What’s World Minimal Tax (GMT)?
On March 14, the Group for Financial Co-operation and Growth (OECD) launched the long-awaited technical commentary to the World Minimal Tax (GMT) guidelines following its issuance earlier than Christmas final yr.
GMT is a once-in-a-lifetime world tax reform, meant to finish tax competitors and revenue shifting. It’s geared toward guaranteeing that multinational firms (MNCs) pay the correct quantity of taxes, no matter the place they function.
On this case, 15% has been endorsed.
It doesn’t matter if an MNC operates in a low-tax, high-tax, zero-tax nation or in a rustic that gives tax incentives because the minimal tax price of 15% will kick in.
Who might be affected by GMT?
It applies to MNCs working in at the least two jurisdictions, with an annual consolidated group income of at the least €750mil (RM3.47bil) in at the least two of the 4 instantly previous fiscal years.
Though sure entities akin to pension funds and governmental entities are excluded entities, the GMT guidelines could apply to, amongst others, the sub-groups.
It’s thus essential for excluded entities to evaluation their funding buildings to establish the impression of GMT.
Will Malaysia implement GMT?
Whereas Malaysia isn’t a member of the OECD, it’s a member of the OECD’s inclusive framework. As such, we’re anticipated to undertake and implement the GMT.
There may be additionally no motive for Malaysia to keep away from the GMT implementation because the taxes that might have been collected right here will then be ceded to different jurisdictions.
When can we anticipate this to
be carried out?
The OECD has a really bold timeline in GMT implementation.
Earnings inclusion rule, being the primary rule, is to be rolled out in 2023, whereas the backstop rule – Undertaxed Funds Rule – is focused to be carried out the next yr.
All guidelines function as “top-up” to a minimal tax of 15%. Malaysia might want to amend its home tax laws to implement this.
What’s subsequent for big companies?
It’s in opposition to this backdrop that the board of administrators (BOD) of enormous MNCs with headquarters in Malaysia, particularly these which might be listed on Bursa Malaysia, ought to act on.
Early understanding of the GMT impression and preparation might be key to an efficient and environment friendly implementation. These are our suggestions:
> Analyze the impression on a group-wide perspective and establish danger areas.
> Determine entities inside the group that might be obliged to pay the top-up tax (whether or not to the Malaysian or overseas tax authorities) and decide the impression on cash-flows and capabilities.
> Determine the impression on dividend distribution to shareholders.
> Quantify potential impression by present process a modeling train.
> Perceive how native authorities within the totally different jurisdictions the place the group operates could reply (eg whether or not they’ll introduce their very own home minimal tax or revamp their tax incentive regimes) and analyze the totally different eventualities.
> Analyze if there’s a have to renegotiate tax incentives granted or to switch them with non-tax incentives akin to grants.
An organization in a rustic that enjoys tax incentive is more likely to have an efficient tax price (ETR) that’s beneath 15%.
Nonetheless, this doesn’t imply that there might be a top-up tax as one must compute ETR on a jurisdictional foundation, which means ETRs of different firms in the identical nation can even must be factored in.
The importance of financial substance must be understood as it’s helpful to reduce the top-up tax.
> Analyze if the current accounting system of the group would be capable to generate the info required for the needs of GMT.
> Be ready to lodge a GMT submitting as that is required no matter whether or not there’s a top-up tax or not.
Whereas the primary GMT submitting is just due 18 months after the monetary yr finish, there’s a vital want to grasp the total impression of GMT.
Conclusion
It’s important for the BOD and key administration of enormous Malaysian-headquartered MNCs with worldwide operations, particularly these which might be listed on Bursa Malaysia, pension fund and affected governmental entities to maneuver shortly to grasp these GMT guidelines.
They’re extraordinarily advanced, and the problem of implementation is additional compounded by the bold deadline set by the OECD.
In brief, there are two selections – do nothing now and be stunned later or do one thing now and be in management.
In our opinion, the reply is clear. An efficient administration of the GMT might be in step with the target of the Tax Governance that many nations, together with Malaysia, are critically now.
Tan Hooi Beng and Kelvin Yee are the Worldwide Tax Chief of Deloitte South-East Asia and Worldwide Tax Director of Deloitte Malaysia. The above views are their very own.