Tax Corporate Governance Framework (TCGF) - One year later - What’s next for companies in Malaysia?


Jeannie Shee             
Managing Consultant, Tax

Last year, on 15 April 2022, the Malaysian Inland Revenue Board (IRB) issued guidelines for the Tax Corporate Governance Framework (TCGF). Since then, we have worked closely with various companies on their TCGF journey. In this blog, we share our experience and highlight a few ways in which companies can create more synergy with other transformation initiatives as they embed TCGF as part of their operations.

A roller coaster ride or a walk in a park?

The Tax Corporate Governance (TCG) programme is being implemented in two phases as a pilot project, with the first phase commencing in June 2022 and ending in June 2024. While this first phase is only for selected companies, the second phase will be open to all organisations. We have been in a number of conversations with organisations who are interested in adopting the framework ahead of time, in order to meet the prerequisites when Phase 2 opens up. 

For organisations looking to apply TCGF, we share a roadmap below with key milestones for how this journey could look like for you. The roadmap incorporates some responses from IRB on Chartered Tax Institute of Malaysia (CTIM)’s queries from 20 September 2022:

PwC, March 2023. Note: Content is accurate at time of publication. Remember to check for the latest developments.

To promote TCGF, IRB arranged for a few briefing sessions with selected companies in order to share and create awareness for the framework. The invitation to these briefing sessions was done in writing (email/letter). IRB then provided a time frame for companies to consider if they would like to volunteer to participate. The proposed time frame starts when the IRB accepts the participants and ends when participant status is granted - which can take between 8 to 12 months.

For companies with a global footprint looking to implement TCGF, time will be a key challenge. The rounds of discussion that will have to be undertaken will depend on the organisation structure of the companies. Approvals will need to be obtained from the heads of the tax or finance department locally and at the regional tax level where there is one, going up to the company’s leadership teams and Board of Directors. Therefore, we recommend that companies have clarity on the process and requirements when they participate in TCGF. This will provide comfort in understanding current gaps and companies will be able to start having plans in mind to gradually address some of the gaps. As we covered in our previous blog, Rome was not built in a day, and the same goes for your TCGF.

As part of the TCGF risk evaluation process, IRB will not be setting a threshold as each company has different needs, depending on their size and background. However, a company's Tax Control Framework should be able to identify, measure, mitigate, monitor and report tax risks according to its tax policy, tax strategy and risk appetite. The participating companies are responsible for maintaining sufficient documentation to meet programme requirements, and this is another area where we foresee some companies requiring more time to prepare. 

1+1= 3 

As regulatory and tax legislative platforms evolve from time to time, companies may not be able to dedicate a team of resources to address the gaps from their preliminary risk assessment. Here are some possible ways to create synergy in strengthening your TCGF before participating in the programme:

1. Enterprise Resource Planning (ERP) Migration and finance transformation

Tax is usually one of the last in the data food chain, and data from ERP systems tends to not be tax-enriched for tax reporting and compliance purposes. As part of their digitalisation agenda, many companies are looking at embarking on ERP migration projects or finance transformation. We also see tax authorities continue to move closer to real time data extraction. Globally, Australia and Singapore have adopted e-invoicing, and in Malaysia, IRB in their recent Budget 2023 Seminar has shared timelines for the implementation of e-invoicing for companies in stages. Companies can benefit from tax-optimising their ERP systems, in order to access more complete and accurate data coming from a single source of truth. As part of the ERP journey, companies can also revisit their Finance processes, taking this opportunity to embed tax controls for better risk management.

By doing this, companies can evaluate their own tax data and process, closing these gaps as part of the TCGF prerequisites. 

2. Global Minimum Tax (GMT) and Qualified Domestic Minimum Top-Up (QDMTT) Tax under Pillar 2

Another way to prepare your organisation for the TCGF prerequisites is by looking at the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS). As recommended under Pillar 2, the Ministry of Finance (MOF) has indicated in the Touchpoints to Budget 2023 that Malaysia will introduce the global minimum effective tax rate (ETR) and consider a qualified domestic minimum top-up tax. As over 140 countries have agreed to enact a two-pillar solution to address challenges arising from the digitalisation of the economy, this move will only benefit companies, especially multinational corporations (MNCs) with a global footprint. 

The implementation timeline is not currently indicated, but MNCs with consolidated revenues of over €750m have started to assess the financial and operational implications of Pillar 2. In terms of how to get started, from a Data and Technology perspective, MNCs will have to assess the additional data and reporting/compliance requirements and evaluate their existing technology ecosystem and capabilities. From a Strategy, People and Process perspective, MNCs have to establish processes and controls, establish governance, as well as train resources, and manage stakeholder expectations on operating models. 

To help MNCs manage the impact of complex tax policies, it is imperative that the Board of Directors endorse the Group Tax Strategy and that it is aligned with the overall business strategy in the countries in which they operate, to fulfil TCGF prerequisites.

3. Outsourcing models or Tax Managed Services

In today’s ever-changing digital, global and local regulatory environment, companies are reassessing their tax function and rethinking their role for tomorrow. There is a shift from the traditional role of the tax function (focusing on compliance) to being a value adding function. There is a greater expectation for employees supporting tax functions to sharpen their skill sets with new capabilities. As a result, companies are now considering outsourcing their tax operations or looking at tax managed services for specific tax function tasks. This makes room for their existing tax functions to free up their time to upskill and focus on strategic issues that add value to their organisation.

As part of the review process of which specific tax functions could be outsourced, we’ve seen many companies taking the opportunity to revisit their overall tax strategy, processes and people capability. Some companies have made the decision to outsource their tax function, in order to tighten risk management of their compliance processes and drive efficiency via access to digital tools. As part of this evolution, they documented their tax processes and re-assessed their people capabilities, both of which are key to help strengthen your TCGF standing.

Food for thought: What’s next

Regardless of whether your organisation has received an invitation to participate in TCGF, or would like to volunteer for it, there are some considerations to take into account to help expedite your process in getting TCGF-ready:

  • Are your Board of Directors aware of TCGF? Are they able to articulate the importance of TCGF or its role in Tax operations?

  • Have you done your preliminary assessment? This is always a good starting point in implementing TCGF.

  • Is your company embarking on any major changes, transformations or restructuring? Are there synergies for your tax function?

  • What is your company’s plan post-June 2024, when the next phase of TCGF begins? Here’s what you can do to get ready

Let’s chat


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Contact us

Lavindran Sandragasu

Lavindran Sandragasu

Partner, Tax, PwC Malaysia

Tel: +60 (3) 2173 1494

Pauline Lum

Pauline Lum

Director, Tax, PwC Malaysia

Tel: +60 (3) 2173 0951