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Deloitte Malaysia expects global minimum tax to be implemented in Budget 2023

Deloitte Malaysia is anticipating that the global minimum tax (GMT) will be among the measures implemented in Budget 2023 when it is tabled on Feb 24.

The financial services firm said that “with all the developments happening globally, it is quite clear that most countries, including Malaysia, will be implementing it.”

It cited among the global events the release of the Organisation for Economic Co-operation and Development (OECD) Agreed Administrative Guidance and Implementation Package “in respect of GMT coupled with the actions by European Union, United Kingdom, Korea, Japan, Qatar, Indonesia, Switzerland, and others.”

The firm’s director of international tax, Kelvin Yee, said the GMT “does not depend on the government of the day.”

“GMT was mentioned in the Budget 2023 speech on Oct 7, 2022 and is expected to be implemented in 2024,” he noted.

“We expect this to be reaffirmed on Feb 24. Unlike the goods and services tax (GST), the capital gains tax, and the inheritance tax which are options available to the Malaysian government, the GMT is not.

“If Malaysia does not do it, the taxing right will be ceded to other countries which implement it,” he said in a statement.

In a nutshell, he pointed that the “GMT at 15% is the new ‘low’ for effective tax rate (ETR) for large multinational corporations (MNCs).”

An MNC can operate in a low-tax, high-tax, zero-tax country or in a country that offers generous tax incentives — however, the universal GMT rules would kick in to ensure 15% tax is paid somewhere in the world, he said.

“MNCs operating in at least two jurisdictions, with a minimum annual consolidated group revenue of 750 million euros in at least two of the four immediately preceding fiscal years would be in-scope.

“Hence, certain large groups, especially Malaysian listed groups and inbound investments of large foreign-based MNCs would be affected,” he explained.

He also highlighted that the ETR for GMT is a special one and is different from the normal accounting ETR. “A plethora of complex adjustments need to be undertaken, necessitating a comprehensive understanding of the rules, as well as extensive data extraction.

“Similar to the filing of local tax returns, a separate return for GMT purposes will need to be filed by in-scope MNC groups. It is expected to contain comprehensive details on the group structure, ETR calculation, top-up tax allocation, etc,” he added.

He advised that affected groups undertake impact assessment and evaluate their data readiness in early 2023 and that “they should not be distracted by the fact that Malaysia has not legislated the rules.”

“After all, the GMT rules are supposed to be in line with the OECD’s position and no major deviation is expected.

“While the first GMT return will only be due much later, time is really of the essence given that impact assessment may take time, especially for the larger groups.

“It is crucial to identify entities within the group that present a higher risk of triggering a top-up tax. Even if there is no top-up tax, various compliance obligations need to be met,” he elaborated.

Yee also highlighted that the “GMT would have a deep impact on mergers and acquisitions (M&A), taking for example, a group that is already under the scope of GMT acquires another smaller target, the future profit projections will need to take into account the additional top-up taxes that may arise.”

  • The Edge Markets