Tax Corporate Governance Framework - Are you ready for greater transparency?

04/07/22

Jeannie Shee
Managing Consultant, Tax

On 15 April 2022, our Malaysian Inland Revenue Board (IRB) issued the Tax Corporate Governance Framework (TCGF) guidelines to assist organisations in assessing their current TCGF and encourage voluntary participation in the TCGF programme. Since then, TCGF has become a hot topic for many companies.

While we await the release of further details around the framework, there’s value in reflecting on developments globally and our experience in helping clients transform their tax functions. In this blog, we will share some other trigger points from global or domestic requirements on tax governance and how companies could plan ahead to meet multiple requirements with one action plan. Our second blog will drill down into what are the building blocks for TCGF/Tax Control Framework (TCF), and how companies can start with smaller action steps. Our third blog will deep dive into the building blocks of TCF using an analogy of a house and share how companies can level up their tax functions.

Global trends on tax co-operative compliance

Many of you may be familiar with the term “tax co-operative compliance” which is an initiative for promoting better tax compliance developed by the Organisation for Economic Co-operation and Development (OECD) Forum on Tax Administration. The diagram below illustrates the global trends of tax co-operative compliance by global regulators:

PwC, July 2022. Note: Content is accurate at time of publication. Remember to check for the latest developments.

Tax co-operative governance has set out expectations for transparency and good tax governance by the taxpayer in order to provide a high degree of reassurance as to the control of tax risk processes and the absence of aggressive tax planning. These global trends (depicted above), outline how tax authorities are pushing for more transparency and governance. For instance, by providing definition and their expectations (e.g. UK - large businesses are required to publish their tax risk policies/strategies, Malaysia and Singapore - Corporate Income Tax programmes) or by types of taxpayers (e.g. UK, Malaysia, Singapore - by size of operations, Australia - by risk profiles).

After the successful implementation of the Assisted Compliance Assurance Programme (ACAP) in Singapore, we note the recent rollout of their Tax Risk Management and Control Framework for Corporate Income Tax (CTRM). As there has been a greater push for tax corporate governance or tax control frameworks globally, in a manner that is consistent with OECD guidelines, Malaysian groups are revisiting their tax policies and controls.

Triggers of change: Bringing it closer to home

Post pandemic, the Malaysian economy is expected to improve further in 2022, with growth projected at 5.3% to 6.3% as announced by Bank Negara Malaysia in March 2022. We have seen some companies already in partial recovery or even in the midst of more expansion to accommodate stronger market demand, which means more revenue that will potentially be subjected to tax.

With the recent release of the 2023 Pre-Budget Statement (PBS) on 3 June 2022, the Ministry of Finance (MOF) touched on Malaysia’s commitment at the international level, including strategies to increase tax revenue and strategies to strengthen the tax system, which stresses the importance of good tax governance.

Below, we summarise how several developments in the last 18 months (as at 1 July 2022) have shaped the tax landscape we see today:

Date of release	Details
1 January 2021	The first global standard for Tax disclosure i.e. Global Reporting Initiatives (GRI) 207 was implemented.
12 October 2021	On Bursa Malaysia’s website, the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants published a Tax Governance Guide to provide guidance to the directors of listed issuers in reporting the management of tax matters affecting the corporations in their annual reports. This guidance aims to enhance the tax transparency of the listed issuers.
2 March 2022	Bursa Malaysia officially launched its Public Listed Company Transformation (“PLCT”) Programme that will run through to 2025, aimed at steering all PLCs towards accelerating their growth strategies and improving performance. In section 6.8 in the Bursa’s Guidebook 2 “Sustainable, Socially Responsible and Ethical PLCs”, it highlights the importance of Tax in helping companies build trust and demonstrate their commitment to social responsibility and governance within the ambit of ESG.
15 April 2022	The introduction of the Tax Corporate Governance Framework (TCGF) as part of the Inland Revenue Board (IRB)’s initiative towards adopting a co-operative tax compliance process that is both fair and effective in Malaysia.
Budget 2023 Pre-Budget Statement	Announced the intention to implement e-Invoicing in stages to enhance the efficiency of the country’s tax administration management in the digital economy. Made a commitment at the international level - Malaysia is currently reviewing the technical details of the Two-Pillar approach to addressing the tax challenges from the digitalisation and globalisation of the economy, including the possibility of introducing the Qualified Domestic Minimum Top-Up Tax under Pillar 2.

PwC, July 2022. Note: Content is accurate at time of publication. Remember to check for the latest developments.

How can you hit two (or more) birds with one stone?

In the old days, the tax function was a traditional back office function focusing on compliance, which basically meant preparing tax returns and submitting them on time. Tax was rarely an agenda on Board meetings unless there was a material cash outflow or reputation issues. The company’s approach to tax was normally reactive, therefore the tax function is usually the last in the reporting process to close the gap and make things right for reporting.

Akin to showing one's cards in a game, companies may be feeling the pressure to get ready to show their cards amidst pressures to be transparent and comply with the tax governance framework. But the good news is, they’re in much better shape to meet the growing demand for transparency and accountability today. We have seen many companies slowly adopting a formalised and structured approach for tax in making sure they are ahead of the game to accommodate global requirements, ensuring a seat at the table for the tax function and a greater role in helping companies meet their business goals.

In our previous blog “Tax and ESG- the ‘Governance’ perspective”, we highlighted several ESG guidelines and frameworks that include reporting guidance for tax. Here, we have mapped the tax disclosure requirements for TCGF to other commonly used indices and metrics in the table below:

PwC, July 2022. Note: Content is accurate at time of publication. Remember to check for the latest developments.

Although the regulatory bodies are targeting companies that fall within the definition of “large companies”/“public listed companies” and participation is voluntary, we foresee more companies will expand quickly to meet the definition of “large” or “public listed” in a short time.

Given the areas of alignment between TCGF and other frameworks as mapped above, meeting TCGF requirements will simultaneously enhance their ESG reporting requirements e.g. GRI, Bursa, etc. In order to hit two (or more) birds with one stone, companies should assess their current state of tax governance framework and reporting requirements (e.g. GRI, FTSE, etc.) for a clearer indication of possible ways to leverage existing corporate reporting activities, to plan their roadmap to meet the different requirements.

Food for thought: What’s next

Given the current trends and requirements, tax is no longer viewed as a back office function but rather a key agenda for Boards. Companies should consider looking ahead on their tax governance framework requirements and get ahead of the game to bring their company profile to the next level. Some questions that you may want to consider:

Are you ready to participate in the TCGF programme?
If not, does your company adopt GRI reporting or other ESG requirements? Would you be able to have an action plan to fulfil all your requirements at one go?
Does your company plan to expand aggressively in the next five years and does your plan include all these tax reporting requirements?
What is the cost and benefits of participating in the TCGF programme?

Let’s chat

Our ‘Tax Corporate Governance Framework’ blog series will help provide insights on:

Blog #1: Tax Corporate Governance Framework - Are you ready for greater transparency?
Blog #2:Tax Corporate Governance Framework - Does one size fit all? [Upcoming]
Blog #3: Tax Corporate Governance Framework - How can you get started? [Upcoming]

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