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THE Inland Revenue Board (IRB) has openly come out that its main areas of focus in carrying out its enforcement activities will cover domestic transfer pricing, offshore accounts, high net worth individuals, digital economy, shadow economy, tax incentives and organisations and institutions that are enjoying Section 44(6) exemptions.

Taxpayers involved in the above need to ensure that they do not cross the line into non-compliance, tax avoidance, tax evasion, shifting profits to lower tax regimes, involved in the black economy where income is hidden and misusing the tax incentives provided.

The IRB will be looking at both individuals and corporates that are involved in the above activities and will attempt to gather data using information within its vast database and connecting it to the external data that is available in the public domain. The availability of artificial intelligence significantly assists the IRB to locate such activities and taxpayers involved.

The intention here is to, firstly, collect extra taxes and penalties and, secondly, the punishment imposed on such taxpayers should serve as a deterrent to others not to follow suit.

Offshore accounts and high net worth individuals

High net worth individuals usually have offshore accounts. The declaration of offshore accounts is now compulsory when you file your tax returns. High net worth individuals can expect queries from the IRB on the source of the income and wealth which is now located overseas. It can be a request in the form of a capital statement or how the foreign accounts were sourced or funded.

It is advisable for high net worth individuals to prepare capital statements for at least the past three years and be ready for any queries by the IRB.

Many high net worth individuals usually do not hold the offshore accounts in their name, but may hold them through layers of offshore companies and trusts. In this case, it becomes more difficult for the IRB to find out ultimately who the beneficial owners are. If those accounts are in countries which have signed up for the exchange of information, the information will be visible to the IRB.

High net worth individuals and those involved in unaccountable money hold such wealth in more opaque instruments such as cryptocurrencies, artwork, antiques, unique valuable collections, expensive watches, non-fungible tokens, etc. It is difficult for the authorities to track these investments unless upon liquidation the monies enter into the banking system.

Digital economy and transfer pricing

These are usually activities carried out by sophisticated corporates using the legal framework to shift profits to low tax or no tax jurisdictions. The taxpayers need to be prepared to defend their position that the pricing between their related parties meet the arm’s length test, and the location of the profits is supported with business substance (i.e. there are real activities to support the generation of the profits in those locations).

If the corporates cannot meet the above requirements, the IRB will challenge such actions and attempt to bring the profits back to Malaysia or remove the profits from the tax shelters available within Malaysia, for example, companies enjoying the Malaysia Digital tax incentive or other tax incentives.

The IRB is already scrutinising companies that are enjoying tax incentives as some of them may be abusing the perks by plugging in income that should not be inside the tax incentive regime. Companies enjoying tax incentives must ensure annually that they meet all the conditions of the benefits.

Section 44(6)

Institutions enjoying this exemption from paying taxes and accepting donations where the payee is entitled to a tax deduction should ensure that their objectives as agreed with the IRB which are mostly charitable are adhered to. Such institutions should not use it as a tool to enjoy a tax benefit without meeting the noble objectives.

Meanwhile, the normal tax audits and investigations are being carred out as usual. Taxpayers need to exercise much greater vigilance over their tax affairs to avoid any surprises.

This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (