ON March 1, 2022, the Inland Revenue Board (IRB) launched the Tax Corporate Governance (TCG) Framework with the principal aim to encourage taxpayers to have a closer and transparent relationship with IRB while simultaneously setting up a tax framework within the business organisations to improve the governance of the tax affairs of the company.
At the moment, this framework is targeted towards large and public listed companies with turnover in excess of RM100 million, government-linked/state-owned companies, and companies with an excellent tax compliance record. It is anticipated that the programme will be widened once the pilot testing stages are over, and IRB becomes more familiar with the implementation of the framework.
Currently, IRB and taxpayers are on a learning curve. IRB has adopted the good practices from the 2016 OECD Guidelines on this matter. On April 11, 2022, IRB published two documents to guide taxpayers: The TCG Framework, and Guidelines to the TCG Framework. The two documents comprehensively set out the guidance and methodology to set up, enter the programme, and having it validated by an independent party which will provide confidence in reporting and paying the right amount of tax to IRB.
Why enter the programme?
The biggest benefit is that it avoids confrontation in an audit or investigation with IRB. Instead of confrontation, the whole process here involves cooperating and engaging IRB on a proactive basis to avoid any surprises and to provide taxpayers with certainty on the positions taken.
This is a win-win situation for both taxpayers and IRB. The additional benefits will be tax risks can be identified and managed with the likelihood of avoiding penalties. Additionally, there will be better cash flow management and accurate tax reporting both to shareholders and IRB. Finally, substantial time will be saved by both IRB and taxpayers in avoiding tax audits or reducing the level of scrutiny.
Ownership of the programme
The ownership of the programme will be at the highest level of the organisation (at the board level and at the senior management level) because the tax costs to an organisation is a significant cost at 24%. The reason being the various stakeholders (including IRB) need to be assured that the formulation and implementation of the tax strategy is set out by the top management who will be held accountable. This in turn provides IRB the necessary confidence to rely on the output of the taxpayer and to reduce the time spent on validating the tax returns.
Key features of the programme
This is a voluntary programme which requires the taxpayer to satisfy certain prerequisites and carry out a self-assessment of its tax strategy, control frameworks, and submit a participation form to IRB.
Once IRB accepts your application, the taxpayer needs to appoint a qualified independent reviewer to perform a review assessment on its TCGF within six months of the approval of participation.
IRB will could take a further six months to assess the system/framework set up by the taxpayer, and thereafter, formally accept the taxpayer into the programme. In total, this could take up to one year.
Once you have been accepted into the programme, the special status will be valid for three years and thereafter renewed depending on the performance of the taxpayer.
This programme provides something that have never been done in the past. Here a special officer will be appointed as a single point of contact between the taxpayer and IRB to help taxpayers engage in clearing potential tax conflicts involving technical or operational matters. This satisfies the transparency principle and will provide taxpayers certainty on operating and transactional matters.
The time and money spent on setting up the systems will easily be paid off through the savings from reduced tax audits and providing tax certainty.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).