On April 11, 2022, in response to the growing expectation that organisations in Malaysia will implement governance practices that enhance the accountability, transparency, and integrity of the tax system, the Inland Revenue Board of Malaysia (IRBM) published:
The Tax Corporate Governance Framework (“TCGF”); and
The Tax Corporate Governance Guidelines (TCGG).
This Tax Corporate Governance Framework intends to provide an overview of the IRBM’s expectations on the Tax Corporate Governance process and structure that should exist in organisational settings. It guides applying tax risk management principles and managing tax risks, such as identifying and treating tax compliance risks, in meeting an organisation’s tax obligations.
Besides promoting good governance practices, these initiatives are also relevant in enabling the organisation and the IRBM to implement the TCGF Programme in Malaysia.
The Organisation for Economic Co-operation and Development (OECD)’s report on Co-operative Tax Compliance: Building Better Tax Control Frameworks, Published on May 13, 2016, defined a TCF as a component of the system of internal control that an organisation uses to ensure that the tax returns and disclosures it produces are accurate and complete.
The IRB has closely aligned their definition of TCF with that of the OECD, which is outlined as follows:-
Tax strategy established;
Testing performed; and
Is the TCGF for every Company?
Because it is a framework focused on promoting good tax governance and tax risk management of a company, in theory, any corporation should be able to commit to the TCGF.
However, to comply with the requirements of implementing a TCGF, companies must document the tax management strategies they adopt formally and spell out the accountability for such strategies and the tax risk management that is carried out.
Additionally, companies are obliged to develop methods to analyse and assess both the effectiveness of their operations and the degree to which they comply with the framework that has been established.
Consequently, there is no "one size does not fit all". This is in line with the assertions in the guidelines given by the IRB, which said that there is no particular format to adhere to because different businesses have varying requirements.
An updated version of the Guidelines
In light of those above, the IRB has uploaded an updated version of the Guidelines and a FAQ for Tax Corporate Governance Framework & Guidelines dated July 27, 2022.
The revised Guidelines:
Make it clear that an organisation that has been given participation status and intends to renew its participation status must inform the IRB accordingly within 12 months before the status expires.
Provide more information regarding the TCG review procedure that will be carried out by an organisation, an independent reviewer, and the IRB.
FAQs for Tax Corporate Governance Framework & Guidelines
The FAQs clarify that:
The TCG programme is not similar to the voluntary disclosure programme;
There is no fee charged to participate in the TCG programme;
Expenses incurred to implement the TCG are capital in nature and not allowable for tax deduction under subsection 33(1) ITA 1967;
Organisations not participating in the TCG programme will not be targeted for an audit.
It is expected that organizations declare their tax policies and/or tax strategies in any format that is available to the general public (for example, on their websites and in their annual reports). In the event that this is not done, there will be no penalties, but it may have an effect on how the IRB reviews and evaluates the TCG of the organisation.