(Tax Update) IRB's Intensified Crackdown: Are You Prepared for Audits and Investigations

(Tax Update) IRB's Intensified Crackdown: Are You Prepared for Audits and Investigations

With an ambitious target of RM 197 billion in tax collection for 2024, the Inland Revenue Board (IRB) has significantly ramped up its audit and investigation efforts.

During a recent webinar hosted by Wolters Kluwer, industry leaders from KPMG, Deloitte, PwC, and RDS shared valuable insights into the IRB’s current areas of focus. These include capital gains from share disposals, the global income of high-net-worth individuals, transfer pricing, and the misuse of tax incentives.

Taxpayers, particularly SMEs, should be aware of these heightened measures and take proactive steps to mitigate potential risks.

IRB’s Intensified Focus Areas

Gains from Disposal of Shares

IRB is closely scrutinizing the disposal of shares to determine whether such gains should be subject to income tax or capital gains tax. Companies and individuals disposing of shares must ensure that the nature of the transaction (whether it is capital or revenue in nature) is properly classified, as this impacts tax liability.

Misclassification could result in substantial tax assessments.

High-Net-Worth Individuals (HNWIs)

The tax authority is paying special attention to high-net-worth individuals by reviewing their capital statements. LHDN is looking into the sources of wealth, investments, and lifestyle of these individuals to ensure all income and gains are properly declared.

HNWIs are also subject to scrutiny on their global income, especially if they have offshore assets or income streams.

Transfer Pricing (TP) – Inter-Company Interest

Transfer pricing has always been a key area of focus, but LHDN is now particularly vigilant on inter-company loans and the interest charged between related entities. If the interest rates do not reflect market conditions or are deemed to provide unfair tax advantages, LHDN could impose adjustments, leading to additional tax liabilities.

Companies involved in cross-border transactions must ensure that their transfer pricing documentation is robust and in compliance with local TP guidelines.

Tax Incentives Compliance

LHDN is also focused on companies claiming tax incentives, such as Pioneer Status and Investment Tax Allowance. Simply obtaining the incentive is not enough—companies must continuously meet the conditions set out in the approval to retain the benefits.

LHDN is reviewing these claims to ensure that companies fully comply with the qualifying criteria, and non-compliance could lead to revocation of the incentives, resulting in backdated taxes and penalties.

Domestic Related Party Transactions (RPT)

Domestic related party transactions, such as the payment of management fees or interest charges between associated companies, are under increased scrutiny. One of the key focus areas is the imposition of deemed interest on interest-free loans or undercharged interest between related parties.

LHDN may impute a market rate of interest on such transactions, leading to tax adjustments. Companies need to ensure that they follow the arm's length principle in all related party dealings.

KTP Conclusion

The Inland Revenue Board (IRB) has ramped up its efforts to scrutinize high-net-worth individuals, businesses, and the digital economy. Offshore accounts, transfer pricing, and tax incentives are under the microscope as the IRB uses advanced technologies to track compliance.

If your tax affairs aren't in order, now is the time to act before facing unexpected audits or investigations. Stay ahead of the curve by ensuring full compliance and avoiding hefty penalties.

Disclaimer: This briefing is intended for general guidance only. Always consult a licensed tax professional for personalized advice.

Visit Us

  • Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

  • Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients

KTP Lifestyle

An internal community for our colleagues on work and leisure.

KTP Career

An external job community on vacancies in Johor Bahru for interns, graduates & experienced candidates.

#Thk

#KTP





taxKtp KtpIRB Focus Area, IRB Tax Audit, IRB Tax Investigation