The Malaysian House of Representatives is considering the Finance Bill (No. 2) 2023, which includes certain measures of the Budget for 2024 and others, including new rules for the taxation of gains or profits from the disposal of capital assets, provisions in relation to Malaysia’s new electronic invoicing requirements, various amendments in relation to personal deductions, and other changes. The Finance Bill (No. 2) 2023 also provides for the Pillar 2 GloBE Rules with the addition of a new Part XI Implementation Of Domestic Top-Up Tax And Multinational Top-Up Tax to the Income Tax Act 1967. Relate amendments are also made to provide that the GloBE rules apply to entities under the Petroleum (Income Tax) Act 1967 and the Labuan Business Activity Tax Act 1990. The provisions of the new Part XI are summarized in the Explanatory Statement to the Finance Bill (No. 2) 2023, as follows:
Clause 30 seeks to introduce new Part XI into Act 53 containing new sections 157 to 239 which consist of nineteen chapters to adopt the GloBE Rules into Act 53 for its implementation and operation in Malaysia. The proposed new Part XI shall apply to Constituent Entities that are members of a Multinational Enterprise Group with an annual revenue of seven hundred and fifty million euro or more in the Consolidated Financial Statements of the Ultimate Parent Entity in at least two of the four consecutive Financial Years immediately preceding the tested Financial Year.
The proposed new Part XI also seeks to provide, among others—
- that income tax to be known as Domestic Top-up Tax shall be charged for each Financial Year on a Low-Taxed Constituent Entity located in Malaysia of a Multinational Enterprise Group in an amount equal to the Multinational Top-up Tax of a Constituent Entity as calculated under Chapter 7 of this Part;
- that income tax to be known as Multinational Top-up Tax shall be charged for each Financial Year on a Constituent Entity that is the Ultimate Parent Entity located in Malaysia of a Multinational Enterprise Group equal to the amount as calculated under Chapter 7 of this Part;
- the charging provision for Domestic Top-up Tax and the charging provision for Multinational Top-up Tax under the Income Inclusion Rule, according to the terms and formula provided;
- the method of computation of GloBE Income or Loss for the purposes of Domestic Top-up Tax and Multinational Top-up Tax;
- the method of computation of Adjusted Covered Taxes for the purposes of Domestic Top-up Tax and Multinational Top-up Tax as well as a mechanism to address temporary differences and computation for Net Globe Loss based on the conditions and formula given;
- require a Multinational Enterprise Group to determine the Effective Tax Rate of the Multinational Enterprise Group for a jurisdiction and seek to provide the method of computation of Domestic Top-up Tax or Multinational Top-up Tax;
- special rules for the application of the new Part XI relating to corporate restructurings, holding structures, tax neutrality and distribution regimes;
- that a Filing Constituent Entity can elect for a GloBE Safe Harbour with respect to a Constituent Entity that qualifies for that GloBE Safe Harbour; and
- transition rules and modifications to the percentages in the calculation of the Substance-based Income Exclusion Rule during the transitional period.
These amendments come into operation for the Financial Year beginning on or after 1 January 2025 and subsequent Financial Years.
The proposed new Part XI further seeks to provide, among others—
- that a Constituent Entity which is assessable and chargeable to Domestic Top-up Tax or Multinational Top-up Tax shall be the Constituent Entity assessable and chargeable to that tax;
- impose the responsibility for doing all acts and things required to be done by or on behalf of a Constituent Entity;
- that a Constituent Entity of a Multinational Enterprise Group shall for each Reporting Financial Year furnish to the Director General an information return and a Top-up Tax return, in the prescribed form not later than fifteen months from the last day of the Reporting Financial Year;
- empower the Director General to call for further return within a reasonable time by notice in writing to any Constituent Entity;
- that a return made by or on behalf of any Constituent Entity shall be presumed to have been made by that Constituent Entity or on his authority, as the case may be, until contrary is proved and the Constituent Entity signing such a return shall also be deemed to be cognizant of its contents; and
- if it appears to the Director General for any Financial Year that no assessment or no sufficient assessment has been made on a Constituent Entity chargeable to tax, the Director General has the power in that year or within five years after its expiration to make an assessment or additional assessment in respect of that Constituent Entity in the amount of Domestic Top-up Tax or Multinational Top-up Tax.
These amendments come into operation on 1 January 2025.