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The Exchange of Tax Information Portal is an initiative of the Global Forum on Transparency and Exchange of Information for Tax Purposes. The Global Forum conducts peer reviews of its member jurisdictions' ability to co-operate with other tax administrations in accordance with the internationally agreed standard. The standard provides for exchange of information on request where it is foreseeably relevant to the administration and enforcement of the domestic tax laws of the requesting jurisdiction. Effective exchange of information requires that jurisdictions ensure information is available, that it can be obtained by the tax authorities and that there are mechanisms in place allowing for the exchange of that information. The Global Forum's peer review process examines both the legal and regulatory aspects of exchange (Phase 1 reviews) and the exchange of information in practice (Phase 2). The EOI Portal will track the development of these peer reviews, including changes that jurisdictions make in response to the Global Forum's recommendations.

Peer Review: Malaysia Phase 2 review

This report for Malaysia has been published on 24 Apr 2014. You can buy this report, or browse it online below.

Skip directly to the Executive Summary. You may also want to view the tables of determinations and ratings.


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Determinations and Recommendations

Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. (ToR A.1)
Determination Factors Recommendations
The element is in place, but certain aspects of the legal implementation of the element need improvement.   Not all nominees are required to have information available on the persons for whom they act.  An obligation should be established for all nominees to maintain relevant ownership and identity information where they act as the legal owner on behalf of any other person. 
Not all trustees are required to have information available on the identity of settlors and beneficiaries of trusts.  An obligation should be established to maintain information in all cases in relation to settlors, trustees and beneficiaries of trusts with a trustee in Malaysia. 
Phase 2 Rating Factors Recommendations
Partially Compliant.  There appear to be more than 100 000 dormant companies in Malaysia. Those companies do not comply with filing obligations. Moreover, there are questions on whether the penalties provided under the relevant tax laws and commercial laws are set at a sufficient level to provide an effective deterrence against non-compliance. In at least one instance during the period under review requests for ownership information could not be answered to the satisfaction of the requesting jurisdiction. Moreover, there were other instances during the period under review that information was not fully available to Malaysian Competent Authority because the entities that were the subject of the requests did not comply with their filing obligations. This caused significant delays for Malaysia obtaining the information requested.  Malaysia should ensure that instances of non-compliance are appropriately sanctioned including by means of striking-off actions. Moreover, Malaysia should monitor the effectiveness of the penalties provided under the relevant tax and commercial laws to ensure that they are effective in providing deterrence against non-compliance of the filing and reporting obligations. 
While the Labuan FSA has supervised its licensed entities, it did not sufficiently monitor compliance with the obligation of all Labuan entities to maintain ownership information. The Labuan FSA is taking action to strengthen its monitoring and enforcement mechanisms. During the period under review, approximately 50% of the registered Labuan companies were not active and have not filed annual returns.  Malaysia should ensure that the obligations to keep ownership information in the Labuan IBFC are being appropriately monitored and enforced. 
Malaysia has introduced limited liability partnerships (LLPs) and business trusts in its legal framework effective as of December 2012. Since the review period ended on 31 December 2012, the enforcement and monitoring action of the Companies Commission of Malaysia and the Securities Commission Malaysia in respect of LLPs and business trusts could not be assessed. As at 31 July 2013, there were 669 LLPs registered in Malaysia. As at January 2014, there were no business trusts or trustee-managers of business trusts approved by the Securities Commission Malaysia.  Malaysia should monitor compliance with the obligations to maintain ownership and identity information in respect of LLPs and business trusts and take enforcement measures as appropriate. 
Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. (ToR A.2)
Determination Factors Recommendations
The element is in place.   There is no express requirement on certain trusts that do not carry on business in Malaysia and do not derive or receive income in Malaysia, to keep underlying documentation.  There should be an express requirement for all relevant entities and arrangements to keep accounting records and underlying documentation for a minimum five year period. 
Phase 2 Rating Factors Recommendations
Largely Compliant.  There appear to be more than 100 000 dormant companies in Malaysia. Those companies do not comply with filing obligations. Moreover, there are questions on whether the penalties provided under the relevant tax laws and commercial laws are set at a sufficient level to provide an effective deterrence against non-compliance. In at least one instance during the period under review requests for accounting information could not be answered to the satisfaction of the requesting jurisdiction. Moreover, there were other instances during the period under review that information was not fully available to Malaysian Competent Authority because the entities that were the subject of the requests did not comply with their filing obligations. This caused significant delays for Malaysia obtaining the information requested.  Malaysia should ensure that instances of noncompliance are appropriately sanctioned. Moreover, Malaysia should monitor the adequacy of the penalties provided under the relevant tax and commercial laws to ensure that they are effective in providing deterrence against non-compliance of the filing and reporting obligations. 
During the review period, the Labuan FSA performed monitoring of the compliance with accounting record keeping requirements in relation to a limited number of Labuan companies. In addition, the Directive detailing the scope of underlying records to be maintained has only been introduced recently and is therefore untested in practice.  Malaysia should ensure that the obligations to keep accounting records and underlying documentation are being appropriately monitored and enforced. 
Malaysia has introduced limited liability partnerships (LLPs) and business trusts in its legal framework effective as of December 2012. Since the review period ended on 31 December 2012, the enforcement and monitoring action of the Companies Commission of Malaysia and the Securities Commission Malaysia in respect of LLPs and business trusts could not be assessed. As at 31 July 2013, there were 669 LLPs registered in Malaysia. As at January 2014, there were no business trusts or trustee-managers of business trusts approved by the Securities Commission Malaysia.  Malaysia should monitor compliance with the obligations to maintain accounting records and underlying documentation in respect of LLPs and business trusts and take enforcement measures as appropriate. 
Banking information should be available for all account-holders. (ToR A.3)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information). (ToR B.1)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Partially Compliant.  Malaysian law does not require a provision akin to Article 26(5) of the OECD Model Tax Convention in order to exchange bank information with its treaty partners. Although Malaysia currently exchanges bank information with its treaty partners regardless of a provision akin to Article 26(5) of the OECD Model Tax Convention, this is a new policy in place since 1 July 2013.  Malaysia should monitor the application of the new policy to ensure that bank information is exchanged in accordance with the standard with all EOI partners. 
The Malaysian competent authority relies on the Labuan FSA to access information on Labuan IBFC’s entities and arrangements. In a few instances there were communication difficulties between the two authorities which triggered delays in the access to information. The Malaysia competent authority reports the issues have been recently resolved.  Malaysia should ensure that information concerning entities and arrangements in the Labuan IBFC is timely accessed. 
In isolated cases during the period under review, the penalties provided under the relevant tax laws and commercial laws appeared to have been insufficient in providing an effective deterrence against non-compliance.  It is recommended that Malaysia reviews the adequacy of its penalty regime to ensure that they are effective in providing deterrence against non-compliance. 
The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information. (ToR B.2)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
Exchange of information mechanisms should provide for effective exchange of information. (ToR C.1)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Largely Compliant.  Malaysia has recently changed its policy concerning the need of a provision akin to Article 26(5) of the OECD Model Tax Convention in order to exchange bank information. Malaysia reports it has already exchanged bank information under EOI agreements that do not contain a provision akin to Article 26(5). On 30 January 2014, it has informed its treaty partners about the change in policy.  Malaysia is recommended to publicise the new policy and ensure that EOI partners are fully aware of the possibility of requesting bank information to Malaysia even under EOI agreements that do not contain a provision akin to Article 26(5) of the OECD Model Tax Convention. 
The jurisdictions' network of information exchange mechanisms should cover all relevant partners. (ToR C.2)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
The jurisdictions' mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (ToR C.3)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (ToR C.4)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
The jurisdiction should provide information under its network of agreements in a timely manner. (ToR C.5)
Determination Factors Recommendations
The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.      
Phase 2 Rating Factors Recommendations
Largely Compliant.  During the three years under review, Malaysia’s competent authority was not adequately resourced and working procedures were not in place, resulting in some delays or incomplete responses. Following the review period, the structure of the competent authority and management of EOI requests has improved, and specific responsibilities and working procedures have been introduced but they could not be assessed in practice.  Malaysia should monitor the processing and management of EOI requests, and of the internal processes as practice develops, and improve them as necessary. Malaysia should monitor the implementation of the measures recently taken to ensure that answers to EOI requests are made in a timely manner. 
During the three years under review, Malaysia’s competent authority has experienced difficulties co-ordinating with other departments of the Inland Revenue Board of Malaysia or other governmental agencies which has led to delays in gathering information necessary to respond to an exchange of information request. The new procedures put in place by competent authority to address this issue could not be sufficiently assessed in practice.  Malaysia should monitor the co-ordination procedures between the competent authority and with other departments of the Inland Revenue Board of Malaysia and other governmental agencies and establish priority guidelines for the regional tax office staff in relation to exchange of information casework in order to respond to requests in a timely manner. 
During the three years under review, Malaysia did not systematically provide an update or status report to its EOI partners within 90 days when it was unable to provide a substantive response within that time. The new procedures put in place by competent authority could not be sufficiently assessed.  Malaysia should monitor the new system put in place to provide status updates to EOI partners within 90 days to ensure it operates effectively.