SURVEY FINDS MULTINATIONALS FACING NEW TAX CHALLENGES

KUALA LUMPUR, Oct 31 (Bernama) -- Multinationals are facing new tax
challenges due to growing transfer pricing (TP) scrutiny by world's tax
authorities, according to a survey.

The survey by international accounting firm Ernst & Young found a dramatic
increase in the scope of TP documentation required by governments with penalties
imposed more frequently and at higher levels when multinationals get it wrong.

Locally, Malaysia has introduced the new Sections 140A and 138C of the
Income Tax Act 1967 relating to TP, which referred to the price charged by one
part of an organisation for products and services it provides to another.

Given the need for governments to raise revenues in this challenging
economic climate and the changing regulatory environment, the study anticipates
heightened litigation in the near future.

This expectation is driven by the almost universal trend towards increased
TP investigation resources within tax authorities, it said, adding that this
trend is also shared by Malaysia.

"As governments search for tax revenues to offset growing budget deficits,
many are sharpening their focus on compliance, enforcement and legislative
approaches," said Ernst & Young Malaysia's partner and head of transfer pricing,
Janice Wong.

"It has thus become inevitable that both domestic and multinational
businesses will have to be prepared for more TP audits and investigations," she
said.

In Malaysia, the Inland Revenue Board (IRB) has set up a dedicated
Multinational Tax Department to focus its efforts and resources on TP matters
such as TP audit, compliance, policy and advance pricing arrangement.

The specialist resources consist of accountants, economists and those with
business and finance backgrounds, and the dedicated resources are expected to
increase significantly.

The survey report said the IRB revealed that it does not target specific
industries for TP audits.

"Instead, TP audit targets are selected by the IRB's computer system," it
said.

Wong said there has been an increase in court cases involving transfer
prices and the deployment of a considerable amount of TP enforcement among local
tax authorities.

"The IRB will continue to increase its focus on transfer pricing. Its
overall target is an increase in tax revenue as a whole, as indicative of an
increased level of compliance from taxpayers," she said.

-- BERNAMA