KUALA LUMPUR (June 9): Multinational companies (MNCs) are likely to continue operating in Malaysia despite the Group of Seven (G7) group of advanced economies’ agreement in principle to implement a global minimum corporate tax rate of 15% as Malaysia is deemed a country with robust tax incentives, Deloitte Malaysia deputy tax leader Tan Hooi Beng said today.

Tan said that while it depends on the sectors that these companies are involved in, he said that from a macro-economic perspective, countries with tax incentives are not just popular investments or business hubs for tax reasons as tax is one of the many factors, such as a skilled workforce and the cost of living, which MNCs take into account in their investment decisions.

“They (MNCs) are likely to continue operating in these countries [like Malaysia and Singapore], and not just pull out because of tax factors. 

"I don’t think there is going to be an exodus,” Tan said today at the Malaysian Institute of Accountants (MIA) International Accountants’ Conference.

The three-day conference, which began yesterday, will end tomorrow.

According to news reports, the G7 group of advanced economies comprising the UK and US besides France, Germany, Canada, Italy and Japan on Saturday reached a “historic" deal to make MNCs pay more tax.

It was reported that the finance ministers meeting in London agreed to battle tax avoidance by making companies pay more in the countries where they do business.

"They also agreed in principle to a global minimum corporate tax rate of 15% to avoid countries undercutting each other.

"Negotiated over many years, it will put pressure on other countries to follow suit, including in a meeting of the G20 next month, which includes China, Russia and Brazil,” BBC reported.

Today, Tan noted the G7’s tax deal and its impact on countries with robust tax incentives such as Malaysia.

He cited an example of a US company that has a Malaysian subsidiary with a 20-year tax holiday in the country.

Without the global minimum corporate tax rate, the tax holiday is a great advantage because there is no need to pay Malaysian tax, according to him.

“But assuming you apply this global minimum tax of 15%, even though in Malaysia you don’t have to pay any corporate tax, there will be a top-up tax in the jurisdiction where the headquarters of the particular company is. 

"The top-up tax will generally be collected by the jurisdiction where the parent [of the company] is.

“Instead of letting other countries collect the tax, I might as well say that let Malaysia or Singapore collect the top-up tax and then we are back to the minimum level of 15%. With that fiscal revenue that you have collected, you can use that money for other purposes to spur innovation, to provide non-tax incentives to that multinational [company], so that they remain in Malaysia, Singapore or Hong Kong, or even in Ireland,” Tan said.