Country-by-Country Reporting and the Master File in Malaysia

The deadline that catches groups is not the filing deadline. It is the notification, and it falls on the last day of the reporting financial year — before the year has even closed, and a full twelve months before the report itself is due.

Who is in scope

Rule 2 of the Income Tax (Country-by-Country Reporting) Rules 2016, as rewritten by P.U.(A) 416/2017, applies the Rules to a multinational enterprise group where:

• total consolidated group revenue in the financial year preceding the reporting financial year is at least RM3 billion; and
• any of its constituent entities is a Malaysian-resident ultimate holding entity, a Malaysian-resident constituent entity, a Malaysian-resident surrogate holding entity, or a permanent establishment in Malaysia.

Labuan entities carrying on a Labuan business activity sit under a parallel instrument, the Labuan Business Activity Tax (Country-by-Country Reporting) Regulations 2017.

Note the currency. RM3 billion is not a conversion of the OECD’s EUR 750 million, and it is not the Pillar Two threshold — a group can be inside one regime and outside the other.

Notification

Rule 6 requires every Malaysian-resident constituent entity to notify the Director General in writing on or before the last day of the reporting financial year:

• if it is the reporting entity, identifying whether it is the ultimate holding entity or the surrogate holding entity; or
• if it is not, giving the identity and tax residence of the entity that is, together with that entity’s financial year.

From year of assessment 2021 the notification can be made through Form e-C, or Form LE1 for a Labuan entity. The alternative is an official letter on the company’s letterhead, signed in accordance with s.75 of the Income Tax Act 1967, following LHDN’s published template and delivered by hand or by courier. LHDN’s page is explicit that the template must be followed strictly.

Filing

Rule 7: not later than twelve months after the last day of the reporting financial year.

Rule 5 puts the obligation on the ultimate holding entity where it is resident in Malaysia. A Malaysian surrogate files instead where the foreign parent has no filing obligation at home, where its jurisdiction has an international agreement with Malaysia but no qualifying competent authority agreement in effect, or where LHDN has notified a systemic failure in that jurisdiction.

The report carries three tables — allocation of income, taxes and business activities by jurisdiction; the list of constituent entities per jurisdiction; and additional explanatory information. Financial information is denominated in ringgit under rule 4(2). Submission is through the HiDEF platform in the OECD’s CbCR XML schema, encrypted with the IRBM public key.

Rule 8 limits LHDN’s use of the report to high-level transfer pricing and BEPS risk assessment and economic analysis, and prohibits using it as a substitute for a detailed transfer pricing analysis when making an adjustment.

The Master File question

Malaysia does not impose a standalone Master File filing obligation. What it imposes is rule 4(2)(a) of the Income Tax (Transfer Pricing) Rules 2023 — information on the multinational enterprise group as specified in Schedule 1, inside the contemporaneous transfer pricing documentation.

Paragraph 11.7(a) of the Malaysia Transfer Pricing Guidelines 2024 then says that where a group has prepared a master file containing all the information required, that file can be submitted as a replacement for Schedule 1. So the group master file is a permitted substitute for a Malaysian schedule, not a separate deliverable with its own deadline.

Common mistakes

Treating notification as an annual reminder. It is a statutory deadline falling on the last day of the financial year, and it applies to every Malaysian constituent entity, including those that are not the reporting entity.

Assuming a foreign parent’s filing covers Malaysia. It usually does, through exchange — but only where a qualifying competent authority agreement is in effect. Where it is not, the Malaysian surrogate must file.

Confusing the thresholds. RM3 billion for CbCR, EUR 750 million for global minimum tax, RM30 million and RM10 million for full transfer pricing documentation. They are three different tests.

Filing a master file and stopping. Schedule 2 of the Transfer Pricing Rules 2023 — the Malaysian entity’s own business and benchmarking — is never covered by a group master file.

What’s next

Diarise the notification against the financial year end, not the filing date, and confirm which entity in the group is the reporting entity before the year closes. Then read transfer-pricing-documentation for the local file, and global-minimum-tax-pillar-two if consolidated revenue is near EUR 750 million.