial information visible to many eyes, and possibly, in the future, not just those of tax authorities.

In addition, the volume of data disclosed will be much more than companies are currently reporting world- wide, so your compliance burden will likely grow substantially, PwC’s note added.

Developing Nations Opt In

The BEPS initiative underlined the view taken by the G-20 that multinational entities were aggressively planning to avoid tax liabilities by shifting profits to low tax jurisdictions and taking advantage of differences in the tax legislation in specific countries.

“This led to the view that the tax base of countries was being eroded as entities were not paying the fair amount of taxes in the countries where they should be.

“So, developing nations have also joined in and are looking at what the BEPS recommendations are before selecting those that may suit them,” said Veerinderjit, co-founder/chairman of Axcelasia Inc, a Singapore-listed boutique tax advisory firm.

He was formerly the ED/partner at Arthur Andersen between December 1996 and June 2002.

In Malaysia, he said, the authorities are updating the transfer pricing rules and have introduced country-by-country reporting by large multinationals having regional operations.

The nation has also introduced earning stripping rules on Jan 1, 2019, and is now looking at ways to tax the digital economy.

“The impact of these changes means that practitioners need to be aware and have a better understand- ing of these changes and how these impact their clients,” said Veerinderjit, who is also the Malaysian Institute of Accountants (MIA) taxation practice committee chairman.

Under Scrutiny

The impact of BEPS will be discussed at a two-day MIA taxation conference in Kuala Lumpur starting today.

Determining permanent establishments (PEs) is fundamental to BEPS implementation, reads a guiding note to one of the panel sessions at the Malaysian Tax Conference 2018.

The session, moderated by Advent MS Tax Consultants Sdn Bhd ED Chow Chee Yen, will feature PwC ED Aurobindo Ponniah as speaker and Tycoon+ Advisors CEO/founder Sathya Kumar as panellist.

The panel session aims to look at how to manage emerging PEs risks under the new PE guidance — which affects many businesses, especially multinational enterprises.

Failure to manage these risks appropriately may result in additional reporting requirements, penalties for non-compliance, corporate tax exposure, reputational risk and increased scrutiny from tax authorities, according to the note.