TAX UPDATE: Global Minimum Tax (15%)



Malaysia has consented to take part in enacting the 15% Global minimum corporate tax beginning in 2023. Large multinational enterprises (MNE) and Malaysian conglomerates with a yearly global turnover of more than RM 3.4 billion will be exempt from this.

To combat the aggressive tax planning used by MNE, where it is believed that the total taxes they pay globally are not proportionate to the growth in their revenues, this tax is anticipated to be enacted in 139 countries and possibly more in the future. The amount of total global taxes they pay is frequently less than 15%.



What is the Global Minimum Tax (15%)?


A once-in-a-life worldwide tax reform known as the GMT was created to put a stop to stop profit shifting and tax competition. No matter where they operate, it aims to ensure that multinational corporations (MNCs) pay the correct amount of taxes, which is 15%. While an MNC group may conduct business in a jurisdiction with a low-tax, high-tax, or zero-tax country or one that provides tax breaks, the universal GMT standards would take effect to ensure that 15% tax is paid.


The impact on Malaysia?


The implementation of this tax will force Malaysia to consider its tax incentive program, under which businesses are permitted to pay 0% tax or rates below 15%. If this keeps happening under the minimum global taxation regime, the nation where the MNE’s ultimate parent company is located will be able to collect the tax that Malaysia has opted not to pay. Under the top-up tax approach, Malaysia will by default grant the home nation the right to collect 15% of the tax.


Malaysia plans to implement a qualified domestic minimum top-up tax so that Malaysia collects the required 15% tax rather than sending the tax to the foreign government to prevent tax leakage to that nation. The question is whether it will be accepted by other nations is still up for debate, therefore this has not yet been determined.


When will Malaysia implement GMT?


The finance minister effectively dispelled any lingering question about the GMT’s potential arrival in Malaysia on October 7. By Pillar 2 of the Base Erosion and Profit Shifting Project’s recommendations, the government would enact a “global minimum effective tax rate” and starting in 2024, a Qualifies Domestic Minimum Top-up Tax (QDMTT).

This is consistent with the global implementation progress made by both developed and large economies.


Sources

The Star

https://www.thestar.com.my/business/business-news/2022/06/13/global-minimum-tax-is-coming-to-town


The Edge Market

https://www.theedgemarkets.com/article/my-say-get-ready-global-minimum-tax


Business Today

https://www.businesstoday.com.my/2022/10/07/budget-2023-global-minimum-tax-and-esg-incentives/


EY

https://www.ey.com/en_my/news/2022/10/budget-2023-comments#:~:text=Minimum%20tax%20on%20MNCs&text=Briefly%2C%20the%20GMT%20aims%20to,a%20top%2Dup%20tax%20elsewhere.


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