Executive summary

The Malaysian Inland Revenue Board (IRB) has issued the 2018 tax audit framework, "Rangka Kerja Audit Cukai (Pindaan 1/2018)" (the 2018 Framework). The 2018 Framework is effective from 1 April 2018. It is similar to the 2017 framework.

This Alert summarizes the key provisions of the 2018 Framework.

Detailed discussion

Preliminary actions of an audit (Paragraph 7.1)

The timeframe to respond to a letter from the IRB requesting documents and/or information is reduced from 21 days to 14 days from the date of the letter.

The 2018 Framework also provides that the audit may now be extended to include companies and businesses connected or controlled¹ by the taxpayer, without prior notice to the taxpayer.

The 2017 framework had provided that an audit on a company could be extended to companies and businesses with common directors.

Examination of records (Paragraph 7.4)

Unlike the 2017 framework, the 2018 Framework does not specifically state that records pertaining to closed years will not be examined. Accordingly, there is some uncertainty as to whether the IRB will request information and documents pertaining to the closed years, as the IRB has requested such information or documents in the past.

Settlement of audit (Paragraph 7.5)

If no objection is made within 18 days (reduced from 21 days) from the date of notification, the taxpayer will be deemed to have agreed to the proposed tax adjustments.

Voluntary disclosure (Paragraph 7.6)

In determining the taxpayer's entitlement to the 35% concessionary penalty² for voluntary disclosure, the 2018 Framework clarifies that "commencement of tax audit" means the date of the letter requesting documents and information for purposes of inquiry or obtaining information and/or documents related to audit issues.

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ENDNOTES

¹ Pursuant to Section 139 of the Malaysian Income Tax Act 1967 (ITA), a person shall be taken to have control of a company:

(a) If he exercises or is able to exercise or is entitled to acquire control (whether direct or indirect) over the company's affairs and in particular, without prejudice to the generality of the preceding words, if he possesses or is entitled to acquire the greater part of the share capital or voting power in the company.

(b) If he possesses or is entitled to acquire either:

(i) The greater part of the issued share capital of the company;

(ii) Such part of that capital as would, if the whole of the income of the company were in fact distributed to the members, entitle him to receive the greater part of the amount so distributed; or

(iii) Such redeemable share capital as would entitle him to receive on its redemption the greater part of the assets which, in the event of a winding up, would be available for distribution among members.

Or

(c) If in the event of a winding up he would be entitled to the greater part of the assets available for distribution among members.

² In a situation where no prosecution has been instituted in respect of the incorrect return or incorrect information, the penalty rate provided under the ITA is equal to 100%.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Consultants Sdn Bhd, Kuala Lumpur

• Amarjeet Singh
  amarjeet.singh@my.ey.com
• Anil Kumar Puri
  anil-kumar.puri@my.ey.com

Ernst & Young LLP, Malaysian Tax Desk, New York

• Meng Hui Chua
  meng.hui.chua1@ey.com

Ernst & Young LLP, Asia Pacific Business Group, New York

• Chris Finnerty
  chris.finnerty1@ey.com
• Kaz Parsch
  kazuyo.parsch@ey.com
• Bee Khun Yap
  bee-khun.yap@ey.com

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ATTACHMENT

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