- 4 weeks ago
The 147 countries and jurisdictions working together within the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) have agreed on key elements of a package that charts a course forward for the co-ordinated operation of global minimum tax arrangements in the context of a digitalised and globalised economy. How will this impact Malaysia? Aurobindo Ponniah Tax Director, PwC Malaysia shares his views.
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00:00Thanks for joining us. This is The Economy. I'm your host, Ibrahim Sani.
00:10Very recently, the International Committee has agreed on the way forward for the Global Minimum Tax Package.
00:17All for, not all, most of the 147 countries and jurisdictions working together with the OECD as well as the G20 Inclusive Framework
00:25on the BAPS or the BASE Erosion Profit Sharing have agreed on key elements of a package that charts a cost for the Global Minimum Tax Regime to be implemented.
00:37How does this affect Malaysia and perhaps how does this affect the fiscal and of course business elements in the country on the way forward?
00:46Here to discuss this and more is Aurobindo Ponyah. He's the Director at PwC Malaysia.
00:53Bindo, let's walk through the steps on this. I've had a chat with you on air since maybe 2020, I think,
01:02because I remember seeing your face on a very small screen during COVID and every year we seem to be building up to this.
01:09Is this the moment of, I suppose, celebration where things are finally done?
01:15Well, maybe we'll take a step back, look at it historically, what happened, okay?
01:21So BASE Erosion Profit Shifting started off, the project started off in 2013, more than a decade ago.
01:28Then in about 2015, they came up with what was known as 15 action points.
01:34So the total of 15 action points, and this was done by the OECD together with the G20, under sanction by the G20.
01:43So, but the OECD is a collection of 38 member countries, largely Western democracies, economically advanced countries.
01:52Most developing countries, including Malaysia, are not part of the OECD.
01:56So when the OECD came up with these 15 action points, these 15 action points were meant to counter what they call BASE Erosion Profit Shifting.
02:06They were looking at very large multinationals, and this also happened after the global financial crisis,
02:12when governments had spent a lot of money in palm-priming the economy and they needed to raise revenue.
02:16So they were looking at large multinationals, which had the capability to structure their tax affairs.
02:23And these multinationals were, by definition, a multinational is in more than one country.
02:29And they were basically going abroad, investing, they were moving some of their intangible assets, etc.,
02:37keeping them in jurisdictions which provided favourable tax treatment.
02:41Now, this was investigated heavily by the U.S. Congress, it was investigated by the British Parliament, etc., and all that.
02:48But the conclusion was that nothing illegal was done.
02:53You're talking about, I wouldn't name names because I don't know whether they're your clients or not,
02:57but internet companies having base operations in Ireland or Silicon Valley firms having operations in places like BVI or Malta.
03:15Yes and no. You are right. You had tech companies moving a lot of IP to low-tax jurisdictions.
03:23But you also had a situation where traditional companies like manufacturers, for example, were looking for lower basis for their costs.
03:32And this cost also came with tax costs.
03:34So they were looking at jurisdictions which provided them, I would say, the ability to set up low manufacturing costs
03:41and also at the same time provide them a favourable tax treatment.
03:45So all this was looked at and then they would probably move some of the operations from a high-cost country to a low-cost country.
03:51So you could have, I mean, for example, the current American administration talks about moving manufacturing back.
03:56But a lot of manufacturing moved to China, etc. and all that. It's just business.
04:00So it was a good look as to whether or not tax was the determinant factor and whether this was causing the base erosion.
04:08So the OECD at that point in time estimated there was about USD 100 to 240 billion in low-tax profits.
04:16This was about maybe they estimated again about 4 to 10% of corporate taxes.
04:22How they got those numbers, I am not sure. Again, this is all statistics, etc. and all that.
04:27The reality would probably be known maybe in about 10 years' time once this global minimum tax is fully settled.
04:34So OECD being 38 member countries, that is not the majority of the world.
04:39So they formed what is known as the inclusive framework.
04:42And the inclusive framework today is 147 member countries.
04:45The reason they formed the inclusive framework is that they realised for the BEPS measures to be effective,
04:52you had to have buy-in from everyone.
04:55So Malaysia also is part of the inclusive framework.
04:58Malaysia is not a member of the OECD, but it is a member of the inclusive framework.
05:01Now the 15 action points, there were what was known as the minimum standard.
05:06The minimum standard means that the inclusive framework members had to implement the minimum standards,
05:11which were basically four action points.
05:13This was harmful tax practices.
05:16This was looking at things like your tax incentives and all that were harmful.
05:20You had prevention of tax treaty abuse.
05:23So the tax treaty network, double tax treaty network,
05:26is a treaty between two or more jurisdictions,
05:29which basically undertakes to not double tax income.
05:33So tax treaties have been used widely for tax planning as well.
05:38So there was a move to basically prevent that.
05:40Then you had what was known as the CBCR or country-by-country reporting.
05:44This was basically in a way the infant of global minimum tax.
05:49So what they did with CBCR was that they required multinationals,
05:54which met the 750 million euro threshold,
05:57to actually report.
05:59It wasn't a tax payable amount, but both a tax compliance amount.
06:04And then the last was a mutual agreement procedure.
06:06Yeah, it's fine.
06:09But with these four principles in mind,
06:11we are also working on the backdrop of countries having to serve their own needs as well.
06:20Yes.
06:21There's a reason why some countries have a lower tax regime.
06:24It's because they want to attract investors.
06:26Absolutely.
06:26What is in the interest of countries working against their own personal interests?
06:32At the end of the day, it's every man for himself, isn't it?
06:36Yeah.
06:36No, you're absolutely right about that.
06:38Now, it has been a sacrosanct principle that taxation is a country's sovereign right.
06:45If I decide to give up tax revenue, it is my right.
06:48In terms of the OECD itself, what they tried to do is they got buy-in.
06:53So countries like Malaysia and all that signed up to many of these measures
06:57because it didn't have an impact on the tax revenue in Malaysia,
07:01except for maybe the countering harmful tax practices.
07:05But even the countering harmful tax practices,
07:07the reason why that happened was that there was a stick.
07:12The stick was being is that if Malaysia did not make its amendments
07:16to the local tax incentive regime,
07:19other countries would put it on a blacklist.
07:21By putting it on a blacklist,
07:24investors from those countries would be hesitant to come to Malaysia to invest
07:28because those incentives may no longer be effective for them.
07:31And it's making it very unattractive.
07:33Yes, exactly.
07:34So Malaysia was not the only country which was impacted by this.
07:37Many other countries were also impacted by this.
07:39Now that we're taking into consideration the four key principles,
07:43we're also looking into the buy-in that was essentially cottoned by many of these countries
07:49into the OECD proposition.
07:52And then we've seen how this conversation has been taking shape over the past maybe three years
07:57or the four years prior.
07:59And then we have this news coming in very early in the year, 5th of January, I think.
08:04Yes.
08:05Then the next question is, okay, so what?
08:07How does this affect Malaysia?
08:09And more importantly, how does this tie in with some of the tax policies
08:13that the country is currently going through?
08:15Such as the invoicing, for instance,
08:18the progressive tax that is being discussed,
08:22maybe not a GST per se, but certainly SST.
08:25How does that all play together?
08:27Okay.
08:28My personal view is that global minimum tax
08:30does not benefit developing countries a lot.
08:35There are those who disagree with me on this,
08:38but my view is that it is not the cost of compliance,
08:41the cost of administrating it,
08:43is probably going to differ
08:47or basically deny any tax benefit arising from it.
08:51So the cost of managing the 15% may come up to 15%.
08:55Exactly, yes.
08:56There was a study done by the New Zealand Tax Authority,
09:00when GMT was first announced.
09:02And they came to the conclusion that it was quite minimal.
09:05Any gain was quite minimal.
09:08Now, the interesting thing about GMT was that
09:11it is actually from action point number one,
09:13which looked at the digitalization of the economy.
09:15It was looking at tech companies.
09:18So Malaysia doesn't have that many tech companies.
09:20I mean, the operations are,
09:22the sales are here,
09:24but the manufacturing and the production
09:26and the designing, that's not here.
09:28You hit the nail on the head.
09:30So the reason being is that
09:32tech companies originally looked at
09:34digitalization of the economy.
09:36Because it upended the traditional economic model.
09:39Traditional economic model,
09:40if I wanted to sell something,
09:41I had to set up a presence.
09:42With tech companies that had no presence.
09:46And therefore, the traditional taxing rules
09:48couldn't tax those profits.
09:50And that's why they were looking at
09:52how to tax those profits
09:53if you did not meet the traditional rules.
09:54And action point number one never took off for many years
10:00because of opposition from the US.
10:02But having said that,
10:04after many years of discussion,
10:06the US did buy in.
10:08And that's where Global Minimum Tax Pillar 2 came out.
10:11And again, the inclusive framework adopted the rules.
10:14This was in 2015.
10:16And in 2016, they started implementing the rules.
10:20So what happened was that
10:22Malaysia is also part of that.
10:24So Malaysia has implemented
10:25the Global Minimum Tax Rules,
10:27which is a 15% minimum
10:28for multinationals
10:30with Euro 750 million revenue,
10:34consolidated revenue.
10:35So with very large multinationals.
10:37And this was incorporated
10:38into Malaysian legislation
10:39effective from 1st January 2025.
10:44I didn't want to disrupt
10:45your train of thought just now,
10:47but how did the US buy in?
10:50Or any jurisdiction for that matter?
10:51Okay.
10:52So a couple of things is that
10:54it's the way it was designed.
10:56Okay.
10:57The way Pillar 2 has been
10:58on Global Minimum Tax Pillar 2
10:59has been designed
10:59a number of rules
11:00that someone has to tax it.
11:03Okay.
11:03So if the country in which
11:04you're operating doesn't tax it,
11:07then the country
11:07where the holding entity is
11:09or the ultimate parent entity is
11:10will tax it.
11:11So the US already
11:13has got its own domestic rules
11:16which already taxes
11:17its multinationals
11:18on a global basis.
11:19So somebody has to do it anyway.
11:20Exactly.
11:21So that's why the incentive
11:22is there for the countries
11:23to buy in.
11:24Exactly.
11:25And also with the US,
11:26you've got to remember
11:27is that two main political parties
11:29the Democrats
11:30and the Republicans
11:31they do have opposing views
11:33on certain issues
11:34or many issues.
11:35Okay.
11:36So when this was finally agreed upon
11:38it was a Democratic administration
11:39in power.
11:40So they agreed.
11:42But even at that point in time
11:43members of,
11:44some members of the Republican Party
11:46in Congress
11:47opposed it.
11:49But because they did not
11:50have the majority
11:51nothing happened.
11:52It was still passed through.
11:52Exactly.
11:53So when the administration changed
11:55and the current administration
11:56came in
11:57the US has still not implemented
12:00global minimum tax rules
12:01and they said
12:02no, we're not going to do it.
12:04Going back to your earlier view
12:06of how you think
12:09that the global minimum tax
12:12may not necessarily benefit
12:13developing countries
12:14like Malaysia.
12:15how then does Malaysian
12:18navigate our own
12:19tax framework
12:20against the backdrop
12:21of GMT
12:22and we know
12:24that we are
12:25under fiscal pressure.
12:26We know that we have
12:27very stringent
12:28mechanisms
12:29on increasing
12:29our tax base
12:30which is
12:32you keep on repeating
12:33again and again
12:33so I'll repeat this for you
12:3412% against GDP
12:36one of the lowest
12:37in ASEAN
12:39if not the world
12:40and then
12:41we also have
12:42that whole notion
12:42of
12:43tax policies
12:47and tax planning
12:48framework
12:48that has been announced
12:49and slowly being rolled out
12:50under this administration
12:51the Manani administration
12:52is this yet
12:53another spanner in the works
12:54for how we're going
12:55to work things through?
12:56Okay.
12:57I don't see it
12:57as a spanner in the works.
12:58Okay.
12:59So now before
12:59the 5th January announcement
13:01okay
13:01which is just
13:02three days ago
13:03coming up
13:04so before that announcement
13:05what would happen
13:07is that
13:08Malaysia has implemented
13:09Pela 2 Global Minimum Tax
13:11okay
13:11so
13:12that does not
13:14in a way
13:14impact Malaysia's revenue
13:17because by implementing it
13:19Malaysia will not be
13:20losing revenue
13:20to another jurisdiction
13:21any top-up tax
13:23will be collected
13:23at the Malaysian level itself
13:25right
13:25now
13:26what it really impacted us
13:29was our tax incentive system
13:30our tax incentives
13:32were no longer
13:33as effective
13:35as it would have been
13:36without the Global Minimum Tax
13:38okay
13:38so the government
13:39has been looking at it
13:40okay
13:41as to how to
13:42make them changes
13:42to the incentive system
13:44they have not yet
13:46we were hoping
13:47they would have been
13:48released in the last budget
13:49in last October
13:50but it was not
13:51I suspect
13:52they held it back
13:53because of the changes
13:54they were expecting
13:55to be announced
13:56to be announced now
13:57under OECD announcement
13:58it should have been announced
14:00before Christmas
14:01as the usual OECD standard
14:02release it before Christmas
14:04and go off on our Christmas break
14:05okay
14:05but in this case
14:06I think they couldn't get it
14:08in time
14:08because of some issues
14:10with other countries
14:10trying to do
14:11objections etc
14:12so it only happened
14:14on 5th of January
14:15now
14:16remember that
14:18because this is a global thing
14:19Malaysia's incentives
14:22are not the only ones impacted
14:23everyone's incentives
14:24are impacted
14:24Vietnam
14:25Thailand
14:25so that neutralizes
14:27any impact
14:29exactly
14:29so this becomes
14:31a double-edged sword
14:32it will force
14:34Malaysia
14:34and many other
14:35developing countries
14:36not to solely
14:37rely on tax incentives
14:39as a value proposition
14:41for international business
14:42businesses and investors
14:43to come in
14:44exactly
14:44so you're going to have
14:45to start looking at
14:46things like
14:47infrastructure
14:47ease of doing business
14:49talent
14:50etc
14:51regulation
14:52exactly
14:53whatever
14:53and I think
14:55Malaysia as a country
14:56we are well positioned
14:58to grow on that
15:00and in order to attract
15:01more investors
15:02so basically
15:03you're saying
15:03our friends at
15:04Miti or Matred
15:05or any of those
15:06you know
15:06Maida
15:07might be
15:08not so much
15:09worried
15:10I suppose
15:11in terms of
15:12trying to get
15:12investors in
15:13because
15:13we will lose
15:15certain investors
15:15we will lose
15:17certain investors
15:17but we stand
15:19if we position
15:20ourselves correctly
15:21we stand
15:22to gain more
15:23of the value
15:23added investors
15:24and of course
15:25one of the things
15:26that investors
15:26think about
15:27is political stability
15:28to be honest
15:28and Malaysia
15:31is
15:31I mean
15:32we've had
15:32a change
15:33of government
15:342018
15:35etc
15:35and all that
15:36but
15:36all those changes
15:37have been relatively stable
15:38business as usual
15:40exactly
15:40for the most part
15:41yes
15:42so I think
15:42maybe in 2018
15:43there was a little bit
15:44of concern
15:45as to whether
15:45it will be as stable
15:46but
15:46I think
15:47it's proven
15:48it's proven
15:49that we can change
15:50administration
15:51stably
15:52the sky didn't fall
15:53yes
15:54the sky did not fall
15:55exactly
15:55so for businesses
15:58and business owners
15:59currently
15:59looking at this conversation
16:01what would be
16:02some of the ideas
16:03that you want to share
16:04with them
16:04in terms of
16:05how do they approach
16:06this moving forward
16:07I'm talking about
16:08domestic companies
16:08or international companies
16:10that are already here
16:10so number one
16:12this does not impact
16:13all taxpayers
16:14very large taxpayers
16:16750 million euros
16:18and above
16:18that's about
16:19like 3.6 billion ringgit
16:20in group consolidated
16:22revenue
16:22in 2 out of 4
16:24preceding financial years
16:25is it just
16:25you know
16:2610 companies
16:27in Malaysia
16:27in Malaysia
16:28there are approximately
16:2960 to 70
16:30multinational groups
16:31impacted by this
16:32okay
16:32there will be
16:34subsidiaries
16:34of foreign multinationals
16:35the very large
16:36multinationals
16:37located in Malaysia
16:37will also be
16:38impacted by this
16:39yeah
16:39but they report
16:40the group
16:40which is located
16:41elsewhere
16:41yes
16:42but they also
16:42have local
16:43reporting requirements
16:44to the Malaysian IRB
16:44ah
16:45correct
16:45one of the four pillars
16:46that you spoke of
16:46for their operations
16:47in Malaysia
16:48correct
16:48now
16:49CBCR
16:51yes
16:51CBCR
16:52and also
16:52now will be
16:53GMT
16:54Global Minimum
16:54so they will have
16:56local funding requirements
16:57if their effective tax rate
16:59in Malaysia
16:59for the local operations
17:00is below 15%
17:02they'll have to pay
17:02a top-up tax
17:03to the IRB
17:04so there's a revenue
17:05collection there
17:06as well
17:06I think a couple of years
17:09back
17:09at one of
17:10at a seminar
17:11one of the IRB
17:12officers
17:12did say that
17:14an estimated collection
17:15there was about
17:172 billion additional
17:18ringgit
17:18in additional revenue
17:19in the bigger scheme
17:23of things
17:23it's not a very large amount
17:24but it is a substantial
17:25enough amount
17:26to maybe invest
17:26that's what I was
17:28arriving at
17:28the tax collection
17:30maybe 50 billion
17:302 billion isn't much
17:32but 2 billion is 2 billion
17:33it's still 2 billion
17:34subsidy
17:35Petro
17:36we're talking about
17:37all the Suha
17:38we're saving
17:384 billion
17:39so it's a lot of money
17:41true
17:41so in terms of
17:44the difficulties
17:45businesses
17:45have been facing
17:46and this has been
17:47a major
17:48gripe
17:49with global minimum tax
17:51is the complexity
17:52of the rules
17:52the rules
17:54are extremely complex
17:55I have been doing
17:57tax for 30 plus years
17:58when I first
18:00look at GMT
18:01that very weekend
18:02I joke with my clients
18:04and I joke with my
18:04colleagues etc
18:05is that that very weekend
18:06I went and looked
18:07at my pension policy
18:08whether I could retire
18:08it's really complicated
18:12it is complicated
18:13and that has been
18:15a major gripe
18:16by businesses
18:17I think the OECD
18:19when they developed it
18:20they did not recognise
18:21the difficulty
18:22businesses will get
18:24will have
18:24in trying to get
18:25the data
18:26needed to do
18:27the calculations
18:28sorry
18:29based on your estimation
18:31is it because
18:33it necessitates
18:34the complexities
18:35necessitates
18:36the difficulty
18:38of understanding
18:38the tax code
18:39or
18:39it's just going to
18:41get easier
18:41from now on
18:42so they start off
18:42with a high point
18:43then you can simplify
18:44things and make things
18:45streamlined
18:46across time
18:47the cardinal rule
18:48of global minimum tax
18:49is that
18:50a common approach
18:51what do they mean
18:52by a common approach
18:53because you wanted
18:55a standard set of rules
18:56rolled out across
18:57141 countries
18:58lowest common denominator
18:59principle
19:00yes
19:00and the commonality
19:02they could find
19:03was the international
19:03financial reporting standards
19:04so they use that
19:05as a base
19:06most countries
19:06but now when developing
19:08the rules
19:09you've got to take
19:10the interest of
19:10140 countries
19:11it's impossible
19:12and that is where
19:14the complexity arises
19:15so there are
19:17some definitions
19:18in global minimum tax
19:20rules
19:20when I look at it
19:22it makes no sense
19:23to me
19:23so sometimes
19:25I've reached out
19:25to people I know
19:26at the OECD
19:27and I ask them
19:27what is this
19:28what does this mean
19:29they look at it
19:30and say
19:30oh this probably
19:31won't impact you
19:32this was raised
19:33because the Nordic
19:34countries had this issue
19:35so they wanted
19:36that built into
19:37the rules
19:37and I'm like
19:39okay
19:39why didn't you say
19:40so there
19:40so how are you
19:42supposed to know
19:43which one is
19:43non-applicable
19:44which one is
19:44applicable
19:44and so on
19:45so there is
19:46where the complexity
19:46arises
19:47and the other
19:48is that
19:49because the nature
19:50of the calculation
19:51is that
19:52if you have
19:5310 entities
19:54in a jurisdiction
19:54you blend
19:56the income
19:57you blend
19:57the tax
19:57of those 10
19:58entities
19:58to get the
19:59jurisdictional
20:00effective tax rate
20:01and in reality
20:04for businesses
20:05large businesses
20:06you may have
20:06multiple business
20:07groups
20:08in one jurisdiction
20:09especially
20:09the conglomerate
20:10with different
20:11natures
20:11industries
20:12exactly
20:13whatever
20:13and these groups
20:14may be using
20:16different ERP
20:17systems
20:17definitely
20:18exactly
20:18so how do you
20:20get all this data
20:21in a comprehensive
20:23manner
20:23in an accurate
20:24manner
20:24in order to do
20:25that
20:25in terms of
20:27the prioritization
20:28of which
20:28policy to apply
20:30exactly
20:30so these are
20:33some of the
20:33practical issues
20:34which have arisen
20:34I guess more jobs
20:35for you guys
20:36but it is
20:38a nightmare
20:39it is absolutely
20:40a nightmare
20:41because of the
20:42complexity
20:42and the practical
20:44difficulties
20:44businesses face
20:45look
20:46if something
20:47is complicated
20:48it is never
20:49going to get
20:50I mean
20:51unless
20:52how do I put this
20:53if it is the law
20:55then of course
20:55adoption has to be there
20:56yes
20:57but how is it going
20:58to be adopted
20:59is a different
21:00matter as opposed
21:00to something
21:01that is simplified
21:02and uniformed
21:03and can be
21:04universally
21:04executed
21:06exactly
21:06it is a lot
21:08easier talking about
21:08say for instance
21:09the Geneva Convention
21:10on Human Rights
21:11it is very simple
21:12straightforward
21:12self-explanatory
21:13and you can apply
21:14it to anyone
21:15and everyone
21:15tax code is
21:17something else
21:18exactly
21:18so how do you
21:19see adoption
21:20and compliance
21:21and more importantly
21:22enforcement by
21:23the tax bodies
21:24around the world
21:25in making sure
21:26that this is
21:26adhered to
21:27so adoption
21:28was the common
21:29approach
21:29the OECD
21:30had come up
21:30with model rules
21:31administrative guidance
21:32those model rules
21:33were 99.9%
21:35implemented
21:35in domestic legislation
21:36okay
21:37that one's done
21:38that's done
21:38okay
21:39so now
21:40compliance
21:41compliance is ongoing
21:42at the moment
21:43and this is where
21:44we are seeing
21:44all these problems
21:45which I mentioned
21:45a few minutes ago
21:46so compliance
21:47enforcement has not
21:49happened yet
21:49so I have spoken
21:51to tax authorities
21:52and when I ask them
21:54our Inland Revenue
21:55has got a very good team
21:56working on this
21:57etc
21:57and sometimes
21:58when I ask them
21:59they themselves tell me
22:00that we don't have
22:01an answer for this
22:01we may have to refer
22:02to the OECD
22:03and at times
22:04even the OECD
22:04does not have an answer
22:05for it
22:05because some of these
22:07issues
22:08were not thought about
22:09so as we are
22:10implementing it
22:11the issues are coming up
22:12which is fine
22:12I suppose
22:13as a tax authority
22:15I execute this
22:16and implement this
22:17and adoption is there
22:18then you realise
22:20that okay
22:20these are
22:21just like rolling out
22:23the software production
22:23the bugs come in
22:25and then you fix the bugs
22:26I get that
22:27in theory
22:28that is right
22:29but for a business
22:30they want certainty
22:32so they come and ask
22:33they don't want a tax liability
22:34five years down the road
22:35you didn't pay enough tax
22:36or whatever
22:37so the question
22:37what position do I adopt now
22:39and sometimes it's difficult
22:41for us to give them
22:42a certain answer
22:43an answer with certainty
22:44for the simple reason being
22:46is that
22:46there is uncertainty
22:47in the law
22:48the interpretation
22:50remember this is so new
22:51everyone is implementing
22:53at the same time
22:54there is no court cases
22:56out there
22:56there is no precedent
22:57out there etc
22:58for anyone to be
22:59able to say that
23:00okay this is what has been
23:01discussed
23:01and it's what has been decided
23:02it's not out there yet
23:04but not many people are aware
23:07your training is in law
23:08with uncertainties in law
23:12allows for other people
23:15to interpret the way the law is
23:17and that's extremely bad
23:19for a position of authority
23:22say for instance
23:22a tax authority
23:23because since the law is
23:25I don't know what to say
23:27ambiguous or cloudy
23:29in terms of its nature
23:31if you interpret the law
23:32differently from me
23:33that's it
23:34game over
23:35we have a court case
23:36pending for like 10 years
23:38down the road
23:38multiplied by the number of people
23:40that are affected by it
23:41but you're right
23:42multiplied by the number of people
23:44impacted by this
23:45because this is a global minimum tax
23:47a common approach
23:48so an issue I face in Malaysia
23:50my colleagues in Luxembourg
23:52may have the same issue
23:53my colleagues in Australia
23:54may have the same issue
23:55but we each
23:56may have different interpretations
23:57of the same issue
23:58but our client
24:00a common client
24:01could be in those three places
24:02so we need to land
24:05on a common approach
24:06for that client
24:06okay I mean
24:09we're talking about that
24:10that risk element
24:12being present
24:12yes
24:12but what's your expectations
24:15in terms of how
24:15these things are going to be
24:17ironed out
24:17across time
24:18do you feel that
24:19we're going to get better
24:21within what
24:22five years
24:23and then things are going to be
24:24stabilized
24:25we know how to interpret
24:26that particular law
24:27so that was the expectation
24:29right
24:30that was our expectation
24:31that things will stabilize
24:32the OECD was coming
24:34going to come up
24:35with some kind of
24:35simplified calculation methods
24:37that was a transitional
24:38safe harbor
24:39which could have been extended
24:40another year or two
24:41etc
24:42what has shown the spanner
24:44in the works now
24:45is basically a change
24:47in administration
24:47in the US
24:48and they're saying
24:49that we do not accept
24:50the OECD rules
24:52as it currently is
24:53we want changes to it
24:54to be fair
24:56it's not just this
24:57that the current government
24:58is unhappy with
24:59they want Denmark
25:01you know
25:02I mean
25:03there's that
25:04what I'm also trying to say
25:07is that in two years time
25:08or three years time
25:08you'll have another administration
25:09coming into power
25:10and then you know
25:11you're going to have
25:11stabilization again
25:12exactly
25:13so in order to accommodate
25:15the concerns
25:16which was raised
25:17by the United States
25:18so the United States
25:19argument was that
25:20we already have
25:22a domestic system
25:23which already taxes
25:25our US multinationals
25:27at a rate higher
25:28than 15%
25:28so we do not want
25:32to come up
25:33with new rules
25:34we want you to
25:35accept our rules
25:36as part of
25:37the common approach
25:38so we are not going
25:40to implement
25:40OECD rules
25:41in the US
25:42but we are saying
25:43is that our rules
25:44are sufficient
25:45to meet OECD requirements
25:46or the 15% minimum
25:48is it?
25:49I'm not a US tax expert
25:51but my understanding
25:52is supposed to be
25:53but the issue here
25:54is that
25:55if the US says that
25:56and it has been accepted
25:58and so the US system
26:00what's stopping
26:01other countries
26:01from saying so
26:02so in Asia PAC
26:03for example
26:04China and India
26:05have not yet
26:06implemented
26:07global minimum tax
26:09they may now
26:10come up and say that
26:11look here
26:11our system
26:12also qualifies for this
26:13and they may
26:15so this
26:18kind of like
26:18in a way
26:19erodes the
26:20common approach
26:21standard set of rules
26:23and that is where
26:24more difficulty
26:25will arise
26:26and in five years time
26:29if you do not
26:30have a common approach
26:31my prediction
26:32is that
26:33the domestic systems
26:35which have been
26:36taken as equivalent
26:37so the side-by-side system
26:38domestic system
26:39global minimum tax
26:41OECD model
26:42side-by-side
26:43if the OECD
26:46doesn't have
26:46control over
26:47the domestic system
26:48when I say control
26:50I mean in terms of
26:51review etc
26:51and all that
26:52then
26:54what is to prevent
26:56countries from
26:57tweaking their
26:58domestic systems
26:59to give
26:59either their
27:00multinationals
27:01or their investors
27:02an advantage
27:03this will then
27:05erode
27:06the common approach
27:08and it will probably
27:09see other countries
27:10also maybe pull apart
27:11or turn and say
27:12okay I'm going to try
27:13and come up with
27:14a domestic system
27:15which meets this
27:15SBS system
27:16so this is
27:19where I predict
27:20that
27:20we are now
27:21in a bit of
27:22we were hoping
27:23to get certainty
27:24we're hoping
27:24for things to settle down
27:26but this probably
27:27throws a spanner
27:27in the works
27:28and we may have
27:29uncertainty in coming years
27:31now
27:32what is the
27:33ultimate
27:34risk
27:35that you are
27:36or fear
27:37that you are
27:38looking at right now
27:38can countries
27:40then opt themselves
27:40out from the
27:41so-called
27:42GMT
27:42can they back off
27:43from this
27:44because
27:44it doesn't look
27:46too good now
27:46countries
27:47are under
27:48no obligation
27:49to implement
27:50GMT
27:50the only issue
27:52countries had
27:53is that
27:53if I do not
27:53implement GMT
27:54I may lose
27:55revenue to
27:55somebody else
27:56so that was
27:57basically the stick
27:58the greatest incentive
28:00the carrot
28:01the carrot
28:04was that
28:04you will get
28:05more revenue
28:05the stick
28:06was that
28:07if you don't
28:07do it
28:08you're going
28:08to lose revenue
28:08other people
28:09are going
28:09to get your revenue
28:10so that was
28:11the thing
28:11but
28:13the carrot
28:15also was
28:16that it's a
28:16common approach
28:17everybody had
28:17to use
28:17the same set
28:18of rules
28:18so you knew
28:19that the other
28:20guy
28:20couldn't
28:21for lack
28:22of a better
28:22word
28:23cheat
28:23but now
28:25if we are
28:25not using
28:26a common set
28:27of rules
28:27but in terms
28:31of the
28:31common approach
28:32if we don't
28:32have a common
28:33approach now
28:34you start
28:34wondering
28:35is that
28:35is the other
28:36guy's system
28:37equivalent
28:38to my strict
28:39system
28:39or you may
28:41start wondering
28:41why do I
28:42want to use
28:42the strict
28:43system
28:43maybe I
28:43come up
28:44with a
28:44domestic
28:44system
28:45so those
28:48are the
28:48questions
28:49which are
28:49going to
28:49be looked
28:50at by
28:50policy
28:50makers
28:51in the
28:52next
28:52I would
28:52say
28:52three
28:52to
28:53five
28:53years
28:53final
28:55question
28:55to you
28:56while
28:57policy makers
28:57are looking
28:58at this
28:58for the
28:58next
28:58three
28:58to five
28:59years
28:59how
28:59are
29:00countries
29:00especially
29:00developing
29:01countries
29:01and especially
29:02Malaysia
29:02is going to
29:03approach
29:03this
29:04from a
29:04fiscal
29:05point
29:05of view
29:05is this
29:06one of
29:07those
29:07things
29:08that
29:08really
29:09not going
29:10to impact
29:10us
29:10that
29:10much
29:11in terms
29:12of
29:12tax
29:12revenue
29:12but
29:13actually
29:13will
29:13impact
29:14us
29:14overall
29:15because
29:15of
29:15how
29:16countries
29:16see
29:16our
29:16jurisdiction
29:17as
29:17a
29:18viable
29:18option
29:19to
29:19invest
29:19and
29:20make
29:20a
29:20bet
29:20on
29:21growing
29:21their
29:21business
29:22so
29:22I
29:23would
29:23see
29:23this
29:23okay
29:23number
29:24one
29:24is
29:25our
29:25tax
29:26incentives
29:26which
29:26have
29:26been
29:27a
29:27big
29:27draw
29:27for
29:27investors
29:28for
29:28many
29:28decades
29:29is
29:31no
29:31longer
29:32that
29:32attractive
29:33when
29:33it
29:33comes
29:33under
29:34global
29:34minimum
29:34tax
29:35but
29:36again
29:36as I
29:36mentioned
29:37earlier
29:37other
29:37countries
29:38also
29:38have
29:38the
29:38same
29:38problem
29:39Malaysian
29:40policy
29:41makers
29:41are
29:41aware
29:41of
29:42it
29:42so
29:43what
29:44Malaysian
29:45policy
29:45makers
29:46need
29:46to
29:46do
29:46now
29:46is
29:47that
29:47and
29:47I
29:47believe
29:47they
29:48are
29:51incentives
29:51which
29:52look
29:53at
29:53substance
29:53which
29:54look
29:54at
29:54high
29:54value
29:55addition
29:55etc
29:56which
29:57in
29:57a
29:57way
29:57will
29:58also
29:58align
29:59with
29:59our
29:59economic
29:59ambitions
30:00to
30:00become
30:01a
30:01high
30:01income
30:01country
30:02and
30:03so
30:04this
30:04may
30:04be
30:05the
30:06stick
30:07which
30:07is
30:07forcing
30:08us
30:08to
30:08make
30:08those
30:08changes
30:09in
30:10terms
30:10of
30:11revenue
30:11collection
30:12itself
30:12there
30:13is
30:13an
30:13administrative
30:13cost
30:14of
30:14course
30:14but
30:15as
30:15I
30:15mentioned
30:15earlier
30:16one
30:16of
30:16the
30:16estimates
30:16was
30:17about
30:172
30:17billion
30:17ringgit
30:18annually
30:19it's
30:20something
30:21it
30:21is
30:21something
30:22but
30:22remember
30:22it's
30:22also
30:23a
30:23compliance
30:23cost
30:23not
30:24just
30:24a
30:24compliance
30:24cost
30:24you're
30:25administrating
30:25it
30:25and
30:26enforcement
30:26but
30:27also
30:28for
30:28the
30:28taxpayers
30:28who
30:28also
30:29now
30:29have
30:29to
30:29comply
30:30with
30:30it
30:30is
30:31a
30:31large
30:31cost
30:31so
30:33I
30:34would
30:35say
30:35that
30:35this
30:36might
30:36be
30:36an
30:37opportunity
30:37for
30:38the
30:38Malaysian
30:38authorities
30:39to
30:40look
30:40at
30:41their
30:41tax
30:41incentive
30:41system
30:42which
30:42I
30:42know
30:42they
30:42are
30:42doing
30:43to
30:44fine
30:44tune
30:45their
30:45tax
30:45incentive
30:45system
30:46to
30:46ensure
30:46that
30:47it
30:48looks
30:48more
30:48at
30:49value
30:49addition
30:50substance
30:51tangible
30:51assets
30:52etc
30:52and
30:53all
30:53that
30:53and
30:54this
30:54would
30:54in
30:54a
30:54way
30:55help
30:55push
30:56industry
30:57help
30:58push
30:58especially
30:59the
30:59large
31:00multinationals
31:00and
31:01foreign
31:01investors
31:01coming
31:02in
31:02to
31:03look
31:03at
31:03more
31:03value
31:03addition
31:04type
31:04investments
31:05it's
31:06a bit
31:07like
31:07subsidies
31:08right
31:08we
31:09have
31:10to
31:10win
31:10ourselves
31:11away
31:12from
31:12it
31:12and
31:13however
31:13painful
31:14it
31:15is
31:15it
31:15had
31:16to
31:16be
31:16done
31:16I
31:16think
31:17for
31:17incentivizing
31:18businesses
31:19and
31:19industries
31:20to
31:20come
31:20to
31:21Malaysia
31:21and
31:21for
31:22domestic
31:22businesses
31:23to
31:23stay
31:23in
31:23Malaysia
31:23perhaps
31:25that's
31:25also
31:25the
31:26time
31:26for us
31:26to
31:26do
31:27what
31:27better
31:27time
31:28to
31:28do
31:28it
31:28than
31:29now
31:29to
31:29rethink
31:30about
31:31not
31:31being
31:31lazy
31:32but
31:32be
31:33a
31:33little
31:33bit
31:33more
31:33progressive
31:34in
31:35terms
31:35of
31:35how
31:35we
31:35become
31:36a
31:36little
31:36bit
31:36more
31:36efficient
31:37in
31:37market
31:37so
31:39now
31:39is
31:39a
31:39good
31:39time
31:40it
31:45under
31:46the
31:46global
31:46minimum
31:47tax
31:47rules
31:47is
31:47that
31:48it
31:48will
31:49never
31:49be
31:49as
31:49generous
31:50as
31:50what
31:50our
31:50traditional
31:51incentives
31:51are
31:52those
31:53are
31:53the
31:53gone
31:53yesteryears
31:54we
31:55can be
31:55nostalgic
31:56and
31:56romanticized
31:57about
31:57the
31:57past
31:57we
31:58have
31:58to
31:58live
31:59in
31:59the
31:59future
32:00now
32:01exactly
32:01so
32:01it
32:01will
32:02never
32:02be
32:02as
32:02generous
32:02but
32:03because
32:04it
32:04is
32:04not
32:04as
32:05generous
32:05it
32:06means
32:06there
32:07will
32:07be
32:08more
32:09revenue
32:09coming
32:09in
32:10previously
32:11if
32:12you
32:12had
32:12100
32:13in
32:13potential
32:14tax
32:14revenue
32:14and
32:15I
32:15gave
32:15you
32:15back
32:1590
32:16or
32:16100
32:17now
32:18if
32:18you
32:18have
32:18100
32:18in
32:18potential
32:19tax
32:19revenue
32:19I
32:20can't
32:20give
32:20you
32:21back
32:2190
32:21or
32:21100
32:22because
32:22of
32:22the
32:22global
32:23minimum
32:23tax
32:23rules
32:23I
32:24may
32:24only
32:25give
32:25you
32:25back
32:2510
32:25or
32:2515
32:26or
32:2620
32:26which
32:27means
32:28the
32:28rest
32:28still
32:28comes
32:28back
32:28to
32:29the
32:29exchequer
32:29which
32:31exchequer
32:31is it
32:32hopefully
32:33it's
32:33our
32:33own
32:33LHDN
32:34anyway
32:35there's
32:35a lot
32:36that
32:36can
32:36be
32:36unpacked
32:44conversations
32:44like
32:44this
32:44will
32:45be
32:45found
32:45on
32:45this
32:45particular
32:46show
32:46on
32:47the
32:47way
32:47forward
32:48so
32:48do
32:48stay
32:48tuned
32:49on
32:49the
32:49economy
32:50at
32:50astraawani.com
32:52you've
32:53just
32:53heard
32:53from
32:53Aurobindo
32:54Ponyah
32:55the
32:55director
32:56of
32:56PwC
32:57Malaysia
32:57there
32:58are
32:58other
32:58previous
32:59conversations
32:59like
33:00this
33:00that
33:00can
33:00be
33:01found
33:01there
33:01as
33:01well
33:02on
33:02our
33:02website
33:02until
33:03then
33:03thanks
33:04very
33:04much
33:04for
33:04watching
33:04and
33:05catch
33:05you
33:05in
33:05the
33:05next
33:05one
33:14you
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