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GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES

Peer Review Report Phase 1 Legal and Regulatory Framework


MALAYSIA

Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Malaysia 2011
PHASE 1

October 2011 (reflecting the legal and regulatory framework as at August 2011)

This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the Global Forum on Transparency and Exchange of Information for Tax Purposes. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Please cite this publication as: OECD (2011), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Malaysia 2011: Phase 1: Legal and Regulatory Framework, Global Forum on Transparency and Exchange of Information for Tax Purposes: Peer Reviews, OECD Publishing. http://dx.doi.org/10.1787/9789264126657-en

ISBN 978-92-64-12664-0 (print) ISBN 978-92-64-12665-7 (PDF)

Series: Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews ISSN 2219-4681 (print) ISSN 2219-469X (online)

Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda.

OECD 2011

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TABLE OF CONTENTS 3

Table of Contents

About the Global Forum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Information and methodology used for the peer review of Malaysia . . . . . . . . . . 9 Overview of Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Recent developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Compliance with the Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 A. Availability of information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 21 54 62

B. Access to information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 B.1. Competent Authoritys ability to obtain and provide information . . . . . . . . 66 B.2. Notification requirements and rights and safeguards. . . . . . . . . . . . . . . . . . 77 C. Exchanging information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.1. Exchange of information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.2. Exchange of information mechanisms with all relevant partners . . . . . . . . C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . . C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . . 79 80 87 89 90 91

PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MALAYSIA OECD 2011

4 TABLE OF CONTENTS Summary of Determinations and Factors Underlying Recommendations. . . . 93 Annex 1: Jurisdictions Response to the Review Report . . . . . . . . . . . . . . . . . . 97 Annex 2: List of all Exchange-of-Information Mechanisms in Force. . . . . . . . 98 Annex 3: List of all Laws, Regulations and Other Relevant Material . . . . . . .101

PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MALAYSIA OECD 2011

ABOUT THE GLOBAL FORUM 5

About the Global Forum


The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 100 jurisdictions, which participate in the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the international standards of transparency and exchange of information for tax purposes. These standards are primarily reflected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004. These standards have also been incorporated into the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised but all foreseeably relevant information must be provided, including bank information and information held by fiduciaries, regardless of the existence of a domestic tax interest or the application of a dual criminality standard. All members of the Global Forum, as well as jurisdictions identified by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 plus Phase 2 reviews. The Global Forum has also put in place a process for supplementary reports to follow-up on recommendations, as well as for the ongoing monitoring of jurisdictions following the conclusion of a review. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes. All review reports are published once approved by the Global Forum and they thus represent agreed Global Forum reports. For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the published review reports, please refer to www.oecd.org/tax/transparency.

PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MALAYSIA OECD 2011

EXECUTIVE SUMMARY 7

Executive Summary
1. This report summarises the legal and regulatory framework for transparency and exchange of information in Malaysia. The international standard which is set out in the Global Forums Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information, is concerned with the availability of relevant information within a jurisdiction, the competent authoritys ability to gain access to that information, and in turn, whether that information can be effectively exchanged on a timely basis with its exchange of information partners. 2. Malaysia is one of the most developed economies in South-East Asia. It has progressed from an economy dependent on agriculture and primary commodities to a manufacturing-based, export-driven economy spurred on by high technology, knowledge-based and capital-intensive industries. Malaysia hosts the worlds largest Islamic banking and financial centre. The island of Labuan is where Malaysias International Business and Financial Centre (IBFC), established in 1990, is located. 3. In 2009, Malaysia committed to the internationally agreed standard for international exchange of information (EOI) in tax matters. Since then, Malaysia has actively sought to update and extend its network of double taxation conventions: since that time it has signed 18 Double Tax Conventions (DTCs)/protocols to existing DTCs, all of which fully conform to the standard, 10 of which are in force and 5 are not in force but have already been ratified by Malaysia. A further 15 agreements are under various stages of negotiation. Although Malaysia has embarked on an ambitious programme of negotiation of protocols to its treaties to bring them to the standard, currently, however, only 10 of Malaysias 71 DTCs fully meet the international standard. It is recommended that Malaysia continues its program of renegotiating its treaties which are not to the standard and examines ways to bring all agreements up to the international standard as soon as practicable. 4. Malaysias commercial and tax laws provide for extensive registration and licensing requirements which, coupled with customer due diligence rules provided under Malaysia anti-money laundering legislation, guarantee that ownership and identity information is available for virtually all types of

PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MALAYSIA OECD 2011

8 EXECUTIVE SUMMARY
companies, partnerships, trusts and foundations. Identity information may not be always available in respect of trusts whose trustees are not subject to the anti-money laundering legislation; although Malaysian authorities estimate that this would involve a very narrow category and that common law obligations will ensure that identity information is always kept. Accounting records, including underlying documentation, are also available and are required to be kept for at least five years in Malaysia; however, there is no express obligation to maintain underlying documentation in the case of entities in the Labuan IBFC or certain Malaysian trusts that do not carry business in Malaysia or are not in receipt of Malaysian source income. The effectiveness of the obligations to keep ownership and accounting information is generally supported by a comprehensive system of sanctions. The same holds true with regard to bank information, the availability of which is prescribed under the anti-money laundering legislation. 5. Malaysias competent authority has broad powers to obtain relevant information from any person who holds the information and has measures to compel the production of such information. However, Malaysia does not have the power to obtain and provide information that is held outside Malaysia, even if such information is in the control of a person within its territorial jurisdiction. This gap in Malaysian legal framework is mitigated by the fact that Malaysian laws require that most relevant ownership and accounting information is kept in Malaysia. 6. Malaysia is only able to access bank information to answer an exchange of information request received pursuant to a DTC/tax information exchange agreement (TIEA) containing an equivalent of Article 26(5) of the OECD Model Tax Convention. Only DTCs/TIEAs containing this explicit provision are considered to override domestic secrecy laws. Ten of Malaysias DTCs or protocols contain such a provision (as well as eight treaties or protocols signed but not yet in force). 7. The laws of Malaysia allow it to enter into TIEAs and negotiations of TIEAs are underway. Malaysias authorities do not currently have the power to access information in the Labuan IBFC in order to respond to an EOI request made pursuant to a TIEA. However, Malaysia is now also working to amend its legislation in order to enable it to obtain and exchange information pursuant to such EOI instruments. 8. Malaysias response to the recommendations in this report, as well as the practical implementation of the legal framework will be assessed during the Phase 2 Peer Review of Malaysia, which is scheduled for the first half of 2013.

PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MALAYSIA OECD 2011

INTRODUCTION 9

Introduction

Information and methodology used for the peer review of Malaysia


9. The assessment of the legal and regulatory framework of Malaysia was based on the international standards for transparency and exchange of information as described in the Global Forums Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information For Tax Purposes, and was prepared using the Global Forums Methodology for Peer Reviews and Non-Member Reviews. The assessment was based on the laws, regulations, and exchange of information mechanisms in force or effect as at August 2011, Malaysias responses to the Phase 1 questionnaire and supplementary questions, other materials supplied by Malaysia, and information supplied by partner jurisdictions. 10. The Terms of Reference breaks down the standards of transparency and exchange of information into ten essential elements and 31 enumerated aspects under three broad categories: (A) availability of information; (B) access to information; and (C) exchange of information. This review assesses Malaysias legal and regulatory framework against these elements and each of the enumerated aspects. In respect of each essential element a determination is made that either: (i) the element is in place; (ii) the element is in place but certain aspects of the legal implementation of the element need improvement; or (iii) the element is not in place. These determinations are accompanied by recommendations for improvement where relevant. A summary of findings against those elements is annexed to this report. 11. The assessment was conducted by a team, which consisted of two expert assessors, with two representatives of the Global Forum Secretariat: Jacqueline Baumgartner, Senior Legal Policy Adviser, Cayman Islands and Ms. Petra Koerfgen, Federal Central Tax office, Germany; with Ms. Renata Teixeira and Ms. Ting Yang from the Global Forum Secretariat. The assessment team assessed the legal and regulatory framework for transparency and exchange of information and relevant exchange of information mechanisms in Malaysia.

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10 INTRODUCTION

Overview of Malaysia
12. Malaysia is a federal constitutional monarchy located in South East Asia, across two regions divided by the South China Sea. Peninsular Malaysia, facing the Straits of Malacca, borders with Thailand and is linked to Singapore by two bridges; East Malaysia, situated on the Borneo island, borders with Brunei and Indonesia. The country covers an area of approximately 329 847 square kilometres. Its population of 28.5 million is unevenly distributed with about 20 million inhabitants living on the Malaysian Peninsula and 8 million on East Malaysia.1 Malaysias population embraces a variety of ethnic groups, Malay being the majority, followed by Chinese, indigenous Orang Asli, Indian, and others. While Islam is the religion of the country, with Muslims composing around 60% of the population, other religions are freely practiced. 13. Malaysia acquired independence from the United Kingdom in 1957. The Federal Constitution established a constitutional monarchy, in which the elected King (Yang di-Pertuan Agong) is the head of the country and The Prime Minister and his Cabinet exercise federal executive power. Government takes the form of a parliamentary democracy. The Parliament, divided into the Senate (Dewan Negara) and the House of Representatives (Dewan Rakyat), exercises legislative power, and of superior and subordinate courts are vested with judicial authority. The federation is made up of 13 states (Negeri) and 3 federal territories2, these latter being administered by the government through the Ministry of Federal Territories and Urban Wellbeing. Major cities are Kuala Lumpur, Klang, and Johor Bahru. 14. With a total 2010 gross domestic product (GDP) of EUR 289.62 billion,3 Malaysia is one of the most developed economies in South-East Asia. The service sector accounts for about 50% of total GDP, industry for about 41% and agriculture for 9%. The pillars of the economy are manufacturing (notably electronic products), natural resources (petroleum and natural gas), finance and tourism. Malaysia is an active trading nation, ranked in the top 20 trading nations in the world, with a total merchandise export of EUR 138.79 billion in 2010.4 Its main trading partners are the Peoples Republic of China, Japan, Singapore, the United States, the European Union and Thailand.

1. 2. 3. 4.

www.statistics.gov.my, accessed in June 2011. Labuan, Kuala Lumpur, and Putrajaya. GDP calculated for 2010 based on purchasing-power-parity (PPP). See IMF, World Economic Outlook Database, April 2011. www.imf.org, accessed June 2011. Asian Development Bank, Asian Development Outlook 2011: Malaysia. www.adb. org/documents/books/ado/2011/ado2011-mal.pdf, accessed June 2011.

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INTRODUCTION 11

15. The official Malaysian currency is the ringgit (MYR).5 From the middle of 2005, the Central Bank (Bank Negara Malaysia) adopted a managed float foreign exchange regime against several key currencies. 16. Malaysia is a member of the Asia Pacific Economic Co-operation (APEC), the Association of Southeast Asian Nations (ASEAN), the United Nations (UN) and the World Trade Organisation (WTO). It is a founding member of the Global Forum.

General information on the legal and tax system Legal system


17. Malaysias legal system is based on a common law framework a direct result of the colonisation by Britain from the early 1800s to 1950s where written laws and the principles of English common law, adapted to local circumstances, case law and local customary law co-exist. Among the written laws are the Federal Constitution together with the constitutions of the 13 states, legislation enacted by the Parliament and State Assemblies, and subsidiary legislation made by bodies under the powers conferred on them by Acts of Parliament or State Assemblies. Federal laws prevailif inconsistency arises between a federal and a state law. 18. The Federal Constitution is the supreme law of the land providing the legal framework for legislation, courts and administrative aspects of the law. It also defines the powers of the government and the monarch, as well as the rights of the citizens, and the separation of powers amongst the executive, judicial and legislative branches. Below the Federal Constitution, legislative instruments are in the form of: Acts passed by Parliament; Regulations and other subsidiary legislation passed by the executive (Ministerial Regulations); and, State laws and regulations. In addition, all the guidelines made by the relevant competent authorities are mandatory and enforceable. 19. The Federal Constitution provides for the separation of competences between the Federation and the States. The federal government has legislative power over external affairs, including making laws and implementing treaties domestically, justice (except civil law cases among Malays or other Muslims and other indigenous peoples, adjudicated under Islamic and customary law), federal citizenship, finance, taxation, commerce, industry, and other matters.6 States enjoy legislative power over matters such as land, local government, Shariah law7 and Shariah courts. Federal laws enacted by the Parliament of
5. 6. 7. MYR 1 = EUR 0.23 as of 19 June 2011. www.xe.com, accessed 18 June 2011. www.state.gov/r/pa/ei/bgn/2777.htm. Shariah courts hear cases on specific matters involving Muslims only. The Constitution recognises Muslim law (Shariah) under article 121, limiting it to

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12 INTRODUCTION
Malaysia apply throughout the country, including making laws applicable to States as regards international agreements (Art.76 Constitution). 20. The superior courts are the High Court in the States of Malaya (High Court in Malaya), and the High Court in the States of Sabah and Sarawak (High Court in Sabah and Sarawak), Court of Appeal, and the Federal Court, while the Magistrates Courts, the Sessions Courts, and other courts8 are classified as subordinate courts. 21. The application of common law in Malaysian criminal cases is specified in section 5 of the Criminal Procedure Code (Act 593) which states that English law shall be applied in cases where no specific legislation has been enacted. In addition, sections 3 and 5 of the Civil Law Act 1956 allow for the application of English common law, equity rules, and statutes in Malaysian civil cases where no specific laws have been made. 22. The Federal Government, composed of Yang di-Pertuan Agong and the Cabinet, headed by the Prime Minister, has treaty-making power, while the Federal Parliament has the exclusive power to implement treaties domestically. The Prime Minister himself or the Foreign Minister or any Cabinet Minister authorised to do so, signs and ratifies international treaties.

Taxation system
23. Article 96 of the Constitution provides that no tax or rate shall be levied by or for the purposes of Malaysia except by or under the authority of federal law. The law governing income taxation is the Income Tax Act 1967 (ITA). Income tax is charged on a territorial basis and upon remittance. However, the businesses of banking, insurance and air and sea transport are subject to taxes on worldwide income. Income tax rates for resident individuals range from 1% to 26%, and non-resident individuals are taxed at a flat rate of 26%. Companies with paid-up capital of MYR 2.5 million (EUR 575 000) or less are subject to corporate tax at 20% on chargeable income up to MYR 500 000 (EUR 115 000) and 25% on chargeable income above that threshold. For companies with paid-up capital of more than MYR 2.5 million and non-resident companies, chargeable income is taxed at 25%. An individual is resident if he is present in Malaysia for more than 182 days in a year, while a company is deemed resident if its management and control are exercised in Malaysia.

8.

family and inheritance matters as regards only to the Muslim population. Shariah law is administered by a separate system of Shariah courts. The Sessions Court, Magistrates Court, Juvenile Court, Penghulu Court and Native Court.

PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MALAYSIA OECD 2011

INTRODUCTION 13

24. Corporate profits are subject to a one-tier corporate tax system, and thus dividends paid by resident companies are not subject to withholding tax. The withholding tax on interest is 15%, and for royalties, fees for technical services and other income it is 10%. There are also other direct taxes such as real property gains tax, and indirect taxes such as sales tax, service tax, excise duty and import duty. There is no tax on capital gains. 25. Malaysia has tax incentives for manufacturing, agriculture and tourism activities. Incentives include pioneer status, investment tax allowance, reinvestment allowance and double deductions, with the objective of developing Malaysia and changing the economy from agriculture-based to industrybased. Incentives are available under the Promotion of Investments Act 1986 and the ITA. The Labuan Business Activity Tax Act (LBATA) establishes a separate regime for taxing business activities in the Labuan International Business and Financial Centre (IBFC). 26. The free zones (FZs) of Malaysia include 15 free commercial zones and 19 free industrial zones. Within the FZs, companies are subject to minimum customs formalities and are exempt from import duties on raw material, machinery and component parts. Companies established at the FZs are subject to the same reporting requirements applicable to Malaysian companies in general. 27. Double taxation conventions (DTCs) and taxation information exchange agreements (TIEAs) prevail over all domestic laws (ITA ss.132 and 132A). 28. Malaysia committed to the internationally agreed standard for the exchange of information for tax purposes in 2009. As of June 2011, Malaysia is signatory to 71 DTCs providing for international exchange of information (EOI) in tax matters. A complete list of Malaysias DTCs is set out in Annex 2 to this report. The Minister of Finance is empowered to make provisions, by Order (by way of notification in the Government Gazette), for affording relief from double taxation and exchange of information foreseeably relevant to the administration or assessment or collection or enforcement of the taxes under the ITA or other taxes of every kind under any written law and any foreign tax (ITA ss.132 and 132A).

Overview of the financial sector and relevant professions Financial sector


29. Malaysia has a well-developed financial sector, with total financial assets amounting to nearly three times its GDP. As at end-2010, the financial services sector contributes 11.6% to GDP. Malaysia has a dual financial system where both conventional and Islamic financial systems operate in

PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MALAYSIA OECD 2011

14 INTRODUCTION
parallel. The stock market capitalisation to GDP is 180%; much higher than most other South East Asian countries. 30. As of May 2011, there are 1 184 local and foreign financial institutions in Malaysia, including 24 commercial banks, 15 investment banks, 21 Islamic banks, 6 development financial institutions, 45 insurance companies, 15 takaful (Islamic insurance) operators, 6 money brokers, 37 insurance/ takaful brokers, 36 loss adjusters, 16 financial advisers, 74 payment system operators, 53 payment instruments issuers and 836 money changers. 31. Capital market institutions and market intermediaries are regulated and supervised by the Securities Commission Malaysia. Licensed dealers, fund managers, futures brokers and futures fund managers are licensed under the Capital Markets & Services Act 2007 (CMSA) and management companies are approved under the Securities Commission Act 1993 (SCA). 32. The Companies Commission of Malaysia (CCM) incorporates companies and registers businesses and provides company and business information to the public. It is also the leading authority for the improvement of corporate governance. 33. Under the anti-money laundering / counter terrorism-financing (AML/CFT) regime, Bank Negara Malaysia is the competent authority appointed by the Minister of Finance. Financial institutions and a range of designated non-professional businesses and professions are obliged entities under the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLATFA) and must conduct customer due diligence. 34. Over more than 30 years, Malaysia has been active in Islamic banking,9 Islamic insurance10, the Islamic capital market and the Islamic money market. Malaysia leads the global Islamic bond (sukuk) market with a 65% share. In 2005, Malaysia launched the first Islamic real estate trusts and introduced Asias first Islamic exchange traded fund. In 2008, Malaysias Islamic banking assets reached EUR 50.67 billion with an average growth rate of 20% annually. In 2008, the total assets of Malaysias takaful industry were EUR 167.84 million. Takaful assets and net contributions experienced strong growth of an average of 20% and 27% respectively from 2005 to 2010.
9. Islamic banking is a system of banking that complies with Islamic law also known as Shariah law. The underlying principles that govern Islamic banking are mutual risk and profit sharing between parties, the assurance of fairness for all and that transactions are based on an underlying business activity or asset. Takaful (Islamic insurance) is a concept whereby a group of participants mutually guarantee each other against loss or damage. Each participant fulfils his/her obligation by contributing a certain amount of donation (or tabarru) into a fund, which is managed by a third party the takaful operator.

10.

PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MALAYSIA OECD 2011

INTRODUCTION 15

35. The Malaysia International Islamic Financial Centre (MIFC) is an initiative which comprises a community network of financial and market regulatory bodies, government ministries and agencies, financial institutions, human capital development institutions and professional services companies that are participating in the field of Islamic finance. The MIFC comprises Sukuk creation, Islamic fund and wealth management, international Islamic banking, international takaful and human capital development. Under the MIFC initiative, Islamic financial institutions benefit from various incentives, including licences to conduct foreign currency businesses, tax incentives and facilitative immigration policies.11

The Labuan International Business and Financial Centre (Labuan IBFC)


36. Labuan is one of the three Federal Territories of Malaysia. It is an archipelago, made up of one main island and six islets, off the northwest coast of Borneo. Administered directly by the Ministry of the Federal Territories and Urban Wellbeing of Malaysia since 1984, it became an international business and financial centre (IBFC) in 1990 with specifically designed legislation and regulations. Labuan IBFC focuses on five main areas; holding companies, captive insurance, public and private funds, wealth management, and Shariah-compliant Islamic finance structures. Labuan laws are part and parcel of Malaysias laws which undergo the same process of enactment through the Parliament of Malaysia. However, the Labuan laws govern the entities that carry on Labuan business activities in the Labuan IBFC only. 37. Pursuant to the LBATA, Labuan IBFC entities carrying on trading activity are charged tax at 3% of net audited profits or can elect to be levied at the flat rate of MYR 20 000 (EUR 4 600). Entities undertaking non-trading activity are not subject to tax. There are no withholding taxes on dividends, interest, royalties, management and technical fees or lease rental received from Labuan IBFC entities. In addition, they are exempted from stamp duties on instruments made in connection with Labuan IBFC business activities. A Labuan IBFC entity may also make an irrevocable election to be taxed under Malaysias ITA. 38. In the Labuan IBFC, banking, insurance, leasing and capital market entities and other professions (service providers) are licensed, regulated, and supervised by the Labuan Financial Services Authority (LFSA), the sole regulatory authority in the IBFC. The LFSA is also responsible for the registration of Labuan IBFC companies, limited partnerships and limited liability partnerships and for the establishment of trusts and foundations. Its principal functions are to administer, enforce and carry into effect the provisions of the
11. www.mifc.com/index.php?ch=menu_exp&pg=menu_exp_ovr, accessed June 2011.

PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MALAYSIA OECD 2011

16 INTRODUCTION
legislation applicable to financial services carried on in the Labuan IBFC.12 The amount of assets held by banks licensed in the Labuan IBFC in 2010 was EUR 23.7 billion, out of EUR 386.3 billion in total in Malaysia. 39. The Labuan Islamic Financial Securities and Services Act 2010 (LIFSSA) provides an overall framework that brings together rules and guidelines on Islamic finance. It provides for a range of Islamic financial products and addresses Shariah compliance for trusts and foundations as well as providing for the establishment of a Shariah Supervisory Council. 40. All of the international standards for effective EOI are applicable to Labuan entities. The Director General of Inland Revenue (DGIR)s access powers extend also to entities in Labuan. Moreover, the Labuan Business Activity Tax Act provides the DGIR with specific authority to access information in Labuan for EOI purposes.

Relevant professions
41. Lawyers, certified accountants and company secretaries are subject to oversight by their respective professional associations and self-regulatory organisations (SROs). Guidelines issued by the various professional associations and SROs are not binding on these professionals and are not considered part of the legal and regulatory framework for the purpose of this assessment. 42. There are about 27 180 public chartered accountants in Malaysia. They are required by law to be members of the Malaysian Institute of Accountants (MIA). 43. There are more than 13 500 lawyers providing services in Malaysia. Each advocate or solicitor in Peninsular Malaysia becomes a member of the Malaysian Bar once he/she qualifies and holds a valid practising certificate. Advocates in Sabah and Sarawak are governed by the Advocates Ordinance Sabah 1953 and Advocates Ordinance Sarawak 1953 respectively and can apply for membership in the Sabah Law Association and Advocates Association of Sarawak respectively. Advocates and other professionals in the Labuan IBFC are subject to the same professional requirements as the rest of Malaysia. 44. In Malaysia, company secretaries are governed by section 139A of the Companies Act 1965 (CA). A company secretary can either be licensed by the
12. In particular the Labuan Financial Services Authority Act 1996; Labuan Companies Act 1990; Labuan Financial Services and Securities Act 2010; Labuan Islamic Financial Services and Securities Act 2010; Labuan Trusts Act 1996; Labuan Limited Partnerships and Limited Liability Partnerships Act 2010; Labuan Foundations Act 2010; and Labuan Business Activity Tax Act 1990.

PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MALAYSIA OECD 2011

INTRODUCTION 17

CCM or be regulated by prescribed bodies, such as the Malaysian Institute of Chartered Secretaries and Administrators and the Malaysian Association of Company Secretaries. As at 22 July 2011, the total number of company secretaries licensed by the CCM is 9 650. The number of company secretaries regulated by prescribed bodies is 52 349.

Recent developments
45. A number of relevant laws and legislative amendments have been promulgated in 2010 and 2011, as follows: major tax offences were listed as predicate offences for money laundering purposes under the AMLATFA; the Labuan Foundations Act 2010; Labuan Financial Services and Securities Act 2010; Labuan Islamic Financial Services and Securities Act 2010; and the Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 were enacted; and new Income Tax (Request for Information) Rules and a new Central Bank Circular were enacted in July 2011 concerning access to and exchange of information for tax purposes. 46. Section 132A of the ITA, introduced in February 2011, enables the Government to enter into TIEAs with any foreign country for the exchange of information where no DTC is yet in force. Malaysia has not entered into any TIEAs yet, however, it has recently concluded TIEA negotiations with Bermuda. 47. The CCM will be introducing the limited liability partnership (LLP) as an alternative business vehicle to provide a wider choice for businesses to structure their operations. The CCM will be empowered to request for information from LLPs, including information concerning the partners. 48. The Malaysian authorities expect to submit for parliamentary approval in October 2011 bills of law covering the following topics: a new law to empower its competent authority to call for information for the purpose of replying to a request made pursuant to a TIEA in the Labuan IBFC; and a new law to empower its competent authority to access information controlled by persons in Malaysia.

PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MALAYSIA OECD 2011

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 19

Compliance with the Standards

A. Availability of information

Overview
49. Effective exchange of information requires the availability of reliable information. In particular, it requires information on the identity of owners and other stakeholders as well as information on the transactions carried out by entities and other organisational structures. Such information may be kept for tax, regulatory, commercial or other reasons. If such information is not kept or the information is not maintained for a reasonable period of time, a jurisdictions competent authority may not be able to obtain and provide it when requested. This section of the report describes and assesses Malaysias and Labuan IBFCs legal and regulatory framework on availability of information. 50. The Companies Act requires the filing of information on the legal ownership of companies with the Registrar. It also requires companies to maintain registers of their members/shareholders. Foreign companies with share capital which have a place of business in Malaysia or carry on business in Malaysia must maintain registers of those shareholders resident in Malaysia who choose to be registered. The Income Tax Act requires Malaysian and foreign controlled companies13 to provide details of their major shareholders.
13. Controlled companies are defined in the ITA as companies not having more than 50 members/shareholders and controlled by not more than five persons (ss.2 and 139).

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In the Labuan IBFC, the Labuan Companies Act requires filing of information on the legal ownership of companies with the Labuan Financial Services Authority (LFSA). It also requires Labuan companies and protected cell companies (PCCs) to maintain registers of their members/shareholders. All Labuan companies, Labuan PCCs and Labuan foreign companies must have registered offices at licensed Labuan trust companies and these trust companies are required to identify and keep records of the ownership (including beneficial ownership) of the companies which are their clients. In addition, both in Malaysia and in the Labuan IBFC, financial institutions and some other service providers are required under anti-money laundering legislation to obtain information on the ownership chain for all of their customers. 51. Overall, legal ownership and identity information is available to the Registrar or the tax authority in respect of all partnerships operating in Malaysia. In the Labuan IBFC, legal ownership and identity information is either filed with the LFSA or required to be kept by the partnership itself in respect of all partnerships operating in the Labuan IBFC. In Malaysia and in the Labuan IBFC, requirements are supported by the customer due diligence (CDD) obligations imposed on financial institutions and some other service providers. 52. In respect of trusts, identity information is available in relation to trusts administered by trust companies and most trust service providers. Malaysias regulatory framework targets the major avenues of trust formation and administration by regulating trust intermediaries that provide such trust services by way of business. This is complemented by common law obligations on trustees to maintain information concerning trusts and by the antimoney laundering/counter-financing of terrorism (AML/CFT) obligations on financial institutions and a range of service providers. In the Labuan IBFC, in turn, legal ownership and identity information is available to the LFSA in respect of all trusts. Similar to the rest of Malaysia, this is complemented by common law and CDD obligations. 53. Foundations only exist in the Labuan IBFC. Legal ownership and identity information is available in respect of all foundations, which must maintain records of their founders and beneficiaries. In addition, a foundation must have a Labuan trust company as its secretary and the Labuan trust company is obliged under AML/CFT legislation to identify the founders, foundation council members and beneficiaries. Financial institutions and some other service providers are also required under AML/CFT legislation to conduct full CDD on foundations which are their customers. 54. Relevant laws applicable in Malaysia and in the Labuan IBFC contain enforcement provisions to ensure the availability of information. The effectiveness of the enforcement provisions will be considered as part of the Phase 2 Peer Review.

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55. In respect of accounting information, in Malaysia and in the Labuan IBFC, general tax obligations complement commercial law obligations which, taken together, result in relevant entities being required to maintain accounting records. Generally, relevant entities in Malaysia are subject to requirements to keep accounting records, including underlying documentation, for the minimum period required by the standards (five years). There are no express provisions in the laws regulating the Labuan IBFC requiring the maintenance of underlying documentation, however. In addition, Malaysian trusts that do not carry on business in Malaysia, do not remit income to Malaysia and are not in receipt of Malaysian source income are not required to maintain underlying documentation either. 56. In respect of banks and other financial institutions, the anti-money laundering/counter-financing of terrorism regime imposes appropriate obligations to ensure that all records pertaining to customers accounts as well as related financial and transaction information are available.

A.1. Ownership and identity information


Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities.

57. This section will address in separate items ownership and identity information available in Malaysia and in the Labuan IBFC.

Companies in Malaysia (ToR 14 A.1.1) Types of companies


58. The 1965 Companies Act (CA) is the central piece of legislation governing the incorporation and management of companies in Malaysia. Depending on the liability assumed by their members, companies can be (CA s.14): companies limited by shares; companies limited by guarantee; or unlimited companies. 59. In addition, until 1986, a company could also be incorporated as a company limited by shares and guarantee. The total number of companies limited by share and guarantee still existing in Malaysia is 14.
14. Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information.

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60. Companies limited by shares are the most common type of companies in Malaysia. A company limited by shares is one where the liability of its members is limited to the amount unpaid on the shares held by them (CA s.4). Companies limited by shares may be incorporated as: (i) private limited companies, with no more than 50 members (identified through the expression Sendirian Berhad or the abbreviation Sdn. Bhd); or (ii) public limited companies (identified through the expression Berhad or the abbreviation Bhd). 61. A company limited by guarantee is one where the liability of its members is limited to the amount that the members have undertaken to contribute should the company be wound up (CA s.4). Companies limited by guarantee are usually formed for non-profit making purposes. This type of company is commonly used for trade associations, charitable bodies, clubs, professional and learned associations, some religious bodies and the like. Companies limited by guarantee must use the profits and other sources of income for furtherance of the objects of the company. 62. An unlimited company is one where the members liability for its debts is unlimited. 63. These major types of companies can be further broken into private companies (restrictions on share issue, transfer and investment) or public companies (able to issue shares and debentures to the public and its shares are freely transferable). 64. A private company qualifies as an exempt private company if: (i) no beneficial interest on its share is held directly or indirectly by any corporation; and (ii) it has not more than 20 members. An exempt private company is exempted from certain regulatory accounting requirements, such as the need to submit its balance sheet and profit and loss account with its annual return. It is subject to the regular obligations related to the provision of ownership information. 65. Companies are formed or created through the process of incorporation pursuant to the CA. The CA provides that any two or more persons may incorporate a company by subscribing their names to a Memorandum and complying with the registration requirements (CA s.14). There must be at least: two natural persons whose principal or only place of residence is in Malaysia, to be named as first directors in the memorandum of the intended company (CA s.122); and one natural person whose principal or only place of residence is Malaysia, to be appointed as secretary of the intended company (CA s.139A) and who must be a qualified and licensed Secretary under the CA.

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66. As at 19 July 2011, there were 950 312 companies operating in Malaysia (excluding the Labuan IBFC), out of which 948 164 were companies limited by shares (942 895 private, 5 268 public), 1 824 companies limited by guarantee. 14 companies limited by shares and by guarantee and 295 unlimited companies. Among the private companies, between 2008 and July 2011 there were 118 285 exempt private companies.

Information held by authorities in Malaysia


67. All companies qualified as controlled companies are required to submit in their annual tax returns information on their five major shareholders. The ITA defines controlled companies as companies not having more than 50 members/shareholders and controlled (as defined under s.139) by not more than five persons (s.2). More than 90% of private companies registered in Malaysia qualify as controlled companies. In relation to the companies that do not qualify as controlled companies, the Malaysian authorities have powers to request ownership information based on their general powers to call for information provided in the ITA (s.81). Ownership information is also available to the Companies Commission of Malaysia (the Registrar) as described in this section, through the requirement of companies to submit annual returns to the Registrar. Ownership information is also available to financial institutions and service providers that are reporting institutions under the Malaysian anti-money laundering legislation, through the customer due diligence procedures, as further described in this report. 68. Persons desiring to incorporate a company in Malaysia must lodge the memorandum and the articles of association (if any) of the proposed company with the Registrar together with other documentation required under the Companies Act (CA s.16). 69. The memorandum to be submitted to the Registrar upon incorporation must include information on: the name of the company; the objects of the company; the liability of the members; the companys capital structure; and full names, addresses and occupations of the shareholders/members (CA s.18). Amendments to the memorandum must be lodged with the Registrar (s.21). 70. Subsequent to incorporation, where a company limited by shares makes any allotment of its shares, the company must within one month of the allotment lodge with the Registrar a return of allotment of shares stating, inter alia, the full name and address of, and the number and class of shares held by each of the allottees (CA s.54(1)). If the company is public and has more than 500 members, the information on identification of shareholders need not to be provided where such companies has allotted shares: (i) for cash; or (ii) for a consideration other than cash if the number of persons to whom the shares have been allotted exceeds 500 (s.54(2)).

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71. Every company having share capital must lodge an annual return with the Registrar (CA s.165). The annual return must include a list of all shareholders/members of the company, their respective particulars (full name and address) and shareholdings (Eighth Schedule). For a public company with more than 500 shareholders, the return will contain a list of the 20 largest shareholders of each class of equity shares and their respective particulars and shareholdings (s.166). In addition, public companies meeting the referenced criteria are required to provide suitable premises for persons to inspect and take copies of their list of members (s.166(1)). The obligation to inform the Registrar of changes in shareholdings is addressed by the need to submit annual return, i.e. in submission of annual returns listing all shareholders/members, any changes in shareholders/members will be updated through this means. 72. Companies not having share capital are also required to lodge an annual return with the Registrar (CA s.165). They are not required to include a list of its members in the annual return but must inform the Registrar of the address where such a list is kept, if it is kept elsewhere than its registered office. 73. Substantial shareholders in public companies and other bodies corporate identified in section 69B of the CA are required to notify the company and the Securities Commission of their particulars (name, nationality and address) and particulars of their voting shares and their interest. A substantial shareholding is generally achieved by acquiring 5% of the voting rights in a company (CA s.69D). In addition, substantial shareholders in public companies are required to provide information to the Securities Commission on their legal and beneficial ownership (1998 Securities Industry (Reporting of substantial shareholding) Regulations, as amended in 2001).

Foreign companies
74. Foreign companies that establish a place of business in Malaysia or carry on business in Malaysia must register under the Companies Act (CA s.332(1)). The concept of foreign company includes a company, corporation, society, association or other body incorporated outside Malaysia and an unincorporated society, association or other body which under the law of its place of origin may sue or be sued, or hold property in the name of the secretary or other officer of the body or association duly appointed for that purpose and which does not have its head office or principal place of business in Malaysia (s.4). Foreign companies with or without share capital may be registered in Malaysia. 75. Foreign controlled companies (i.e. foreign companies not having more than 50 members/shareholders and controlled (as defined under s.139) by not more than five persons (s.2)) must file information on their five major

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shareholders as part of their annual tax returns. Foreign controlled companies constitute over 90% of foreign companies registered in Malaysia. In relation to foreign companies that do not qualify as controlled companies, the Malaysian authorities have powers to request ownership information based on their general powers to call for information provided for in the ITA (s.81). 76. Upon registration in Malaysia, a foreign company must lodge with the Registrar various information, including a certified copy of the certificate of its incorporation or registration in its place of incorporation or origin, a certified copy of its charter, statute or memorandum and articles or other instrument constituting or defining its constitution, a list of its directors and a memorandum of appointment or power of attorney stating the names and addresses of one or more natural persons resident in Malaysia authorised to accept service of process on its behalf (CA s.332(1)). There is no express obligation to provide information on the ownership of the company to the Registrar. 77. After registration, foreign companies continue to be subject to reporting requirements including notification to the Registrar of any changes in the memorandum or articles lodged with the Registrar, including changes in the directors of the foreign company and changes in the registered office of the company in Malaysia (CA s.335).

Information held by companies in Malaysia


78. Every Malaysian company is required to maintain a register of members which includes the following information (CA s.158): names, addresses, number of identity card issued under the National Registration (if applicable), nationality and other relevant information of the members; date on which each member commenced and ceased to be a member; and if applicable, shares held by each member, date of every allotment of shares to members and number of shares in each allotment. 79. In addition, where a company has more than 50 members, it also has to maintain an index of members, containing sufficient indication to enable the account of each member in the register to be readily found (CA s.158(5) (6)). Companies are also required to keep registers of directors shareholdings (s.134). 80. When shares are transferred, the transferor and the transferee are required to execute an instrument of transfer which must be lodged with the company (CA s.103). The company must then issue a certificate in connection with the share transfer (ss.106 and 107).

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81. In addition to these registers, where the company is a publicly listed company, it is also required to keep a register of substantial shareholders (CA s.69L). A substantial shareholder is a legal or natural person that holds not less than a 5% interest in the shares of the company. Substantial shareholders are required to inform the company of their name, nationality and address (s.69E). 82. In principle, all the registers mentioned must be kept at the registered office of the company; nonetheless, they may be kept at the office within Malaysia where they are made up if that is a different location from the registered office of the company (CA s.159(1)). The company must keep the Registrar informed if the register and index is kept at a place other than the registered office (s.159(2)). A company having share capital may maintain a branch register outside Malaysia. If it does so, a duplicate of the branch register must be kept in Malaysia and this is deemed a part of the principal register (s.164). 83. The registers must be open for inspection by members of the company without charge and by any other person on payment of a sum not exceeding MYR 1 (EUR 0.23) for each inspection (CA s.160(2)). 84. Foreign companies with share capital are required to keep at their registered offices in Malaysia, or at some other place in Malaysia, a branch register for the purpose of registering shares of members who are resident in Malaysia and who apply to have the shares registered therein (CA s.342). No information on shareholders who are not resident in Malaysia needs to be kept in Malaysia. And no information needs to be kept if the shareholder does not apply to have his/her shares noted in the branch register. Information on the five major shareholders of foreign controlled companies (90% of all foreign companies) is nonetheless available to the Malaysian tax authorities, as described in paragraph 75 above. Foreign companies without share capital are not required to keep a branch register. However, there are only around 80 such companies in Malaysia and ownership information for them is available from the Companies Registry. Information is also available on the owners of foreign companies (with and without share capital) due to customer due diligence obligations on service providers (see further below). As a result, information is available on most owners of foreign companies with a nexus to Malaysia. Malaysian authorities are also advised to monitor the very small remaining gap to ensure it does not in any way interfere with the effective exchange of information in tax matters.

Information held by directors and officers in Malaysia


85. Every Malaysian company must have at least two directors who have their principal or only places of residence in Malaysia (CA s.122). While directors are not directly obliged to maintain information on the owners of their

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companies, they will necessarily have access to the companys register of members. No legal provision requires that directors or officers hold information on the owners of the company which they serve as directors or officers.

Information required to be held by service providers in Malaysia


86. The Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLATFA) requires reporting institutions (as defined in the First Schedule) to conduct customer due diligence (CDD) including to identify the customer, his/her representative capacity, domicile, legal capacity and business purpose (s.16). The list of reporting institutions includes, inter alia, financial institutions, trust companies, company secretaries, advocates and solicitors, and certified accountants. 87. In addition, pursuant to the Standard Guidelines on Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT), reporting institutions are required to identify the beneficial owners15 of their corporate customers and are required to know the ownership and control structure of the corporate customer (s.5.3.3).

Nominees in Malaysia
88. No indication needs to be given in the share registers or information filed with the Registrar or the Inland Revenue Board of Malaysia (IRBM) when shares or other interests in companies are held by nominees on behalf of third parties. However, where a companys shares are held by a nominee on behalf of the companys directors, the identity of the beneficial owners needs to be disclosed in the report attached to balance sheets and consolidated balance sheets prepared by the Malaysian company (CA s.169(6)). 89. Pursuant to the Securities Industry (Central Depositories) Act 1991 (SICDA), every securities account opened with a central depository must be in the name of the beneficial owner of the deposited securities or in the name of an authorised nominee (SICDA s.25). The person opening the securities
15. Pursuant to the Standard Guidelines on Anti-Money Laundering and Counter Financing of Terrorism, beneficial owner refers to any natural person(s) who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement. For companies the person(s) who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted includes the natural person with a controlling interest and the natural persons who comprise the mind and management of company (Appendix). Reporting institutions under the Standard Guidelines are required to identify shareholders with majority or more than 25 percent controlling interest, which ever is applicable.

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account must make a declaration in such manner as may be specified in the rules of the central depository that he is the beneficial owner of the deposited securities or the authorised nominee. Additionally, an authorised nominee is obliged to provide the central depository with the name and other particulars of the beneficial owner of the securities deposited in the securities account or opened in the name of the authorised nominee. Where an authorised nominee opens a securities account, the nominee may only hold deposited securities for one beneficial owner in respect of each securities account (s.25A). 90. Nominees that are lawyers, certified accountants, company secretaries or financial institutions are obliged to conduct CDD on their customers and thus to maintain full information on the persons on whose behalf they hold the interest in the company (AMLATFA s.16). The Malaysian authorities have indicated that most professionals acting as nominees are indeed financial institutions, lawyers, certified accountants or company secretaries.

Conclusion
91. The Companies Act requires filing of information on the legal ownership and identity of companies with the Registrar. It also requires companies to maintain registers of their members/shareholders. Domestic and foreign companies qualifying as controlled companies are required to file information on their five major shareholders. In addition, financial institutions and some other service providers are required under anti-money laundering legislation to obtain information on the ownership chain for all of their customers. While nominees who are acting on behalf of the companys directors and those which are lawyers, certified accountants, company secretaries or financial institutions must identify the persons for whom they act, it is possible that some persons acting as nominees fall outside this group and are not required to maintain information on the persons for whom they act. The Malaysian authorities considered that such group would represent a narrow category and that in any case the Registrar or the tax authorities would be able to request those nominees to disclose the clients ownership information based on the general powers to call for information the authorities have under the CA and the ITA (CA s.11(a) and ITA s.81).

Companies in the Labuan IBFC (ToR 16 A.1.1) Types of companies in the Labuan IBFC
92. The Labuan IBFC has autonomy to issue laws and regulations on companies. The Labuan Company Act 1990 (LCA) rules the incorporation
16. Terms of Reference to Monitor and Review Progress towards Transparency and Exchange of Information.

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and management of companies in Labuan. The LCA deals with: (i) companies incorporated in Labuan (Labuan companies); (ii) foreign Labuan companies; and (iii) Labuan protected cell companies (Labuan PCC). 93. A Labuan company can be incorporated as: a company limited by shares; a company limited by guarantee; or an unlimited company (LCA s.14). 94. A Labuan company limited by shares can be privately or publicly owned (LCA ss.15(7), 18 and 21). The requirements to incorporate a Labuan company are: (i) a minimum of one subscriber to the shares of the company; (ii) no minimum capital requirement, unless the company undertakes licensed activities (minimum capital of MYR 10 million (EUR 2 300 000) for banks and MYR 300 000 (EUR 69 000) for captive insurance companies); (iii) minimum of one director (s.87); and (iv) a resident secretary (s.93(1)). 95. A foreign Labuan company is a foreign company that has a place of business or is carrying on business in Labuan (LCA s.120) and is registered in Labuan (ss.16 and 121). The LCA provides for a very broad definition of the expression carrying on business in Labuan. This expression embraces: (i) carrying on business in, from or through Labuan; (ii) establishing or using a share transfer or share registration office in Labuan or administering, managing or otherwise dealing with property situated in Labuan as an agent, legal personal representative or trustee, whether by servants or agents or otherwise; and (iii) cases where the Minister17 has given specific notice under the terms described in the LCA (s.120). 96. A Labuan protected cell company (PCC) is a Labuan company established under normal company rules with the ability to segregate its assets and liabilities into different cells, separated from the general assets of the PCC (LCA s.130). A Labuan PCC may only be formed to conduct licensed activities dealt with by the Labuan Financial Services and Securities Act 2010 (LFSSA) and the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA).18 The incorporation of or the conversion to a Labuan PCC requires
17. 18. Minister is defined as the Minister for the time being charged with the responsibility for financing (LCA s.2). Licensed activities under the LFSSA include the activities of Labuan Securities and Capital Market (excluding public fund), Labuan trust companies, Labuan managed trust company, Labuan banks, Labuan investment banks, Labuan insurance and insurance-related, Labuan financial businesses, Labuan private trust company, company management and exchanges. Licensed activities under the LIFSSA include activities of Labuan islamic securities and capital market

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prior approval of the Labuan Financial Services Authority (LFSA) (s.130P). The general provisions in the LCA applicable to Labuan companies, such as the reporting obligations, also apply to Labuan PCCs (s.130ZC). 97. As of 30 June 2011, there were 8 320 Labuan companies, out of which 8 300 were companies limited by shares, 20 companies limited by guarantee and there are no unlimited companies. In addition, there were 114 foreign Labuan companies registered in the Labuan IBFC. At that date, no Labuan PCCs had been registered.

Information held by authorities in the Labuan IBFC


98. There is no express provision in the laws and regulations of Labuan that require taxpayers to submit information regarding company ownership to the tax authority. However, the Malaysian authorities confirmed that information on ownership regarding legal owners or ultimate owners could be obtained by the tax authority under section 22 of the Labuan Business Activity Tax Act 1990 (LBATA). 99. Persons desiring to incorporate a company in the Labuan IBFC must lodge the memorandum and the articles of association of the proposed company with the Labuan Financial Services Authority (LFSA) together with other documents required under the Labuan Companies Act 1990 (LCA s.15). 100. The memorandum to be submitted to the LFSA upon incorporation must include information on the name of the company, the objects of the company, the liability of the members/shareholders, the companys capital structure, full name and address of each member/ shareholder (LCA s.18). Amendments to the memorandum or the articles of association must be lodged with the LFSA (s.23). 101. Subsequent to incorporation, where a company limited by shares makes any allotment of its shares, the company must within one month of the allotment lodge with the LFSA a return of allotment of shares stating, inter alia, the full name and address of, and the number and class of shares held by each of the allottees (LCA s.43). 102. Every Labuan company must lodge an annual return with the LFSA (LCA s.109). Among the information to be provided in the annual return are the full name and address of the Labuan companys shareholders (Form 27 of the Labuan Companies Regulations 2010, issued in connection with LCA s.109). There is no requirement in the LCA to communicate any changes in
(excluding public fund), Labuan Islamic banking business licensees, Labuan takaful and takaful-related licensees, Labuan Islamic financial busineses and exchanges.

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shareholding to the LFSA at the time they occur. However, the trust company as the resident secretary (company secretary) of the Labuan company must keep all records of transfer of shares and ready to be inspected by the Authority at any point of time (LCA s.93(3)). In addition, updated ownership information is provided every year in the annual return. Companies not having share capital are not required to include a list of its members in the annual return but merely to inform the address where such list is kept, if it is kept elsewhere than in its registered office (s.109(4)(5)). 103. Pursuant to the Labuan Business Activity Tax Act 1990 (LBATA), the Director General of the Inland Revenue Board (DGIR) is empowered to call for information from any person and disclose such information with governments where a DTA exist (s.22). The DGIR is also granted powers to disclose information upon a request from any tax authority of any government or any territory outside Malaysia (s.22A); however his powers to call for information are limited to the cases where a DTA is in place.

Foreign companies
104. Foreign companies that wish establish a place of business in Labuan or carry on business in Labuan and are not already registered under the Companies Act 1965 (CA) must register under the Labuan Companies Act 1990 (LCA s.121). 105. In order to register as a foreign Labuan company, the foreign company must lodge with the LFSA various information, including a certified copy of the certificate of its incorporation or registration in its place of incorporation or origin, a certified copy of its charter, statute or memorandum and articles or other instrument constituting or defining its constitution, a list of its directors, a memorandum of appointment or power of attorney stating the name of a Labuan trust company authorised to accept service of process on its behalf, a statutory declaration made by an officer of the Labuan trust company (LCA s.121). The law does not expressly require the lodging of information concerning the owners/shareholders (whether legal or beneficial owners). Ownership information concerning Labuan foreign companies is available to the Labuan trust company that functions as registered office of the foreign company, as further analysed in this section. 106. A foreign Labuan company must lodge with the LFSA an annual return containing the prescribed particulars and accompanied by such copies of documents as are required to be included in the return (LCA s.129). The relevant return does not require information on the ownership of the foreign Labuan company (Form 40 of the Labuan Companies Regulations 2010), however.

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Information held by companies in the Labuan IBFC


107. Labuan companies are required to maintain registers of members/ shareholders containing the following information (LCA s.105): names, nationalities, addresses and other relevant information of the members; dates on which each member commenced and ceased to be a member; and if applicable, shares held by each member, date of every allotment of shares to members and number of shares in each allotment. 108. Labuan protected cell companies (PCCs) are required to keep registers of members and also indexes of the names of their shareholders (LCA s.130U). 109. When shares are transferred, the transferor and the transferee are required to execute an instrument of transfer and lodge this with the Labuan company or PCC (LCA s.80). The Labuan company/PCC must issue a share certificate to the purchaser (s.81). 110. In principle, all the registers mentioned must be kept at the companys registered office in Labuan, which is to be the principal office of a Labuan trust company (LCA ss.106 and 85). Nonetheless, the registers may be kept in any other location if so authorised by the LFSA (CA s.106). The registers kept by a Labuan company must be open for inspection by any director, member or auditor of the company without charge (LCA s.94(4)). Apart from the authorised persons (such as officers or members of the company), other persons may request the LFSA to inspect the registers under specific conditions (LCA s.13(2)). 111. Every foreign Labuan company must have a registered office in Labuan, which is to be the principal office of a Labuan trust company (LCA s.123). There is no express provision in the LCA requiring foreign Labuan companies to maintain a register of members. However, this gap is filled by two sets of obligations. First, by the obligations in sections 121 and 124 of the LCA, which requires foreign companies to lodge memorandum and articles of association with the Registrar, as well as any changes in such documents. Ownership information is commonly stated in such documents. Further, it is mandatory that the principal office of a Labuan trust company be the registered office of the foreign company. The Labuan trust company being a reporting institution under the AMLATFA is required to perform customer due diligence and, therefore, to identify the owners of foreign companies.

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Information held by directors and officers in the Labuan IBFC


112. Every Labuan company must have at least one director (LCA s.87(1)) who must be: an officer of a Labuan trust company approved by the LFSA under the Labuan Financial Services and Securities Act 2010; a domestic company or a Labuan company wholly owned by a Labuan trust company; or an officer of a domestic company granted a license or registered under the Insurance Act 1963, Islamic Banking Act 1983, Takaful Act 1984 or the Banking and Financial Institutions Act 1989 which holds shares in a Labuan company 113. While directors are not directly obliged to maintain information on the owners of their companies, they will necessarily have access to the companys register of members.

Information held by service providers in the Labuan IBFC


114. The Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLATFA) requires financial institutions, trust companies, company secretaries, advocates and solicitors, and certified accountants to conduct customer due diligence (CDD) on customers, including identification of the customer, his/her representative capacity, domicile, legal capacity and business purpose (s.16). 115. In addition, pursuant to the Standard Guidelines on Anti-money Laundering and Combating the Financing of Terrorism (AML/CFT), these reporting institutions are required to identify the beneficial owners of their corporate customers and are required to know the ownership and control structure of the corporate customer (s.5.3.3). 116. All Labuan companies, PCCs and Labuan foreign companies must at all times have registered offices at licensed Labuan trust companies (LCA ss.85 and 123). As Labuan trust companies are reporting institutions under the AMLATFA, they are required to identify and keep records of the ownership (including beneficial ownership) of the companies which are their clients.

Nominees in the Labuan IBFC


117. No indication needs to be given in the share registers or information filed with the LFSA when shares or other interests in Labuan companies are held by nominees on behalf of a third party.

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118. As noted above, Labuan trust companies are obliged to conduct CDD on their customers. When acting as nominees, Labuan trust companies are, therefore, required to have full information on the persons on whose behalf they hold the interest in the company. Similarly, nominees that are lawyers, certified accountants or financial institutions are obliged to conduct CDD on their customers and thus to maintain full information on the persons on whose behalf they hold the interest in the company (AMLATFA s.16). 119. There are no other obligations imposed to nominees to retain identity information on the persons for whom they act as the legal owner in Labuan.

Conclusion
120. In essence, the Labuan Companies Act requires filing of information on the legal ownership and identity of companies with the LFSA. It also requires Labuan companies and PCCs to maintain registers of their members/ shareholders. All Labuan companies, PCCs and Labuan foreign companies must have registered offices at licensed Labuan trust companies and these trust companies are required to identify and keep records of the ownership (including beneficial ownership) of the companies which are their clients. In addition, financial institutions and some other service providers are required under anti-money laundering legislation to obtain information on the ownership chain for all of their customers. Where nominees are not lawyers or certified accountants or financial institutions or acting by way of business and are not acting on behalf of the directors of the company, information is not required to be available on the persons for whom they act.

Bearer shares in Malaysia (ToR A.1.2)


121. Since 1966 Malaysian law has prohibited the issuance of bearer share warrants (CA s.57). The bearer of a bearer share issued before 15 April 1966can surrender it and have his name entered in the register of members (s.57(2)).19 The Malaysian authorities confirmed that only private companies that existed prior to this date could issue such bearer share warrants. The total number of such companies is 11 164, which is around of 1% of the total number of companies now registered in Malaysia. It is unclear how many of these 11 164 companies are still in existence. Moreover, such companies could not issue bearer shares without imperilling their private company status and exposing themselves to potential sanctions, such as fines or shareholder actions. It is, therefore, unlikely that they would have issued such
19. The Malaysian authorities confirmed that companies incorporated before 29 December 1967 represent a percentage of 1.1% of the total companies operating in Malaysia.

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shares. Moreover, private controlled companies have to report annually to the tax authorities their five largest shareholders irrespective of the nature of shares held and are in many cases are also subject to due diligence under the AMLAFTA. Finally, the Malaysian authorities are not aware of any case where such shares exist now. In light of these considerations, the gap is not considered to be material. This issue will be further followed up in Malaysias Phase 2 review. 122. The authorities are currently drafting a new Companies Bill and is considering introducing a transitional provision for registration of bearer shares after which such shares will no longer be recognised.

Bearer shares in the Labuan IBFC (ToR A.1.2)


123. While the Labuan IBFC legislation does not specifically address the issuance of bearer shares, the LCA, in all provisions concerning shares, refers to registered shares (e.g. s.43, which requires that the company submit details of all persons shares have been issued to). The Malaysian authorities confirmed that bearer shares cannot be issued in Labuan.

Partnerships in Malaysia (ToR A.1.3) Types of partnerships


124. General partnerships are the only type of partnership currently provided for under Malaysian law. They are governed by the Partnership Act 1961 (PA) and defined as the relation that exists between persons carrying on a business20 in common with a view of profit (s.3). Every partner is jointly liable for all debts and obligations incurred by the general partnership (s.11). Partnerships are not separate legal persons and each partner is liable to tax on his/her share of income in the partnership. As at 1 June 2011, the number of registered active general partnerships was 1 282 816.

20.

Business includes every form of trade, commerce, craftsmanship, calling, profession or other activity carried on for the purpose of gain, but does not include any office or employment or any charitable undertaking or any occupation specified in the Schedule of ROBA. The Schedule includes, inter alia, the activities of cultivators, fishermen, craftsmen, door-to-door salesmen that act for their own account and for the purpose of gaining their own livelihood, under the conditions described on the Schedule.

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Information held by public authorities in Malaysia


125. Sections 5(1) and (2)(e) of the Registration of Businesses Act 1956 (ROBA)21 provide that the managing partner must register the partnership with the Registrar, stating particulars of the partnership agreement (if any) and the particulars of the partners, within 30 days from the date of the commencement of the business. Under the ROBA, the identity of the partners of a partnership can be identified as these details are submitted during the registration of the partnership. Under section 5(2)(f) of the ROBA 1957, the details of the associates of the business i.e. their full names, positions held, and dates of entry into the business must be included when registering a business. The definition of an associate of a business includes (b) every person who is a partner in any business which is the property of a partnership. Any changes on the particulars and/or information on a business must also be lodged with the Registrar within 30 days (s.5B). 126. In addition, all partnerships have to file annual tax returns with the IRBM, regardless of whether or not a profit or loss is derived from the business. Besides information relating to the apportionment of partnership income, they need to disclose any changes in the constitution of the partnership during the tax year and full particulars of partners in the partnership income tax return (as required under the Partnership Return Form related to subsection 86(1) of the ITA). The partnership tax return must be filed by all partnerships that carry on business in Malaysia or that have income, deductions or credits for tax purposes in Malaysia.

Information held by the partners in Malaysia


127. The Malaysian authorities have indicated that the managing partner has to keep documentation on the partnership as well as all relevant ownership information in proper record, by virtue of section 5 of the ROBA. According to that provision any person responsible to the business is required to provide such other information as the Registrar may require (ROBA s.5). In addition, section 10 of the ROBA empowers the Registrar to obtain all
21. The ROBA only applies to registration of business in Peninsular Malaysia (s.1(2)). The registration of partnerships in the States Sabah and Sarawak are regulated by different bodies of laws. Sole proprietorship and partnerships in Sabah are licensed by the State Government under the Trades Licensing Ordinance 1948 (TLO 1948). Business in Sarawak are governed by the Businesses and Trades Licensing Ordinance 1955 (BPTLO 1955) and the Business Names Ordinance 1948 (BNO 1948). The Malaysian authorities confirmed that information is available in respect of partners and partnerships registered in Sabah and Sarawak.

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necessary information for purposes of carrying out the provisions of that act. See further Part B of this report for analysis of Malaysias powers to access information. 128. In addition, under section 30 of the PA, the partners of a general partnership are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives. Thus, the partners would have to keep the information regarding the identities of all partners. Moreover, in order to meet their obligation to file annual tax returns partnerships would be required to know who their partners are.

Information held by service providers in Malaysia


129. Financial institutions, lawyers and certified accountants are obliged to conduct CDD on their customers and thus to maintain full information on any partnership which is a customer, including the identity of the partners and owners (including beneficial owners) of partners that are legal entities (AMLATFA s.16 and AMLATFA Standard Guidelines s.5.3.1).

Conclusion
130. Overall, legal ownership and identity information is available to the Registrar or the IRBM in respect of all partnerships operating in Malaysia. In addition to this, financial institutions and some other service providers are required under anti-money laundering legislation to obtain information on the ownership chain for all of their customers.

Partnerships in the Labuan IBFC (ToR A.1.3) Types of partnerships


131. The Labuan IBFC allows two types of partnerships which are regulated under the Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 (LLPLLPA): limited partnerships (LPs); and limited liability partnerships (LLPs). 132. The Labuan IBFC also allows partnerships to be established under Shariah principles, as Islamic LPs or LLPs. 133. LPs consist of a minimum of two and a maximum of 50 partners (LLPLLPA s.4(2)). In addition, an LP must have at least one general partner, who is responsible for the management and liable for all debts and obligations incurred by the LP, and at least one a limited partner, who makes contributions

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to the LP in currency, any other property or services (s.10(1)). A limited partner is not liable for the debts and obligations of the LP unless this person participates in the management of the LP (s.19). 134. LLPs are regarded as bodies corporate and have legal personality separate from that of their partners (s.55). The minimum number of partners in an LLP is two and an individual or a corporation may be a partner (s.29). LLPs are solely liable for their debts and obligations and their partners are not personally liable, directly or indirectly, by such debts and obligations (s.56). Every partner has authority as agents of the LLP to bind all the other partners in contracts with third parties that are in the ordinary course of the LLPs business (s.57). 135. For tax purposes, LPs and LLPs, including those established under Shariah principles, are treated as taxable entities (LBTA ss.15 and 16). As at 31 January 2011, there were 18 LPs and no LLPs registered in the Labuan IBFC.

Information held by public authorities in the Labuan IBFC


136. The registration requirements applicable to LPs and LLPs are provided for in sections 5 and 30 of the LLPLLPA, while the registration of Islamic LPs and LLPs is regulated under sections 111 and 112. All LPs and LLPs, including those established under Shariah principles, must be registered with the Labuan Financial Services Authority (LFSA) (ss.5(3) and 30(7)). 137. The information that must be lodged with the LFSA together with a certified copy of the partnership agreement includes, amongst other things: the name under which the partnership will be conducted; the term of its existence; the nature of business to be undertaken; and the intended address of the registered office of the partnership (LLPLLPA ss.5(2) and 30(2) and forms 1 and 10 of the LLPLLPA Regulations 2010). 138. Regarding ownership information, LPs are required to disclose upon registration the particulars for each general partner. For an individual, these particulars are the full name and address, nationality, identification, and resident status. For legal entities which are partners, the required particulars are the place where it is incorporated and its registered or principal office. On registration, LLPs must inform the Registrar of the particulars of each person who is to be a partner and the full name and address of the person who is to be a designated partner. In addition, information on limited partners is provided, as a copy of the partnership agreement must be lodged with the LFSA. The Malaysian authorities confirmed that the partnership agreement discloses details of all partners including name and identity information. 139. The LLPLLPA also requires submission of notice on the changes in the particulars of the partnership agreement to the LFSA within 30 days from the date

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of change is made (ss.6(1) and 51(1)). Among the changes to be informed to the LFSA are any changes of a partner in a Labuan LP or a Labuan LLP (according to Form 3 Notice of Changes to Labuan Partnership Agreement and Form 16 Notice of Changes to a Recognized Limited Liability Partnership Agreement).

Foreign LLPs
140. In order to have a place of business or carry on a business under the Labuan IBFC, a foreign LLP must be first registered with the LFSA as a recognised LLP under the LLPLLPA (s.48). As part of the registration process, a recognised LLP must file: a certified copy of the certificate of incorporation or registration in the place of origin; a certified copy of the partnership agreement; a list of partners containing their particulars; the full name and address of a designated partner responsible for duties and obligations of the LLP; and the name of the Labuan trust company that represents the LLP; amongst other information. Any changes to any particulars entered in the register must be reported to the LFSA within 30 days after the change occurred (s.50(2)). Similar to domestic partnerships, the requirements of registration and identification under the LLPLLPA refer to legal ownership only.

Information held by partnerships in the Labuan IBFC


141. The requirement for LPs and LLPs to keep information is provided for in sections 9 and 63 of the LLPLLPA, respectively. These provisions are also applicable to Islamic LPs and Islamic LLPs. LPs and LLPs must have a registered office in Labuan, which will be the principal office of a Labuan trust company (ss.9(1) and 63(1)). LPs and LLPs must keep at their registered office a register showing: (i) the particulars of each limited partner and general partner; (ii) the percentage of interest, number and class of units or other rights held by each limited partner; (iii) a copy of the partnership agreement and amendments thereto; and (iv) detailed information on the contributions agreed to be made by, actually made by or returned to each limited partner (ss.9(5) and 63(5)).

Information held by service providers in the Labuan IBFC


142. Under section 50(1) of the LLPLLPA, every recognised LLP must have at all times a registered office in Labuan, which will be the principal office of a Labuan trust company. Notice of the location of the registered office or changes thereof must be filed with the LFSA within one month from the date of registration or change, as the case may be. Foreign LLPs are not required to keep a register of partners. 143. The information or documents filed at the LFSA must be amended within thirty days of any change in the particulars and must be available

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for inspection and copying without charge during ordinary business hours at the request of a partner (LLPLLPA ss.9(6) and 63(6)). The LLPLLPA requires that every document required or permitted to be filed with the LFSA under that act is filed through a Labuan trust company (s.76(1)). As a reporting institution under the AMLATFA, the Labuan trust company is obliged to comply with the record keeping requirements under section 16 of the AMLATFA, which requires identification of the true owners of the trust companys customers. 144. In addition to the Labuan trust companies, financial institutions, lawyers, certified accountants and company secretaries are obliged to conduct CDD on their customers and thus to maintain full information on any partnership which is a customer, including the identity of the partners and owners (including beneficial owners) of partners that are legal entities (AMLATFA s.16).

Conclusion
145. Legal ownership and identity information is either filed with the LFSA or required to be kept by the partnership itself in respect of all partnerships operating in the Labuan IBFC. In addition to this, financial institutions and some other service providers are required under anti-money laundering legislation to obtain information on the ownership chain for all of their customers.

Trusts in Malaysia (ToR A.1.4) Types of trusts in Malaysia


146. Trusts are recognised by and can be created under Malaysian law. In addition to the common law principles, there are specific statutes and statutory provisions on the law on trusts in Malaysia, notably the Trust Companies Act 1949 (TCA), the Trustee Act 1949 (TA), the Public Trust Corporation Act 1995 (PTCA) and the Trustees (Incorporation) Act 1952 (TIA). The PTCA regulates the public trustee corporation called Amanah Raya Berhad. As a general rule, for any trust business conducted in Malaysia, the same legal and regulatory framework applies regardless of whether the settlors are resident or non-resident, or whether assets settled in the trust are located within or outside Malaysia. In addition, the same legal and regulatory framework applies to trustees of foreign trusts. 147. As at 10 July 2011, there were 26 trust companies registered under the TCA, 36 839 active trusts and 32 849 closed trusts registered under the PTCA.

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148. A trustee of a Malaysian trust can be a natural person or corporate entity, and does not have to be a resident of Malaysia. The types of trusts created under the laws of Malaysia may be categorised as: express trusts; and unit trusts. 149. An express trust is a trust created under the common law where the provisions of the trust manifest the certainty of intention, subject matter, and objects. Evidence in writing is required for a declaration of trust in respect of any immovable property or a disposition of an equitable interest. Private trusts do not need to be publicly registered in Malaysia. 150. 151. Unit trusts are essentially a means for investment in a portfolio of securities and are therefore regulated by the Securities Commission (SC). The trustee of a unit trust must obtain prior approval from the SC (Capital Markets & Services Act 2007 (CMSA) s.289). An approved trustee must be a public trustee or a public trust resident in Malaysia. It must also meet certain minimum financial and operational requirements (as specified in Chapter 4 of the Guidelines on Unit Trust Funds).

Establishment of trusts in Malaysia


152. In Malaysia, in addition to individuals acting as trustees/administrators of trusts on a non-professional basis, trust business may be carried out by the following persons: trust companies; financial institutions, insurance companies and securities companies; trust service providers; and corporations (other than trust companies)in specific cases. 153. A trust company in Malaysia must be incorporated as a public company (CA s.16) before it can be registered as a trust company. The requirements to register as a trust company are set in the TCA and include, inter alia, minimum authorised and paid-up capital and the limitation of companys object to trust-related activities (ss.3 and 8). In summary, any trust company whose objects fall under section 8 of the TCA may apply to the Registrar to be registered as a trust company. As at 1 June 2011, there were 26 trust companies registered in Malaysia. 154. Trust service providers include all those persons providing trust services. It is recognised in Malaysia that lawyers, accountants, company secretaries, banks and insurance companies provide such services by virtue

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of their professions/nature of business, whereby trust services are offered in the ordinary course of their business. They are generally not required to be licensed to provide trust services as they are overseen by their respective professional bodies or regulatory agency. They are also subject to the AML/ CFT regulations and required to undertake due diligence on their customers. However, Malaysians laws do not provide for any restrictions on who can provide trust services and in theory, at least, an individual/company who is not a lawyer, accountant, company secretary, bank or insurance company could still act as a trustee by way of business. The Malaysian authorities are of the opinion that this group of trustees would constitute a very narrow category and would probably not be acting by way of business. Further, the Malaysian authorities consider that they would still need to deal with a bank or lawyer as trust related matters entail legal arrangements as well as being subject to the Trustee Act and common law obligations. 155. Corporations can act as trustees in Malaysia in specific situations. A corporation that is a public company under the CA or under the laws of any other country (and has been authorised by the Malaysian SC to act as trustee) can act as a trustee for: (i) holding debentures (CA s.74); (ii) acting in an interest scheme (timeshare scheme, land banking scheme, golf clubs scheme and any other schemes regulated by CCM) (s.87); or (iii) if so appointed by a Malaysian court (PTCA s.12).

Information held by government authorities in Malaysia


156. Malaysias regulatory framework does not provide for a central registry for trusts, but targets the major avenues of trust formation and trust administration in Malaysia through the application of AML/CFT regulations and guidelines on trust intermediaries such as trust companies, financial institutions and certain service providers. As a general rule, a trust deed is not required to be registered with any public body in Malaysia. 157. However, a deed, which provides for the appointment of a company as trustee for or representative of the holders of interests issued (or proposed to be issued) by a company, is subject to the approval of the Registrar (CA s.86). In these cases, the deed (or a copy of the deed) must be lodged with the Registrar. In addition, for unit trust funds, the trust deed must be lodged with the Malaysian Securities Commission. In this regard, pursuant to section 259(2) of the Capital Markets and Services Act, any person issuing, offering for subscription or purchase, or making an invitation to subscribe for or purchase, any debenture must deliver a copy of the trust deed to the Securities Commission together with other information or documents as the Securities Commission may specify.

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Information to be provided to the tax authorities


158. In Malaysia, a trustee is required to file a return every year with respect to the income of a domestic or foreign trust accruing in, derived from or received in Malaysia. The return must disclose the trustees names and addresses, whether they are resident in Malaysia, and the location of the administration of the trust. Particulars of all the beneficiaries must also be provided, including their names, addresses, the basis of entitlement and their respective share of income. No information on the identity of the settlor is required to be provided in the tax return. Such information could be obtained by the tax authority upon requesting the trust deed or in the course of audits/ investigations, however. This issue will be further assessed as part of the Phase 2 review.

Information held by trustees and service providers in Malaysia


159. Under common law, for a trust to be valid, the trust needs to meet the three certainties: the certainty of intention, the certainty of subject matter and the certainty of object. This means that a trust is only valid if evidenced by a clear intention on behalf of the settlor to create a trust, clarity as to the assets that constitute the trust property and identifiable beneficiaries. A written declaration of trust may not exist or not identify the settlor on the face of the document. However, trustees have a duty of care to act in accordance with the wishes of the settlor. As a matter of good practice trustees keep sufficient records to enable them to perform their duties22. 160. Under the AMLATFA, and the AML/CFT Regulation, guidelines and instructions, Malaysian trust companies, financial institutions, lawyers, certified accountants and company secretaries acting as trustees or administrators of trusts or arranging for another person to act as a trustee/administrator are required to conduct CDD on their customers and must therefore identify the settlors, trustees and all beneficiaries of trusts for which they work for (s.16). These obligations apply equally to financial institutions and AMLATFA reporting institutions acting for foreign trusts. Section 16 of the AMLATFA requires reporting institutions to conduct CDD including to verify, by reliable means, among others, the identity, representative capacity, domicile, legal capacity, occupation or business purpose of that person as well as other identifying information on that person, through the use of documents such as constituent document and any other official or private document when establishing or conducting business relations particularly when opening new
22. The Malaysian cases Metramac Corporation Sdn Bhd v Fawziah Holdings Sdn Bhd; Tan Sri Halim Saad & Che Abdul Daim Hj Zainuddin (Interveners) Federal Court [2007] 4 CLJ make reference to the case of Knight v Knight [1840] 49 ER 68, where Lord Langdale MR laid down the law governing certainty of trust.

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accounts, entering into fiduciary relationship, performing any cash transaction exceeding such amount as the competent authority may specify etc. The person in the context of the above mentioned provision includes any person who is a nominee, agent, beneficiary or principal in relation to a transaction. The reporting institutions are subject to the obligation to conduct ongoing due diligence and must ensure the information is updated. 161. Individuals not acting by way of business are not subject to obligations under the AML/CFT Regulation, guidelines and instructions but are subject to common law obligations to maintain information on the trust. The scope of the common law obligations will be followed up in Phase 2 Peer Review. 162. In addition, whenever a trustee or administrator of a trust conducts financial activities for the trust using a financial institution or one of the service providers mentioned above, the financial institution or service provider must identify the beneficial owners of the money/assets involved (AMLATFA s.16). 163. In summary, the following trustees are required to have information available on the identity of settlors and beneficiaries of trusts: trustees that are trust companies registered under the Trust Companies Act 1949; trustees that are financial institutions, insurance companies and securities companies that are subject to the AMLATFA; trustees that are service providers that qualify as reporting institutions under the AMLATFA, such as registered accountants, advocates and solicitors; trustees that are corporations in relation to the securities that they hold pursuant to the Capital Markets and Services Act; trustees that are Labuan trust companies (as further analysed in this report); the public trustee (known as Amanah Raya Berhad) as defined in the PTCA is a reporting institution under the AMLATFA; unit trust schemes managed by a management company (reporting institution under the AMLATFA); and trusts where the trustees are incorporated under the Trustees (Incorporation) Act. The trustees incorporated under the TIA are those appointed by anybody or association of persons established for any religious, educational, literary, scientific, social or charitable purpose (s.2 TIA).

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164. Notwithstanding the above, Malaysian laws impose no restrictions on who can provide trust services. Therefore, an individual or legal entity which does not qualify as a reporting institution under the AMLATFA ie, not an accountant, lawyer, company secretary, insurance company or bank or to the other cases listed above could still act as a trustee by way of business. Such individuals and legal entities, as well as those who act as trustees other than by way of business are not subject to obligations under the AML/ CFT Regulation, guidelines and instructions and, therefore, are not required to conduct CDD on their customers. Those individuals and legal entities are subject to common law obligations to maintain information on the trust.

Conclusion
165. In essence, identity and ownership information is available in respect of trusts administered by trust companies and other service providers that qualify as reporting institutions under the AMLATFA. Malaysias regulatory framework targets the major avenues of trust formation and administration by regulated trust intermediaries. It is possible, however, that individuals and legal entities not subject to the AMLATFA act as trustees. Those trustees would only be subject to common law obligations concerning the collection of information on the ownership of settlors and beneficiaries of trusts. Although the Malaysian authorities estimate that these trustees would constitute a very narrow category, there is a risk that appropriate information on the settlors and beneficiaries of the trusts for which they act is not properly kept in Malaysia.

Trusts in the Labuan IBFC (ToR A.1.4) Types of trusts in the Labuan IBFC
166. The Labuan Trusts Act 1996 (LTA) is the central piece of legislation governing trusts in the Labuan IBFC. Pursuant to the LTA, there are five types of trusts that can be created in the Labuan IBFC: purpose trusts (s.11A); charitable trusts (s.11B); Labuan special trusts (Part IVA); Labuan spendthrift/protected trusts (s.11E); and Labuan Islamic trust. 167. A purpose trust is a trust established under the framework of the LTA for a particular purpose or purposes, charitable or not.

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168. A charitable trust is created for charitable purposes whether or not it is to be carried out in Malaysia and whether it benefits the community in Malaysia or elsewhere. A trust is considered charitable if it fulfils one of the purposes specific in the LTA (which includes, inter alia, the relief or eradication of poverty; the advancement of education; or the promotion of art, science and religion). 169. The Labuan special trust is a trust that enable owners of a Labuan company or a Labuan limited liability partnership to establish a trust to specifically hold shares or partnership interests in a Labuan company or a Labuan limited liability partnership, irrespective of the financial benefits of holding them, without any legal duty to intervene in the management of the company. The trustees primary duty is to retain the shares or interests and this duty takes precedence over the duty to preserve or enhance the value of the trust fund. 170. The Labuan spendthrift/protected trust is a trust under which the interest of the beneficiary is subject to: (i) termination; (ii) a restriction on alienation or disposal; or (iii) subject to diminution or termination in the event of the beneficiary becoming insolvent or any of his property becoming liable to seizure or to sequestration for the benefit of his creditors. 171. A trust can also be established based on Shariah principles (Labuan Islamic Financial Services and Securities Act 2010 LIFSSA, ss.105(1) and 106). Labuan Islamic trusts are also subject to the LTA (LIFSSA s.105(2)). In this regard, the act facilitates the creation of trusts that correspond with various traditional forms of Islamic trusts. These include Islamic charitable trusts and Islamic special trusts similar in purpose to those described above. An Islamic trust may continue in perpetuity.

Establishment of trusts in the Labuan IBFC


172. In the Labuan IBFC, trust business is carried on by a Labuan trust company. Although any person can act as a trustee of a trust in the Labuan IBFC (provided that the person is named as a trustee in the trust instrument), at least one of the trustees must be a Labuan trust company (LTA s.26). If there is only one trustee, the trustee must be a Labuan trust company.

Information held by government authorities in the Labuan IBFC Registration of trusts


173. The registration of trusts in the Labuan IBFC is not mandatory. However a trust validly created, whether in the Labuan IBFC, elsewhere in Malaysia or abroad, may be registered with the Labuan Financial Services

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Authority (LFSA) by the trustee (LTA s.12(1)(2)). No information concerning the identity of the settlor and the beneficiaries is required by the LFSA. The information to be provided upon registration of the trust is limited to: (i) the name of the trust; (ii) the date of its creation; (iii) the name and address of the trust company acting as trustee; (iv) the address of the registered office of the Labuan trust company; and (v) the proper law of the trust (s.12(3)).

Information to be provided to the tax authorities


174. Trustees are required to file a return (statutory declaration) with the LFSA. However, the return does not require that any identity or ownership information of the settlor or the beneficiaries be provided. It only requires a statement that the settlor and the beneficiaries are not citizens or permanent residents of Malaysia (LBATA s.10 and Form 6 Statutory Declaration).

Information held by trustees and service providers in the Labuan IBFC


175. Under AML/CFT Regulation, trust companies are required to carry out CDD to obtain identity information on the settlors, trustees and beneficiaries of trusts they work for. Labuan trust companies are also required to keep documentation relating to trust business services, including account files and business correspondence (AMLATFA s.17). 176. Under the AMLATFA, and the AML/CFT Regulation, guidelines and instructions, Malaysian trust companies, financial institutions, lawyers, certified accountants and company secretaries acting as trustees or administrators of trusts or arranging for another person to act as a trustee/administrator are required to conduct CDD on their customers and must therefore identify the settlors, trustees and all beneficiaries of trusts for which they work (s.16). In addition, whenever a trustee or administrator of a trust conducts financial activities for the trust using a financial institution or one of the service providers mentioned above, the financial institution or service provider must identify the beneficial owners of the money/assets involved. These obligations apply equally to financial institutions and service providers acting for foreign trusts.

Conclusion
177. Overall, legal ownership and identity information is available to the LFSA in respect of all trusts in the Labuan IBFC due to the requirement of having a Labuan trust company as a trustee. The Labuan trust company is required to be the or one of the trustees and that such trust companies are subject to AMLATFA obligations. This is complemented by common law obligations on all trustees to maintain information concerning trusts. In addition to this, financial institutions and some other service providers are

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required under anti-money laundering legislation to obtain information on the ownership chain for all of their customers.

Foundations in Malaysia (ToR A.1.5) and other entities


178. There are no legislative or common law principles which provide for the establishment or regulation of foundations under Malaysian law. While there are entities in Malaysia that are called foundations, they take the form of other recognised entities, e.g. companies limited by guarantee. As at 10 June 2011, there were 1 626 companies limited by a guarantee called foundations in Malaysia. The availability of ownership information for companies limited by guarantee is discussed in Part A.1.1 of this report. 179. Malaysias non-profit organisation (NPO) sector includes societies, associations, clubs, organisations, companies limited by guarantee (CLBGs) and foundations. The statutes dealing with the establishment and regulation of NPOs in Malaysia are the Societies Act 1966 (SA) and the Companies Act 1965 (CA). The constitutional form may be either a registered society under the oversight of the Registrar of Societies (ROS) or a registered CLBG also under the oversight of the Registrar. NPOs which are registered with the Registrar or ROS are taxable entities under the ITA but they may apply for tax-exempt status provided they meet certain criteria and are either established for charitable purposes or established exclusively for the purposes of religious worship or the advancement of religion. 180. All societies created under the oversight of the ROS are NPOs. Every calendar year, societies are required to lodge with the ROS, inter alia, the rules of the society and any amendments to such rules, the address of the society or of its place of business and the society accounts (SA s.14). Upon request of the ROS, societies must provide complete lists of their members (s.14).

Foundations in the Labuan IBFC (ToR A.1.5)


181. Foundations can be established in the Labuan IBFC under the Labuan Foundations Act 2010 (LFA s.4) or based on Shariah principles under the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA s.107). The LFA also deals with the possibility of foundations established under the laws of another country changing their domicile to Labuan (LFA s.23). All Labuan foundations must have Labuan trust companies secretaries (s.41). 182. The main purpose or object of a Labuan foundation is the management of its property (LFA s.7(1)) and it may also have any other purpose or object which is not unlawful, immoral or contrary to any public policy in Malaysia. Its purpose or object may be charitable or non-charitable. 183. As at 10 June, there were 12 foundations registered with the LFSA.

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Information held by government authorities in the Labuan IBFC


184. Labuan foundations must be registered with the LFSA (LFA s.14). To register a foundation, the foundation secretary must lodge documentation with the LFSA, including: (i) a statement signed by the secretary containing particulars extracted from the charter (such as name, purpose and object of the foundation and address of its registered office) and a copy of the charter; and (ii) a list containing the names and addresses of the officers of the foundation (Fourth Schedule). 185. In case of change of particulars of registration, the secretary of the Labuan foundation must submit a notice of change within 30 days after the change (LFA s.17(1)). 186. In addition, Labuan foundations are required to file tax returns (LBATA s.10). However, no ownership information is required to be provided in such return (Forms 5 and 6 Statutory Declarations).

Information held by foundations in the Labuan IBFC


187. The LFA requires a Labuan foundation to keep at its registered office in Labuan, accurate copies of its constituent documents and all documents and instruments filed or lodged with LFSA (LFA s.45(1)). The constituent documents are the charter and articles of a Labuan foundation (s.2(1)). The charter of the foundation must contain relevant information on the identity of founders and beneficiaries, including: (i) the name and address of its founder and, where the founder is a body corporate, its place of incorporation and its registered or principal office or place of business; and (ii) identity of the beneficiaries or the identification of the class of persons which will benefit from the foundation or a statement that the foundation is to benefit the public at large (LFA, First Schedule). The referenced requirements also applies to Labuan Islamic foundations (Labuan Islamic Financial Services and Securities Act s.107(2)).

Information held by service providers in the Labuan IBFC


188. The LFA requires the appointment of a Labuan trust company in Labuan as the secretary of the Labuan foundation. The Labuan trust company is required under the AMLATFA (s.16), and the AML/CFT Regulation, guidelines and instructions, to carry out CDD, identifying its clients and the beneficial owners of its client. The AMLATFA also required obliged entities to ascertain the business structure of their customers. Thus, the Labuan trust company which is the secretary for the foundation is obliged to identify the founders, foundation council members and beneficiaries under the AML/CFT law and regulation.

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189. In addition, financial institutions, lawyers, certified accountants and company secretaries are required to conduct CDD on their customers and must therefore identify the foundation members, foundation council members and beneficiaries of the foundations which are their customers (s.16).

Conclusion
190. Overall, legal ownership and identity information is available in respect of all foundations in the Labuan IBFC. Foundations must keep documents at their registered offices, including their charters, which detail the founders and beneficiaries. Compulsory registration with the LFSA requires identification of the foundation council members. In addition, a foundation must have a Labuan trust company as its secretary and the Labuan trust company is obliged under AML/CFT legislation to identify the founders, foundation council members and beneficiaries. Financial institutions and some other service providers are also required under AML/CFT legislation to conduct full CDD on foundations which are their customers.

Enforcement provisions to ensure availability of information in Malaysia (ToR A.1.6)


191. Jurisdictions should have in place effective enforcement provisions to ensure the availability of ownership and identity information, one possibility among others being sufficiently strong compulsory powers to access the information. This subsection of the report assesses whether the provisions requiring the availability of information with the public authorities or within the entities reviewed in Part A.1 of this report are enforceable and failures are punishable. Questions linked to access are dealt with in Part B.

Companies, partnerships and trusts laws in Malaysia


192. Malaysian laws provide for detailed penalties for non-compliance with key obligations to maintain ownership and identity information. 193. Companies face penalties for failure to lodge the prescribed returns with the CCM or to keep any of the prescribed registers. Persons who fail to lodge the return of allotment are liable on conviction to a fine of MYR 1 000 (EUR 230) and to a default penalty of MYR 250 (EUR 58) (CA s.54). For failure to lodge the annual return, the company and every officer of the company who is in default is guilty of an offence and liable on conviction to a fine of MYR 1 000 (EUR 230) and also to a default penalty (s.141(7)). 194. Failure to maintain the register or index of members on conviction triggers a fine of MYR 2 000 (EUR 460) and also a default penalty (CA s.158). For failure to comply with requirements to keep the register of

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substantial shareholdings, companies are liable on conviction to a fine of MYR 5 000 (EUR 1 150) and also a default penalty of MYR 500 (EUR 115) (s.69L(4)). Substantial shareholders who fail to notify the company of their interest or of the change or the cease of their interest are liable on conviction to a fine not exceeding MYR 1 million (EUR 230 000) and a default penalty of MYR 50 000 (EUR 11 500) (s.69M). 195. The Companies Act also provides specific penalties applicable to foreign companies failing to lodge any of the prescribed returns or to keep the branch register at their registered office in Malaysia. In such cases, the company and every officer of the company who is in default and every agent of the company who knowingly and wilfully authorises or permits the default is guilty of an offence and liable on conviction to a fine of MYR 1 000 (EUR 230) and also to a default penalty (s.349). The same penalty applies if a foreign company fails to lodge with the Registry the particular of any changes or alterations made in relation to its agent or agents or the name or address of any agent within one month (or within such further period as the Registrar in special circumstances apply) (s.335). 196. Partnerships that fail to comply with the obligation to report any change in the particulars registered to the Registrar within 30 days after the change commit an offence. Offenders are liable on conviction to a fine not exceeding MYR 10 000 (EUR 2 300) or to imprisonment for a term not exceeding one year or to both (ROBA s.12(A)). 197. Penalties for trustees-administrators not complying with record keeping and reporting obligations for trusts may be summarised as follows: failure to lodge with the CCM an annual statement of the liabilities of the company to the public in its trustee capacity, its list of members and a summary report is subject to a fine of MYR 50 (EUR 12) for every day during which the default continue (TCA ss.30 and 21); and failure to lodge with the CCM its annual return and its particulars (general requirement to any company including companies that act as trustees-administrators) result in a fine of to a fine of MYR 2 000 (EUR 460) (CA s.165).

Specific penalties for professional service providers in Malaysia


198. Any person who commits an offence to the AMLATFA shall on conviction, be liable to a fine not exceeding MYR 250 000 (EUR 57 500). This penalty would apply, for instance, for reporting institution failing to conduct CDD. In addition, an officer of a reporting institution who fails to take all reasonable steps to ensure the reporting institutions compliance with its reporting obligations shall be on conviction liable to a fine not exceeding

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MYR 100 000 (EUR 23 000) or to imprisonment for a term not exceeding six months or to both, and, in the case of a continuing offence, to a further fine not exceeding MYR 1 000 (EUR 230) for each day during which the offence continues after conviction (s.22). Moreover, a general penalty is provided for under section 86 and applicable if no penalty is expressly provided for the offence under the AMLATFA.

Failure to comply with tax law reporting obligations in Malaysia


199. Failure to furnish a tax return in accordance with the requirements established by the ITA constitutes an offence under section 112 of the ITA and offenders are liable to a fine of not less than MYR 100 (EUR 23) and not more than MYR 2 000 (EUR 460) or to imprisonment not exceeding 6 months or to both.

Conclusion
200. Relevant laws applicable in Malaysia in particular the Companies Act 1965, the Trust Companies Act 1949 and the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 contain enforcement provisions to ensure the availability of information. Some offences are subject to significant fines and imprisonment. The effectiveness of the enforcement provisions which are in place in Malaysia will be considered as part of the Phase 2 Peer Review.

Enforcement provisions to ensure availability of information in the Labuan IBFC (ToR A.1.6)
201. The laws applicable in the Labuan IBFC also provide for detailed penalties for non-compliance with key obligations to maintain ownership and identity information. 202. Companies face penalties for failure to lodge the prescribed returns with the LFSA or to keep any of the prescribed registers. In case of failure to lodge the return of allotment, offenders are liable on conviction to a fine of MYR 10 000 (EUR 2 300) and also to a default penalty (LCA s.43(2)). For failure to lodge the annual return, the company and every officer of the company who is in default is guilty of an offence and liable on conviction to a fine of MYR 10 000 (EUR 2 300) and also to a default penalty (s.109(6)). Failure to maintain the register of members triggers conviction to a fine of MYR 10 000 (EUR 2 300) and also to a default penalty (LCA s.105(3)). 203. The Labuan Companies Act also provides for specific penalties applicable to foreign companies failing to lodge the annual return and prescribed documents. In such cases, the company who is in default is guilty of an offence and liable on conviction to a fine a fine not exceeding MYR 10 000 (EUR 2 300) (LCA s.142(2)). In addition, the foreign Labuan company and

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every officer of the company who failed to inform the location of registered office and any change thereof within one month is guilty of an offence and liable on conviction to a fine a fine of MYR 10 000 (EUR 2 300) and also to a default penalty (s.123). 204. Partnerships that fail to comply with the obligation to report any change in the particulars registered to LFSA within 30 days after the change commit an offence. Offenders are liable on conviction to a penalty as specified by the LFSA (LLPLLPA s.6). The LLPLLPA provides for a general penalty corresponding to a fine not exceeding MYR 500 (EUR 115) to be applied when no penalty is expressly provided (s.77). 205. Labuan trustees are liable on conviction to a fine of MYR 10 000 (EUR 2 300) in case of non-compliance with record keeping and reporting obligations as specified below (LTA s.12): failure to notify the LFSA with regard to changes in the particulars of the registered Labuan trust within one month of the change; failure to notify the LFSA with regard to the termination of the trust in the prescribed form within one month of the termination; and failure to notify the LFSA in the prescribed form as to whether the trust is still in existence and whether he is still the trustee thereof not later than one month after every anniversary of the registration of the trust in Labuan. 206. With respect to Labuan foundations, the LFA requires that the secretary of the Labuan foundation to file a notice of change of particulars of registration signed by an officer of the Labuan foundation within 30 days after the change (s.17(1)). The secretary and every officer who is in default of this section shall be liable to an administrative penalty in an amount not exceeding MYR 500 (EUR 115) for each day of non-compliance and such amount shall in total exceed MYR 10 000 (EUR 2 300) (s.78(3)). Similarly, the referenced penalties apply to Labuan Islamic foundations (Labuan Islamic Financial Services and Securities Act s.107(2)).

Specific penalties for professional service providers in the Labuan IBFC


207. The penalty described in paragraph 197 above, applicable to the failure to conduct CDD, also applies to reporting entities in the Labuan IBFC.

Failure to comply with tax law reporting obligations in the Labuan IBFC
208. Failure to file a statutory declaration or a return of profits (LBATA ss.22 and 22A) constitutes an offence under section 23 of the LBATA and

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liable to a fine not exceeding MYR 1 000 000 (EUR 230 000) or to imprisonment for a term not exceeding two years or to both. The referenced fine applies to all Labuan entities, including companies, partnerships, trusts and foundations (LBATA Schedule).

Conclusion
209. Relevant laws applicable in the Labuan IBFC in particular the Labuan Companies Act 1990, the Labuan Limited Partnerships and Limited Liability Partnerships Act 2010, the Labuan Trusts Act 1996, the Labuan Foundations Act 2010, the Labuan Business Activity Tax Act 1990 and the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 contain enforcement provisions to ensure the availability of information. The effectiveness of the enforcement provisions which are in place in the Labuan IBFC will be considered as part of the Phase 2 Peer Review.
Determination and factors underlying recommendations
Phase 1 determination The element is in place, but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations Not all nominees are required to have information available on the persons for whom they act. Recommendations An obligation should be established for all nominees to maintain relevant ownership and identity information where they act as the legal owner on behalf of any other person. An obligation should be established to maintain information in all cases in relation to settlors, trustees and beneficiaries of trusts with a trustee in Malaysia.

Not all trustees are required to have information available on the identity of settlors and beneficiaries of trusts.

A.2. Accounting records


Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements.

210. A condition for exchange of information for tax purposes to be effective, is that reliable information, foreseeably relevant to the tax requirements of a requesting jurisdiction is available, or can be made available, in a timely manner. This requires clear rules regarding the maintenance of accounting records.

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General requirements in Malaysia (ToR A.2.1) Relevant entities governing laws in Malaysia
211. The Companies Act (CA) requires every company to keep (s.167(1)): such accounting and other records as will sufficiently explain the transactions and financial position of the company and enable true and fair profit and loss accounts and balance-sheets and any documents required to be attached thereto to be prepared from time to time and shall cause those records to be kept in such manner as to enable them to be conveniently and properly audited. 212. This means companies in Malaysia are required to maintain accounting records which: (i) correctly explain all transactions; (ii) enable the financial position of the company to be determined with reasonable accuracy at any time; and (iii) allow financial statements to be prepared. In addition, all companies are required to have their financial statements laid before the company at the annual general meeting (CA s.169(1) to (3)). The directors of the company are responsible for ensuring: that the financial statements comply with the approve accounting standards (s.166A(3)); and unless the company is exempt from the audit requirements, that the financial statements are audited (sec.169(4)). 213. Exempt private companies are required to lay their balance sheets and profit and loss statements before the company at their annual general meetings. Exempt private companies are not required to file audited accounts with the Registrar. Notwithstanding the above, the relevant accounting standards continue to apply to such entities (CA s.165A). Exempt private companies that meet certain requirements are not required to lodge their balance sheet and profit and loss account annually with the CCM (Eighth Schedule). 214. A foreign company carrying on business in Malaysia is required to lodge a copy of its balance sheet with the Registrar within two months of its annual general meeting along with a duly audited statement showing: assets used in and liabilities arising out of its operations in Malaysia as at the date on which its balance sheet was made up, and a duly audited profit and loss account (CA s.336). The Registrar may waive the foreign company from the obligation to lodge the accounting statements in the cases described in the CA (s.336(5))23.The foreign company is still required to prepare and maintain such
23. Section 336(5) establishes a waiver in following cases the (i) it would be impractical to comply with this obligation having regard to the nature of the companys

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accounting statements (s.336(5) and s.336A), however. The Registrar may ask for further details every time he is of the opinion that the balance sheet and the other documents prepared according to the law applicable to the foreign company in the place of its incorporation or origin do not sufficiently disclose the companys financial position (s.336(2)). When a foreign company is not required by the law of the place of its incorporation or origin to prepare a balance sheet, it must prepare and lodge with the Registrar such documents as if it were a public company incorporated in Malaysia (s.336(4)). 215. Under the Partnership Act (s.30), partners of a general partnership are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives. Partners are also required to account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership, or from any use by him of the partnership property, name or business connection (s.31(1)). The PA does not provide guidance on which accounting records are to be prepared. 216. Malaysian laws explicitly provide for the maintenance of accounting records by private trusts and unit trusts. With regard to private trusts, the Trustee (Incorporation) Act requires that trustees of any body or association of persons incorporated pursuant to that Act regularly enter or cause to be entered full and true accounts of all money received and paid respectively on account of such body or association (TIA s.15). As for unit trusts, under Chapter 11 of the Guidelines on Unit Trust Funds, the trustee must make available, inter alia, the following document at the principal place of business for inspection by investors and unit holders at all times: (i) the deed and the supplementary deed of the fund; (ii) the latest annual report and the interim report of the fund; (iii) the audited accounts of the management company and the fund for the last five financial years or from the date of incorporation/ commencement if less than 5 years; and (iv) the latest audited accounts of the management company and the fund for the current financial year (s.11.36).

Tax law in Malaysia


217. The Malaysian Income Tax Act requires every person carrying on a business to keep sufficient records to enable that income or loss from that business be readily ascertained (s.82(1)(a)). The Malaysian authorities confirmed that records are kept in relation to all arrangements and entities that carry on a business in Malaysia. However, there are no requirements
operations in Malaysia; (ii) it would be of no real value having regard to the amount involved; (iii) it would involve expense unduly out of proportion to its value; or (iv) it would be misleading or harmful to the business of the company or to any company which is deemed to be related to the company.

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in the ITA to keep accounting records and underlying documentation: (i) if a company does not carry on business in Malaysia, does not remit income to Malaysia and is not in receipt of Malaysian source income; and (ii) in the case of a trust with a Malaysian trustee which does not carry on business in Malaysia, does not remit income to Malaysia and is not in receipt of Malaysian source income. In relation to accounting records, however, Malaysian companies and trustees remain subject to the obligations to keep accounting records established at the CA and TIA respectively. 218. Records required to be kept in relation to all arrangements and entities that carry on a business in Malaysia include (s.82(9)): books of account recording receipts or payments or income and expenditure; invoices, vouchers, receipts, and such other documents as in the opinion of the Director General are necessary to verify the entries in any books of account; and any other records as may be specified by the director general. 219. If the persons gross receipts from his business in the preceding calendar year exceeded MYR 150 000 (EUR 49 200) from the sale of goods, or MYR 100 000 (EUR 32 800) from the performance of services, he is further required to issue a printed receipt serially numbered for every sum received in respect of goods sold or services performed in the course of or in connection with the business and he has to retain a duplicate of every such receipt (ITA s.82(1)(b)). However, where a machine is used for recording sales, a receipt may be dispensed with if the Director General is satisfied that such machine automatically records all sales made and the total of all sales made in each day is transferred at the end of the day to a record of sales (s.82(2)).

Conclusion
220. General tax obligations complement commercial law obligations and, taken together, result in all relevant entities that carry on a business in Malaysia being required to maintain accounting records which: (i) correctly explain all transactions; (ii) enable the financial position of the entity or arrangement to be determined with reasonable accuracy at any time; and (iii) allow financial statements to be prepared.

Underlying documentation in Malaysia (ToR A.2.2)


221. Malaysias commercial laws impose an obligation to retain underlying documentation, such as invoices, contracts, etc. In particular, the Companies Act expressly imposes an obligation that accounting records be

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maintained reflecting details of all sums of money received and expended, all sales and purchases and other transactions, and the assets and liabilities of the company. Accounting records include invoices, receipts, orders for payment of money, bills of exchange, cheques, promissory notes, vouchers and other documents of prime entry and also includes such working papers and other documents as are necessary to explain the methods and calculations by which accounts are made up (CA s.4(1)). In addition, Malaysian companies are required to keep documentation sufficient to explain the transactions and financial position of the company and enable true and fair profit and loss accounts and balance sheets and any documents required to be attached thereto to be prepared from time to time, and shall cause those records to be kept in such manner as to enable them to be conveniently and properly audited (s.167(1)). 222. More specific requirements to keep records and underlying documentation can be found in the tax law, under sections 82 and 82A of the ITA (see above, para.216). The Malaysia authorities confirmed that such requirements apply to all relevant entities and arrangements including companies, partnerships, trusts and foreign entities, as long as they carry on a business in Malaysia. No requirements to maintain underlying documentation exist in the ITA: (i) if a Malaysian company does not carry on business in Malaysia, does not remit income to Malaysia and is not in receipt of Malaysian source income; and (ii) in the case of a trust with a Malaysian trustee which does not carry on business in Malaysia, does not remit income to Malaysia and is not in receipt of Malaysian source income. In the case of Malaysian companies, the requirements concerning underlying documentation established under the CA address the situations not covered by the ITA, as analysed above.

The 5-year retention standard in Malaysia (ToR A.2.3)


223. The accounting and other records to be kept by a company under section 167 of the Companies Act are required to be retained by the company for seven years after the completion of the transactions or operations to which they refer (s.167(2)). This mandatory document retention period also applies to all accounting records obtained in the course of any trust business conducted in Malaysia, and hence covers private trusts and unit trusts. These obligations apply equally to foreign businesses and trustees working for foreign trusts (s.336A(3)). 224. For tax purposes, the ITA requires the retention of accounting records for a period of seven years from the end of the year which the income relates to (s.82). 225. Based on the obligations imposed by the ITA, most entities and arrangements in Malaysia are subject to requirements to keep accounting

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records, including underlying documentation, for the minimum period required by the standards (five years). The exception is a trust with a Malaysian trustee which does not carry on business in Malaysia, does not remit income to Malaysia and is not in receipt of Malaysian source income.

General requirements in the Labuan IBFC (ToR A.2.1) Relevant entities governing laws in the Labuan IBFC
226. The Labuan Companies Act requires every company to keep such accounting and other records as will sufficiently explain the transactions and financial position of the company (s.110(1)). The LCA also requires companies to make appropriate accounting entries within 90 days of the completion of the transactions to which they relate (s.110(2)). 227. The LCA does not require that Labuan company accounts are audited, unless: (i) other laws in Labuan in respect of financial services so require; (ii) the companys articles so provide; or (iii) the company makes a offer for subscription or purchase of securities as detailed in section 113. There is no specific requirement that the financial statements comply with approved accounting standards. 228. The directors of a Labuan company are responsible for ensuring that (LCA s.111): the audited accounts or unaudited accounts, as the case may be, of the company are laid at a meeting of members not more than nine months after the date to which the accounts are made up; and an annual certificate from a director is lodged with the Authority within 30 days of the accounts being laid before the company at a meeting of members stating that he has considered the accounts and certifying, with or without qualifications: (i) that those accounts show that the company was solvent at the date they were made up; (ii) that he is unaware of any circumstances which may render those accounts untrue; (iii) that no circumstances have occurred since the date to which those accounts were made up which would render the company insolvent. 229. The accounting requirements in the LCA apply to all Labuan companies, including foreign companies and Labuan PCCs (s.110 combined with s.2(1)). 230. Under the LLPLLPA (s.70), limited partnerships and limited liability partnerships must keep such accounting and other records as are sufficient to explain their transactions and disclose with reasonable accuracy at any time the partnerships financial position. The LLPLLPA does not provide guidance on which accounting records are to be prepared. Every general partner

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or designated partner, as the case may be, is responsible for ensuring that appropriate entries are made in the accounting and other records of the partnership within 60 days of the completion of the transactions to which they relate. Unless otherwise required in the partnership agreement, partnerships accounts are not required to be audited (s.70(4)). 231. The Labuan Trusts Act (LTA) requires trustees to keep accurate accounts and records of their trusteeship and to render an account of such trusteeship as required by the terms of the trust or by an order of a court (s.30(4)). In addition, the Labuan Financial Services and Securities Act explicitly requires that a Labuan trust company acting as the resident trustee keeps proper accounting and other records in Labuan that will sufficiently explain its transactions and financial position (s.175(1)). The requirements described above also apply to Labuan Islamic trusts (Labuan Islamic Financial Services and Securities Act s.105(2)). 232. With respect to Labuan foundations, the Labuan Foundations Act provides similar requirements concerning the keeping of accurate accounts and records as the Labuan Trusts Act (LFA s.59). In addition, the Labuan trust office which acts as the secretary of a Labuan foundation (LFA s.41) is required to keep proper accounting and other records as detailed in the LFSSA (s.175). The same requirements apply to Labuan Islamic foundations (Labuan Islamic Financial Services and Securities Act s.107(2)).

Tax law
233. The Labuan Business Activity Tax Act does not expressly require that companies, partnerships, trusts or foundations keep accounting records. Companies carrying out trading activity in Labuan are implicitly required to prepare accounts, as the chargeable profits of a Labuan entity carrying on a Labuan trading activity is the net profits as reflected in the audited accounts in respect of such Labuan trading activity (s.4(2)).

Conclusion
234. Commercial and regulatory law obligations, taken together, result in all relevant entities in Labuan being required to maintain accounting records which: (i) correctly explain all transactions; (ii) enable the financial position of the entity or arrangement to be determined with reasonable accuracy at any time; and (iii) allow financial statements to be prepared.

Underlying documentation (ToR A.2.2)


235. Labuans commercial and tax laws do not expressly impose an obligation to retain underlying documentation, such as invoices, contracts, etc.

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The 5-year retention standard (ToR A.2.3)


236. Accounting records in the Labuan IBFC are required to be kept for a minimum period that is compliant with the standards. More specifically, section 13(9) of the Labuan Company Act provides that all accounting records must be kept by the company for at least six years.24 The exact period depends on the type of record. 237. The Labuan laws on partnership, trusts and foundations do not provide for a minimum retention period for accounting records and underlying documentation. However, sections 82(1) and 82(2) of the LFSSA require Labuan trust companies to maintain all records as may be required under the law for a period of not less than 6 years from the date of closure of an account or the date when the transaction has been completed or terminated. 238. Overall, relevant entities in the Labuan IBFC are subject to requirements to keep accounting records for the minimum period required by the standards (five years). There are no express provisions in the laws regulating the Labuan IBFC requiring the maintenance and retention of underlying documentation, however.

24.

Return of allotment of shares for cash should be filed for not less than six years; any annual return or balance sheet that should be lodged for not less than seven years or any document creating or evidencing a charge or the complete or partial satisfaction of a charge where a memorandum of satisfaction of the charge has been registered for not less than seven years; any other document (other than the M&As or any other document affecting them) which has been lodged, filed or registered for not less than fifteen years. Any document lodged, filed or registered that relates to a Labuan company or a foreign Labuan company that has been dissolved or has ceased to be registered is to be kept for at least fifteen years. In addition, the approved auditor shall retain for seven years a copy of the accounts to which his certificate relates (s.111(2B) LCA). Further, s.82(1) and s.82(2) of the LFSSA require the Labuan trust company to maintain all records as may be required under the law for a period of not less than 6 years from the date of closure of an account or the date when the transaction has been completed or terminated.

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Determination and factors underlying recommendations
Phase 1 determination The element is in place, but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations There is no express requirement on (i) entities in the Labuan IBFC, and (ii) certain trusts that do not carry on business in Malaysia and do not derive or receive income in Malaysia, to keep underlying documentation. Recommendations There should be an express requirement for all relevant entities and arrangements to keep accounting records and underlying documentation for a minimum five year period.

A.3. Banking information


Banking information should be available for all account-holders.

Record-keeping requirements in Malaysia and in the Labuan IBFC (ToR A.3.1)


239. Banks and other financial institutions defined as reporting institutions under First Schedule of the AMLATFA are obliged to keep records, centralise information and retain records. Licensed banks under the LFSSA and LIFSSA which provide Labuan financial services as defined in the LFSAA are also reporting institutions under AMLATFA. 240. Section 13 of the AMLATFA requires reporting institutions to keep records of all transactions involving domestic currency or any foreign currency exceeding such amount as the competent authority may specify. The record of the transactions is to include: the identity and address of the person in whose name the transaction is conducted; the identity and address of the beneficiary or the person on whose behalf the transaction is conducted, where applicable; the identity of the accounts affected by the transaction, if any; the type of transaction involved, such as deposit, withdrawal, exchange of currency, cheque cashing, purchase of cashiers cheques or money orders or other payment or transfer by, through, or to such reporting institution;

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the identity of the reporting institution where the transaction occurred; and the date, time and amount of the transaction. 241. Further, section 16 of the AMLATFA requires the reporting institutions to identify their customers, obtaining information inter alia with respect to the customers representative capacity, domicile, legal capacity, occupation or business purpose. 242. The Standard Guidelines on AML/CFT requires the reporting institutions to keep records relevant to the accounts and transactions, which include the periodic account statements and account opening documents. Subparagraph 6.1.1 of the Standard Guidelines states as follows: The reporting institution should keep the relevant records including any material business correspondences and documents relating to transactions, in particular, those obtained during customer due diligence procedures, for at least six years after the transaction has been completed or after the business relations with the customer have ended. 243. In addition, section 3 of the AMLATFA defines transaction as include an arrangement to open an account involving two or more person and any related transaction between any of the persons concerned and another. 244. Under the AMLATFA, reporting institutions are required to maintain records for a period of not less than 5 years from the date an account has been closed or the date the transaction has been completed or terminated (AMLATFA s.17). Reporting institutions are also required to maintain records to enable the reconstruction of any transaction in excess of such amount as the competent authority may specify, for a period of not less than 5 years from the date the transaction has been completed or terminated (s.17).
Determination and factors underlying recommendations
Phase 1 determination The element is in place.

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B. Access to information

Overview
245. A variety of information may be needed in a tax enquiry and jurisdictions should have the authority to obtain all such information. This includes information held by banks and other financial institutions as well as information concerning the ownership of companies or the identity of interest holders in other persons or entities, such as partnerships and trusts, as well as accounting information in respect of all such entities. This section of the report examines whether Malaysias legal and regulatory framework gives to the authorities access powers that cover the right types of persons and information and whether rights and safeguards would be compatible with effective exchange of information. 246. Malaysias competent authority has broad powers to obtain any relevant information from any person who holds the information and has measures to compel the production of such information. The ability of Malaysias competent authority to obtain information for international exchange of information (EOI) in tax matters is derived from its general access powers under the Income Tax Act, coupled with some secondary rules on exchange of information. No domestic interest requirement exists for Malaysias competent authority to exercise its information gathering powers. These powers are exercised by issuance of a notice requesting the production of the information, and non-compliance can be sanctioned with significant penalties. This power covers access to identity, ownership and accounting information. 247. In relation to the Labuan IBFC, a separate specific law (Labuan Business Activity Tax Act)gives the competent authority the ability to obtain and provide requested information. The power to exchange information applies irrespective of how a request is made, e.g. under a DTC or a tax information exchange agreement (TIEA). As a result, information which is already available to the competent authoritiy can be exchanged under all EOI instruments, including TIEAs. However, the competent authoritys power to call for provision of information in relation to entities in the Labuan IBFC can currently

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only be exercised where an EOI request is made under a DTC. As Malaysia currently has no TIEAs, this gap in its ability to obtain information for TIEA purposes in the Labuan IBFC is not materially significant. It has, however, recently begun to negotiate TIEAs and is in the process of amending its legislation to ensure that information can be obtained for the purposes of replying to a request under a TIEA with the aim to have this legislation in place quickly before a TIEA is in force. 248. Malaysia is only able to access bank information to answer an exchange of information request received pursuant to a double taxation convention (DTC) containing an equivalent of Article 26(5) of the OECD Model Tax Convention. Only these DTCs containing this explicit provision are considered to override domestic secrecy laws. 249. Malaysia does not have the power to obtain and provide information that is held outside Malaysia, even if such information is in the control of a person within its territorial jurisdiction. This gap in the Malaysian legal framework is mitigated by the fact that Malaysian laws require that most relevant ownership and accounting information is kept in Malaysia.

B.1. Competent Authoritys ability to obtain and provide information


Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information).

250. The competent authority for exchanging information in Malaysia is the Minister of Finance or his authorised representative. The Minister of Finance has authorised via letter the following persons, inter alia, as its representatives: the Director of the Department of International Taxation of the Inland Revenue Board of Malaysia and the Director General of the Inland Revenue Board of Malaysia (DGIR). Based on their authorisation, they are the competent authority for both EOI requests received from treaty partners and Malaysian requests sent to treaty partners. 251. The Income Tax Act (ITA) contains provisions on access powers available in Malaysia and the Labuan Business Activity Tax Act 1990 contains provisions delegating access powers in the Labuan IBFC to the DGIR. 252. The Income Tax Act (ITA) contains provisions on access powers but does not expressly provide that these may be used to collect information for EOI purposes. However, section 132 which gives DTCs the force of law provides in subsection (4) that in addition to provisions for relief from double

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taxation, other provisions relating to tax under this Act or to foreign tax of the territory to which the arrangements relate are given effect under this section. A provision with similar effects is contained in section132A with regard to TIEAs. The ITA gives tax authorities information gathering powers for the purposes of this Act. Therefore, the competent authority can use the normal access powers available to the Inland Revenue Board of Malaysia in order to obtain information requested by a foreign authority under a DTC or TIEA. 253. Pursuant to the ITA, the DGIR is granted powers to call for production of specific returns and books (s.78); call persons for the delivery of their bank account statements (s.79); access buildings and documents (s.80); and call for information for the purposes of the ITA (s.81). 254. Section 81 of the ITA provides that: 81. The Director General may require any person to give orally or may by notice under his hand require any person to give in writing within a time specified in the notice all such information or particulars as may be demanded of him by the Director General for the purposes of this Act and which may be in the possession of that person: Provided that, where that person is a public officer or an officer in the employment of a local authority or statutory authority, he shall not by virtue of this section be obliged to disclose any particulars as to which he is under a statutory obligation to observe secrecy. 255. With regard to the powers granted under section 81 of the ITA, the ITA is complemented by the Income Tax (Request for Information) Rules 2011 (the Rules) which expressly provide the Inland Revenue Board of Malaysia (its DGIR or delegated officers) with the power to use its powers under Section 81 to answer an EOI request made pursuant to a DTC. According to the Malaysian authorities, the Rules are intended mainly to address access to bank information and only refer to section 81, so that the DGIR does not need to exhaust all other measures to obtain such information before obtaining it directly from the bank, as this would affect the timeliness of the response to requests for information. The access powers provided for in the other sections can still be exercised by the DGIR pursuant to the ITA even though they are not mentioned in the Rules. The Rules do not address requests made pursuant to TIEAs, as the competent authorities powers to access information in connection to TIEAs and the relevant EOI procedure are already specified in great detail in the TIEAs themselves.

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256. As far as the Labuan IBFC is concerned, section 22 of the Labuan Business Activity Tax Act 1990 (LBATA)25 empowers the Director General of the Inland Revenue Board to call for information for EOI purposes. Section 22 does not allow the DGIR to call for information for the purpose of replying to a request made pursuant to a TIEA, although the DGIR has powers to exchange information which is already in the possession of the tax authorities under any kind of EOI arrangement, including TIEAs. This would include tax return and accounting information submitted by companies in Labuan that are liable to tax. There are no policy impediments in Malaysia to the conclusion of TIEAs. In fact, Malaysia and Bermuda have recently concluded TIEA negotiations. As a result, Malaysia is now in the process of amending its legislation to allow it to obtain information, which might not otherwise be available to its tax authorities, in respect of the Labuan IBFC pursuant to TIEAs. The new legislation is scheduled for parliamentary discussions in October 2011.

Ownership and identity information (ToR B.1.1), and Accounting records (ToR B.1.2)
257. The DGIR is granted powers under section 81 of the ITA to call any person to provide, orally or in writing, information that may be required for the purposes of the ITA. However, those powers contain a restriction: the DGIR is not able to access information that is in the hands of public officers if they have a statutory obligation to observe secrecy in relation to such information (s.81, last sentence). 258. As a result of this provision, the DGIR may not be able to access, for example, certain ownership information held by the Registrar. Based on the CA, the Registrar is also prohibited by the Companies Act from divulging or communicating any information acquired in an inspection to any person (except for the purposes of the CA or in the course of a criminal procedure) (CA, s.7(B)(4)). In any case, the DGIR can access such information directly from the relevant persons, as noted previously in Part A of this report.26
25. Section 22: For the purpose of this Act, the Director General may by notice in writing require any person to furnish such information or particulars as may be required by him or for compliance with any double taxation arrangements entered into by the Government of Malaysia; (2) Where any person, without reasonable excuse, fails to comply with the notice mentioned in subsection (1), he shall be guilty of an offence and shall, on conviction, be liable to a fine not exceeding one million ringgit. The Malaysian authorities confirmed that all information contained in documents filed or lodged with the Registrar, and certificate of incorporation or any certificate filed under the CA are available to the DGIR. However, information acquired by the Registrar pursuant to sections 7B, 7C and 7D cannot be disclosed to the DGIR. The scope of these sections may cover any object, article, material, or other documents

26.

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259. With specific regard to EOI requests, pursuant to section 3(3) of the Income Tax (Request for Information) Rules 2011 (the Rules), the DGIR, upon receipt of an EOI request, may, by notice under section 81 of the ITA, require the person referred to in the request to provide the information as requested by the foreign competent authority within the time specified in the notice. 260. This wording largely copies the one of section 81 of the ITA, pursuant to which the Director General may require any person to give orally, or may by notice27 require any person to give in writing within a time specified in the notice, all such information or particulars for the purposes of the Income Tax Act and which may be in the possession of that person. The Rules refer only to written notices, while section 81 also provide for the possibility to require a person to give information orally. The Rules set specific conditions for the competent authority to consider an EOI request, before making use of its information gathering powers. The requesting authority must state in the request the following information: (a) identity of the person under examination or investigation; (b) the period for which the information is requested; (c) a statement of the information sought including the details and form as the competent authority wishes to receive the information from the Director General; (d) the tax purpose for which the information is requested; (e) the grounds for believing that the information requested is in the possession or control of a person within the jurisdiction of Malaysia; (f) to the extent known, the name and address of any person believed to be in possession of the requested information; (g) a statement that the request is inconformity with the law and administrative practices of the territory of the competent authority, that if the request was within the jurisdiction of the territory of the competent authority, then the competent authority would be able to obtain the information pursuant to the laws of its own territory or in accordance with the normal course of administrative practice and is in conformity with the double taxation arrangement; and (h) a statement that the competent authority has pursued all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties. These requirements are consistent with the standard and follow the guidance provided by the OECD Model TIEA, in particular with regard to the identity of taxpayers and the holders of information.
disclosed to the Registrar. The Malaysia Central Bank, the competent authority under the AMLATFA, is also prohibited from disclosing information to the DGIR for purposes other than the ones described in the AMLATFA. As such, the Central Bank can only disclose information which relates to the investigation of the offences listed under the Second Schedule of AMLATFA which are under IRBMs purview. However, IRBM is authorized to obtain the necessary information directly from the reporting institutions listed in the First Schedule of the AMLATFA. Notices may be served personally or by ordinary or registered post, pursuant to section 145 of the ITA.

27.

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261. In sum, the DGIR can require all information, including ownership, identity and accounting information. It also appear that he/she can require information from any person, meaning the taxpayer or a third party, provided the person possesses the requested information and was identified in the EOI request. Persons in control of the information on the other hand are not covered. As a result, Malaysia does not have the power to obtain and provide information held outside of Malaysia, even if such information is in the control of a person within its territorial jurisdiction. The size of this gap is small as most of Malaysias laws require that information is kept within Malaysia. For example, the Companies Act requires share registers and accounting records be kept in Malaysia. Similarly, the Labuan Companies Act and the LFSSA require ownership information and accounting records to be kept in the Labuan IBFC. The Income Tax Act also requires accounting records of Malaysian businesses to be kept in Malaysia. The Malaysian authorities are in the process of submitting legislation for parliamentary approval in order to empower its competent authority to access information controlled by persons in Malaysia. This legislation is expected to be tabled in parliament in October 2011. 262. With respect to the Labuan IBFC, the LBATA seems to provide broader powers to the DGIR to meet its obligations under the DTCs than the ITA does in respect to the rest of Malaysia. Section 22 of the LBATA empowers the DGIR to require any person to furnish any information or particulars that may be required by the DGIR or may be required for the compliance with any DTC, by means of a notice in writing. 263. No further regulations have been issued in relation to any specific procedures the DGIR will follow when reviewing an EOI request connected to the Labuan IBFC. The Malaysian authorities confirmed that section 22 of the LBATA will be applied in accordance with the international standard. The implementation of section 22 of the LBATA will be assessed in Malaysias Phase 2 review.

Banking information (ToR B.1.1)


264. The Malaysian authorities have advised that the power to call for bank information (ITA ss.79 and 81) cannot be exercised absent a provision in the relevant international agreement akin to Article 26(5) of the OECD Model Tax Convention, which specifically notes that the parties to the agreement have agreed, for the purposes of EOI, to lift domestic secrecy provisions (see also Part C.1 of this report). 265. Access to bank information is specifically dealt with in section 79 of the ITA. Pursuant to this section, the DGIR has powers to call for statements of bank accounts and other information from bank account holders.

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266. In addition, section 81 combined with the Rules gives the DGIR the power to go directly to the bank to request information in order to respond to an intervention request for information in accordance with a DTC provision akin to Article 26(5) of the OECD Model Tax Convention. As a general rule, after receiving a request for information from the foreign competent authority, the DGIR will request the information from the account holder concerned and if it fails to obtain it, the DGIR will subsequently ask the information directly from the bank (Rules s.4(2)). However, section 4(3) of the Rules grants discretionary powers to the DGIR to request information directly from a bank without having to request it from the account holder first (see discussion under Part B.2 below). 267. In order for banks to co-operate with the DGIRs requests under the Rules, the Central Bank issued the Circular on the Disclosure of Customer Information to the Inland Revenue Board of Malaysia of 29 July 2011 (the Circular). Since, in Malaysia, banks are required by law28 to disclose information only based on an authorisation in writing from the Central Bank, the Central Bank, by means of the Circular, has granted a blanket authorisation, in which it authorises licensed banks, Islamic banks and other prescribed financial institutions to disclose bank information to the DGIR, provided that the request contains certain information. As required under section 6.1 of the Circular, in order to disclose information, the bank must receive a notice in writing issued by the Internal Revenue Board of Malaysia (IRBM) pursuant to section 81 of the ITA that contains the identity information of the account holder under examination or investigation. In addition, the Circular provides that, as a general rule, the bank must receive a statement from the IRBM confirming that the account holder has failed to comply with the IRBMs request within the timeline specified (s.6.3). In such a case, the bank is required to notify its customer of the information and documents it has furnished to the IRBM. As an exception to this requirement, section 6.4 of the Circular provides that, when the request is of urgent nature or in the case where prior notification to the customer is likely to undermine the actions of the IRBM, the IRBM will not make a prior request to the account holder and the bank is not required to notify such customer of the information or documents that have been furnished to the IRBM. 268. In conclusion, the requirements for accessing bank information under a DTC which contains a provision akin to Article 26(5) of the OECD Model Tax Convention, as provided in the Rules and in the Circular are in accordance with the international standard, including with respect to the identification of the taxpayer (see paragraph 260). However, the Malaysian authorities can currently only exercise these powers to access bank information for requests received under 18 signed agreements (10 of which are force).
28. See the Banking and Financial Institution Act 1989 (s. 99(1)(i)), the Islamic Bank Act 1983 (s.34(3)) and the Development and Financial Institutions Act (s. 120(1)(k)).

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269. With respect to the Labuan IBFC, the DGIR has powers to directly request information from Labuan banks, financial institutions and any other person, as long as such information is required for compliance with a DTC (LBATA s.22). However, as stated above, if the DTC lacks a provision similar to Article 26(5), the Malaysian authorities cannot access and exchange bank information. In addition, the DGIR is not empowered to call for information where an EOI request is made pursuant to a TIEA, although, as already indicated, Malaysia has not yet concluded any TIEAs.

Use of information gathering measures absent domestic tax interest (ToR B.1.3)
270. The concept of a domestic tax interest describes a situation where a contracting party can only provide information to another contracting party if it has an interest in the requested information for its own tax purposes. There is no domestic tax interest in Malaysia (including the Labuan IBFC) to obtain and provide information to a contracting party. 271. The ITA contains provisions on access powers which may also be used to collect information for EOI purposes. Section 132(4) provides that in addition to provisions for relief from double taxation, other provisions relating to tax under this Act or to foreign tax of the territory to which the arrangements relate are given effect under this section. A provision with similar effects is contained in section132A with regard to TIEAs. The ITA gives tax authorities information gathering powers for the purposes of this Act. Therefore, the competent authority can use the normal access powers available to the Inland Revenue Board of Malaysia in order to obtain information requested by a foreign authority under a DTC or TIEA.

Compulsory powers (ToR B.1.4) Sanctions for non-disclosure


272. The Rules provide that any person to whom a notice is issued who, without reasonable excuse, fails to comply with the notice commits an offence under section 120 of the ITA. In turn, section 120 provides that any person who, without reasonable excuse, fails to comply with a notice given under sections 78, 79, 80(3) and 81, may be guilty of an offence and, on conviction, be liable to a fine between MYR 200 (EUR 46) and 2 000 (EUR 460) and/or to imprisonment up to six months. 273. In addition, where a person has been convicted of such an offence, a subordinate court may make a further order that the person must comply with the relevant provision of the ITA under which the offence has been

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committed within 30 days, or such other period as the court deems fit, from the date the order is made. 274. In the Labuan IBFC, breach of the disclosure obligation in section 22 of the LBATA is an offence punishable by a fine of up to MYR 1 000 000 (EUR 230 000).

Search and seizure


275. Section 80 of the ITA on the power of access to buildings and documents provides that the DGIR has at all times full and free access to all lands, buildings and places and to all books, documents, objects, articles, materials and things and may search these places and inspect, copy and make extracts from any of these documents, for the purposes of the ITA. 276. The DGIR may also seize the above-mentioned documents and objects (take possession of them) where their inspection, etc. cannot reasonably be undertaken and where there is a risk that they would be destroyed or interfered with, or they may be needed as evidence in any legal proceedings instituted under or in connection with the ITA. 277. The DGIR can use these powers without the need for a court order. The official exercising the right of access or seizure of section 80 must hold a warrant from the DGIR which identifies the official and his/her office (ITA s.137). 278. Any person who obstructs or refuses to permit entry to an authorised officer acting pursuant to section 80 into any land, building or place has committed the offence of obstruction, which is punishable by a fine between MYR 1 000 (EUR 230) and MYR 10 000 (EUR 2 300) and/or by imprisonment of up to one year (ITA s.116).29 279. With respect to the Labuan IBFC, the LBATA does not grant the DGIR powers to search premises or documents and/or to seizure documents or object. Powers of entry, search and seizure with respect to premises or documents of Labuan financial institutions or related corporations are granted to
29. Not responding to an information request constitutes the tax offence of obstruction punishable by a fine between MYR 1 000 and 10 000 and/or by imprisonment up to one year, pursuant to section 116 of the ITA. This also applies generally to any person who obstructs the Director General or an authorised officer in the exercise of their functions under the ITA. This sanction is also specifically applicable to any person who refuses to produce any book or other document in his/her custody or under his/her control on being required to do so by the Director General or an authorised officer, who fails to provide reasonable facilities or assistance or both to the Director General or an authorised officer in the exercise of their powers, or who refuses to answer any question relating to any of those purposes lawfully asked of him/her.

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the Labuan Financial Services Authority (LFSA) (Labuan Financial Services Authority Act s.28E). The Malaysian authorities confirmed that the LFSA may proceed with search and seizure on the request of the DGIR. This issue will be further reviewed in Malaysias Phase 2 review.

Secrecy provisions (ToR B.1.5)


280. Malaysia has a number of secrecy and confidentiality provisions in various pieces of legislation, primarily for the financial institutions. These provisions are generally lifted for exchange of information purposes.

Bank secrecy
281. Licensed banks, Islamic banks and prescribed institutions are prohibited from disclosing any information relating to the affairs or account of a customer to any person (Banking and Financial Institutions Act 1989 (BAFIA) s.97; Islamic Banking Act 1983 (IBA) s.34(3); and Development Financial Institutions Act 2002 (DFIA) s.119(2)). These secrecy provisions exist to protect the interests of the banks customers. A person who contravenes these provisions is liable to imprisonment for up to three years and/ or a fine up to MYR 3 000 000 (EUR 690 000) (BAFIA s.103 and Fourth Schedule), imprisonment for up to three years and/or fine up to MYR 40 000 (EUR 9 200) (IBA s.34(5)) or imprisonment for up to six months and/or fine up to MYR 500 000 (EUR 115 000) (DFIA s.107). 282. Exceptions exist, including for the purposes of any criminal proceedings or where such a disclosure is authorised in writing by the Central Bank.30 To allow the competent authority to have access to bank information, the Central Bank has given a blanket authorisation via a circular to the banks to disclose bank information to the DGIR where the disclosure of the bank information to the requesting party is required by the Inland Revenue Board of Malaysia (IRBM) under section 81 of the Income Tax Act 1967 (ITA) for purposes of facilitating exchange of information pursuant to arrangements having effect under sections 132 and 132A of the ITA (please see Part B.1.1 of this report). Not complying with a request from the tax authorities is punished as any breach of section 81 of the ITA (see above). 283. In the Labuan IBFC, bank confidentiality is also protected by the Labuan Financial Services and Securities Act 2010 (s.178) and by the Labuan Islamic Financial Services and Securities Act 2010 (s.139). A person who contravenes secrecy is liable to imprisonment for up to three years and/or a fine up to MYR 1 000 000 (EUR 230 000). Among the exceptions to this
30. Exceptions to secrecy are found in BAFIA ss.98 to 99(1); IBA ss.34(3) and 34(4) and DFIA s.120.

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prohibition on disclosure of bank information are any lawfully disclosure required by the DGIR (under LBATA s.22) or by the LFSA (under LFSAA s.28B).

Professional secrecy
284. The international standard recognises that a requested State may decline to disclose information relating to confidential communications between attorneys, solicitors or other admitted legal representatives in their role as such and their clients to the extent that the communications are protected from disclosure under domestic law (Commentary 19.3 to the OECD Model Tax Convention). However, the scope of protection afforded to such confidential communications should be narrowly defined. Such protection does not attach to documents or record delivered to an attorney, solicitor or other admitted legal representative in an attempt to protect such documents or records from disclosure required by law. Also, information on the identity of a person such as a director or beneficial owner of a company is typically not protected as confidential communication. 285. Two sections of the Evidence Act 1950 relate to legal professional privilege. First, section 126 expressly provides that where information is covered by legal professional privilege, such information may not be disclosed unless the privilege is waived by the client: No advocate shall at any time be permitted, unless with his clients express consent, to disclose any communication made to him in the course and for the purpose of his employment as such advocate by or on behalf of his client, or to state the contents or condition of any document with which he has become acquainted in the course and for the purpose of his professional employment, or to disclose any advice given by him to his client in the course and for the purpose of such employment. 286. Section 127 of the Evidence Act provides the same privilege to any communication of the client with interpreters and the clerks and servants of advocates. 287. The Malaysian authorities have indicated that the information gathering powers of the DGIR cannot be exercised in order to obtain information subject to the legal professional privilege described in sections 126 and 127. The language of section 126 appears to cover not only the provision of legal advice and communication related to legal proceedings, but any communication connected to the attorneys employment. The Malaysian authorities have confirmed, however, that section 126 applies only to legal advice provided by advocates and not to other activities attorneys might conduct such as company formation etc. In this sense, the authorities confirmed that the legal privilege is not so wide as to restrict access to information in case a lawyer acts, for

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instance, as a nominee shareholder, a trustee, a settlor, a company director or under a power of attorney to represent a company in its business affairs. The interpretation given to section 126 and any impact on exchange of information in practice will be further reviewed in Malaysias Phase 2 review. 288. Section 119 of the Evidence Act, on confidential communications with legal advisers, further provides: No one shall be compelled to disclose to the court any confidential communication which has taken place between him and his legal professional adviser unless he offers himself as a witness. Section 119 could cover persons of legal training but not admitted to practice law, but only where there is a court matter and only covers confidential communications between the legal professional adviser and his client. In this specific context, the privilege is in line with the international standards.
Determination and factors underlying recommendations
Phase 1 determination The element is in place, but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations While most laws specifically require that information is kept within Malaysia, Malaysian authorities do not have the power to obtain and provide information held outside of Malaysia, even if such information is in the control of a person within its territorial jurisdiction. Restrictions on access to bank information provided for by Malaysias domestic legislation is currently overridden in respect of only 18 of the 71 signed DTCs (10 of which are in force). Although the competent authority can exchange any information already in its possession, it does not currently have powers to access information in the Labuan IBFC in order to respond to an EOI request made pursuant to a TIEA. Recommendations Malaysia should ensure that it has the power to access information sought under its EOI instruments which is controlled by persons in Malaysia, even if it is located extra-territorially.

In respect of EOI requests made pursuant to its EOI agreements, Malaysia should ensure that its competent authority has access to bank information. Before entering into any TIEAs, Malaysia should ensure that its competent authority has the power to obtain and provide information that is the subject of a request under a TIEA from any person within its territorial jurisdiction who is in possession or control of such information, including from financial institutions.

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B.2. Notification requirements and rights and safeguards


The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information.

Not unduly prevent or delay exchange of information (ToR B.2.1)


289. Rights and safeguards should not unduly prevent or delay effective exchange of information. For instance, notification rules should permit exceptions from prior notification (e.g. in cases in which the information request is of a very urgent nature or the notification is likely to undermine the chance of success of the investigation conducted by the requesting jurisdiction). 290. As a general rule, neither section 81 of the ITA nor the Rules require that the taxpayer be notified before information concerning him/her is provided to a requesting jurisdiction. In addition, where the Malaysian tax authorities must use their information gathering powers, there is no requirement that the taxpayer concerned be notified of the exercise of such a power. 291. The Malaysian authorities indicate that there are no notification requirements in regard to seeking information for exchange of information purposes in the Labuan IBFC. 292. As a general rule, as provided for by section 4(2) of the Rules, the Malaysian tax authorities cannot go to the bank directly, without having first requested the information from the taxpayer concerned (and failed to obtain it; see above Part B.1.1 on bank information). This amounts to a notification requirement. This is confirmed by section 6.3 of the Central Bank Circular. However, section 4(3) of the Rules (combined with section 6.4 of the Central Bank Circular) goes on to provide an exception to this requirement. Accordingly, the Malaysian competent authority may request information directly from a bank without having to request information from the account holder first. Section 4(3) does not specifically list the conditions or cases for its application. Therefore, the Malaysian tax authorities have discretionary powers allowing that the prior request to the taxpayer can be waived (e.g. when the information request is of a very urgent nature, or, where requesting information directly from the person would likely undermine the chance of success of the investigation conducted by the requesting jurisdiction). The practical application of this discretion will be considered in Malaysias Phase 2 review. 293. In addition, in order to co-operate with the DGIR/IRBM, as a general rule, the bank must receive a statement from the IRBM confirming that the account holder has failed to comply with the IRBMs request within the timeline specified (s.6.3). In such a case, the bank is required to notify its customer of the information and documents it has furnished to the IRBM. As an exception to this requirement, section 6.4 of the Circular provides that, when the request is

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of urgent nature or in the case where prior notification to the customer is likely to undermine the actions of the IRBM, the IRBM will not make a prior request to the account holder and the bank is not required to notify such customer of the information or documents that have been furnished to the IRBM. 294. The notification requirements and exceptions to notification are in accordance with the international standard. 295. The Malaysian authorities have indicated that there are no other appeal rights available in Malaysia, including the Labuan IBFC, that could prevent or delay exchange of information.
Determination and factors underlying recommendations
Phase 1 determination The element is in place.

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C. Exchanging information

Overview
296. Jurisdictions generally cannot exchange information for tax purposes unless they have a legal basis or mechanism for doing so. A jurisdictions practical capacity to effectively exchange information relies both on having adequate mechanisms in place as well as an adequate institutional framework. In Malaysia, the legal authority to exchange information derives from bilateral mechanisms (double taxation conventions) or domestic law. This section of the report examines whether Malaysia has a network of information exchange that would allow it to achieve effective exchange of information in practice. 297. Malaysia has a large treaty network of 71 exchange of information instruments which include most of its main trading partners. Since 2009, when it committed to the standards for transparency and exchange of information in tax matters, Malaysia has signed 18 DTCs/protocols to existing DTCs, all of which fully conform to the standard, and 10 of which are in force. A further 9 agreements have been initialled and 15 agreements are under various stages of negotiation. 298. The Malaysian domestic legislation allows the exchange of bank information only where the exchange of information instrument applied contains a specific provision to this effect. Considering that none of the EOI instruments that Malaysia had signed before its commitment to the standards in April 2009 contained such a provision, these do not meet the standard. All the instruments signed by Malaysia since that time contain a full exchange of information provision, including wording akin to Article 26(5) of the OECD Model Tax Convention. In addition, Malaysia embarked in an ambitious programme of negotiation of protocols to its treaties to bring them to the standard. 299. When negotiating protocols to existing DTCs, Malaysia should also upgrade the EOI provision of the few treaties that do not allow exchange of information in respect of all persons.

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300. Other aspects of Malaysias EOI provisions meet the standard. There is no distinction drawn in Malaysias DTCs between civil and criminal matters as far as taxation is concerned, and no dual criminality condition applies. There are no restrictions in the EOI provisions in Malaysias DTCs that would prevent Malaysia from providing information in a specific form, as long as this is consistent with its own administrative practices. 301. All EOI articles in Malaysias DTCs have confidentiality provisions and its domestic legislation also contains relevant confidentiality provisions. In addition, all of Malaysias DTCs ensure that the parties are not obliged to provide information that would disclose any trade, business, industrial, commercial or professional secret or information the disclosure of which would be contrary to public policy. 302. Finally, there appear to be no legal restrictions on the ability of Malaysias competent authority to respond to requests within 90 days of receipt by providing the information requested or by providing an update on the status of the request.

C.1. Exchange of information mechanisms


Exchange of information mechanisms should allow for effective exchange of information.

303. Malaysia has signed 71 agreements which provide for the exchange of information upon request. All of these are DTCs. While Malaysia has not yet signed any tax information exchange agreements (TIEAs), the introduction of section 132A of the ITA in February 2011 enables the government to enter into TIEAs with any foreign jurisdiction. 304. Malaysian laws do not provide for automatic exchange of information. However, in the process of audit or investigation work, information that is likely of benefit to its treaty partners is exchanged spontaneously.

Foreseeably relevant standard (ToR C.1.1)


305. The international standard for exchange of information envisages information exchange upon request to the widest possible extent. Nevertheless it does not allow fishing expeditions, i.e. speculative requests for information that have no apparent nexus to an open inquiry or investigation. The balance between these two competing considerations is reflected in the standard of foreseeable relevance which is included in Article 26(1) of the OECD Model Tax Convention set out below: The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the

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provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2. 306. Malaysias network of DTCs generally follows the OECD Model Tax Convention. The agreements signed or revised after 2009 contain a specific reference to the exchange of information that is foreseeably relevant to the administration or enforcement of the tax laws of the Contracting States. Older DTCs generally use the term necessary in lieu of foreseeably relevant. The phrase as is necessary is recognised in the commentary to Article 26 of the OECD Model Taxation Convention to allow for the same scope of exchange as does the term foreseeably relevant.31 The Malaysian authorities have confirmed that they follow this interpretation when applying DTCs. 307. Malaysias DTCs with Denmark, New Zealand, Norway and Pakistan provide for the exchange of information which the authorities have at their disposal in the normal course of administration as is necessary for carrying out this Convention, in particular for the prevention of fraud, and for the administration of statutory provisions against legal avoidance concerning taxes covered by the Convention. As such, it might appear that exchange is restricted to information already held by the tax authorities (i.e. it excludes information that the Malaysian tax authorities do not already hold). However, the Malaysian authorities have indicated that they will use their access powers to obtain information requested under these four agreements. 308. The DTCs with Austria, Bangladesh, Switzerland, the USSR (Russia)32, and the UAE limit the exchange of information to that necessary for carrying out the provisions of the convention, not allowing for exchange of information for the administration or enforcement of the domestic laws of the Contracting States. As no obligations arise to exchange information for the implementation of domestic laws, these agreements are not consistent with the international standard.

31.

32.

The word necessary in Article 26(1) of the 2003 OECD Model Taxation Convention was replaced by the phrase foreseeably relevant in the 2005 version. The commentary to Article 26 recognises that the term necessary allows for the same scope of exchange as does the term foreseeably relevant. The agreement signed with the Union of Soviet Socialist Republics in 1987 is in force with respect to the Russian Federation.

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In respect of all persons (ToR C.1.2)


309. For exchange of information to be effective it is necessary that a jurisdictions obligation to provide information is not restricted by the residence or nationality of the person to whom the information relates or by the residence or nationality of the person in possession or control of the information requested. For this reason the international standard for exchange of information envisages that exchange of information mechanisms must provide for exchange of information with respect to all persons. 310. Treaties concluded with Austria, Bangladesh, the USSR (Russia), and the UAE limit information exchange to residents and are in any case not applicable for the administration or enforcement of the domestic laws. None of the other information exchange mechanisms restrict the scope of information exchange to just some persons, (e.g. residents of one of the jurisdictions), or precludes the application of the provisions in respect of certain type of entities. 311. The protocols to the treaties with Indonesia, Germany and South Africa (not yet in force) mention that the benefits of these agreements shall not be available in respect of the carrying on of any offshore business activities under the Labuan Offshore Business Activity Tax Act 1990. Labuan entities are only excluded from benefits of the agreement, for example with respect to reduced withholding tax rates. Similarly, treaties with Luxembourg, the Netherlands, Japan and the Seychelles stipulate that the provision on exemption or reduction of tax shall not apply to persons carrying on offshore business activity under the Labuan Offshore Business Activity Tax Act 1990. Since information exchange is not considered to be a treaty benefit in Malaysia, Labuan entities are not as a result of this provision excluded from the scope of EOI under these DTCs. 312. Of concern however, is the treaty with Chile that completely excludes certain entities from the scope of application. The provisions of this agreement do not apply to persons carrying on offshore business activities under the Labuan Offshore Business Activity Tax Act 1990. 313. The Income Tax (Request for Information) Rules 2011 notes in section 3(1) that a foreign competent authority can request from the Director General of Inland Revenue information related to a person to whom the double tax arrangement entered into relates. The Malaysian authorities have confirmed that this allows for exchange of information with respect to all persons covered in the relevant EOI agreement.

Obligation to exchange all types of information (ToR C.1.3)


314. Jurisdictions cannot engage in effective exchange of information if they cannot exchange information held by financial institutions, and

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nominees or persons acting in an agency or fiduciary capacity. Both the OECD Model Tax Convention and the OECD Model TIEA, which are the authoritative sources of the standards, stipulate that bank secrecy cannot form the basis for declining a request to provide information and that a request for information cannot be declined solely because the information is held by nominees or persons acting in an agency or fiduciary capacity or because the information relates to an ownership interest. 315. Up until Malaysia committed to the standard in 2009, none of its DTCs contained the wording of Article 26(5) of the OECD Model Tax Convention. Since then, all the 18 treaties and protocols that Malaysia has signed incorporate this wording, 10 of which are in force.33 This updating process is key, since Malaysia cannot exchange bank information absent this provision in a treaty (see below) and Malaysia should continue to bring all other treaties in line with the international standard.

Bank information
316. As noted above, Article 26(5) of the OECD Model Tax Convention states that a contracting state may not decline to supply information solely because the information is held by a bank or other financial institution. Ten of Malaysias DTCs or protocols contain such a provision (as well as eight treaties or protocols signed but not yet in force). 317. However, the absence of this paragraph does not automatically create restrictions on exchange of bank information. The Commentary to Article 26(5) indicates that while paragraph 5, added to the OECD Model Tax Convention in 2005, represents a change in the structure of the Article, it should not be interpreted as suggesting that the previous version of the Article did not authorise the exchange of such information. 318. The Malaysian authorities state that it has been their policy not to exchange bank information absent a provision equivalent to Article 26(5) in their treaties. Therefore most of Malaysias DTCs are not to the standard. Malaysia is re-negotiating a number of DTCs in order to include such a provision and meet the standard. Malaysia is strongly encouraged to take all steps necessary to bring these protocols or new agreements into force and update the other instruments as soon as possible.

33.

The ten DTCs and protocols in force are those with Australia, Brunei, Germany, Laos, San Marino, France, Ireland, Japan, the Netherlands and the United Kingdom. The other instruments signed but not yet in force are those with Bahrain, Belgium, Kuwait, Qatar, Senegal, the Seychelles, South Africa and Turkey.

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Absence of domestic tax interest (ToR C.1.4)


319. The concept of domestic tax interest describes a situation where a contracting party can only provide information to another contracting party if it has an interest in the requested information for its own tax purposes. An inability to provide information based on a domestic tax interest requirement is not consistent with the international standard. Contracting parties must use their information gathering measures even though invoked solely to obtain and provide information to the other contracting party. 320. All 18 DTCs/protocols signed by Malaysia since 2009, 10 of which are currently in force, contain wording akin to Article 26(4) of the OECD Model Tax Convention, specifically requiring that the contracting parties use their information-gathering powers to exchange the required information without any reference to a domestic tax interest. 321. Most of Malaysias DTCs do not contain such a provision. However, the absence of a similar provision does not in principle create restrictions on exchange of information provided there is no domestic tax interest impediment to exchange information in the case of either contracting party.34 Malaysia interprets these treaties and its domestic laws in such a way that no domestic tax interest applies (see subsection B.1.3 above). 322. Notwithstanding the above, a domestic tax interest requirement may also exist in some of Malaysias partner jurisdictions. In such cases, the absence of a specific provision requiring exchange of information unlimited by domestic tax interest will serve as a limitation on the exchange of information which can occur under the relevant agreement. It is recommended that Malaysia continues its program of renegotiation of DTCs including to incorporate wording in line with Article 26(4) of the OECD Model Tax Convention.

Absence of dual criminality principles (ToR C.1.5)


323. The principle of dual criminality provides that assistance can only be provided if the conduct being investigated (and giving rise to an information request) would constitute a crime under the laws of the requested country if
34. Paragraph 19.6 of the commentary to Article 26(4) states Paragraph 4 was added in 2005 to deal explicitly with the obligation to exchange information in situations where the requested information is not needed by the requested State for domestic tax purposes. Prior to the addition of paragraph 4 this obligation was not expressly stated in the Article, but was clearly evidenced by the practices followed by member countries which showed that, when collecting information requested by a treaty partner, Contracting States often use the special examining or investigative powers provided by their laws for purposes of levying their domestic taxes even though they do not themselves need the information for these purposes.

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it had occurred in the requested country. In order to be effective, exchange of information should not be constrained by the application of dual criminality principle. 324. None of the information exchange mechanisms established by Malaysia apply the dual criminality principle to restrict exchange of information.

Exchange of information in both civil and criminal tax matters (ToR C.1.6)
325. Information exchange may be requested both for tax administration purposes and for tax prosecution purposes. The international standard is not limited to information exchange in criminal tax matters but extends to information requested for tax administration purposes (also referred to as civil tax matters). 326. The information exchange mechanisms concluded by Malaysia provide for the exchange of information for both criminal and civil matters. In addition, the Malaysian authorities also confirmed that Malaysia does not differentiate between civil and criminal tax matters under its laws. As such, Malaysia can exchange information for both civil and criminal matters in all its EOI instruments.

Provide information in specific form requested (ToR C.1.7)


327. According to the Global Forums Terms of Reference, exchange of information mechanisms should allow for the provision of information in specific form requested (including depositions of witnesses and production of authenticated copies of original documents) to the extent possible under a jurisdictions domestic laws and practice. 328. There are no restrictions in the information exchange mechanisms concluded by Malaysia that might prevent it from providing information in the form requested, as long as this form is consistent with its administrative practices.

In force (ToR C.1.8)


329. Exchange of information cannot take place unless a jurisdiction has information exchange mechanisms in force. Where exchanges of information agreements have been signed the international standard requires that jurisdictions must take all steps necessary to bring them into force expeditiously. 330. Malaysia has information exchange agreements with 71 jurisdictions. Only 10 agreements complying with the international standard are currently

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in force35 and 8 others are awaiting ratification-36 (5 of which have already been ratified by Malaysia and are waiting the ratification by the other party). 331. Since the commitment to the standard by Malaysia in April 2009, the average time period between the signature and the entry into force of the new DTCs and protocols is one year.37 Among the eight instruments that have not yet entered into force, five were ratified by Malaysia and are awaiting ratification by the other party, and the three others were signed less than a year ago. 332. On a procedural point, even though Federal Parliament has the power to implement treaties domestically, treaty-making power is exclusively vested in the Federal Government composed of the Yang di-Pertuan Agong and the Cabinet headed by the Prime Minister. According to the Malaysian practice, it is the Prime Minister himself or the Foreign Minister, or any Cabinet Minister specially authorised to do so, who usually signs and ratifies international treaties. 333. It is important for Malaysia to continue ensuring expeditious entry into force of newly signed agreements, so that it will have a network of information exchange mechanisms which complies with the international standard as soon as possible.

Be given effect through domestic law (ToR C.1.9)


334. In order for information exchange to be effective, the contracting parties have to take the necessary measures to comply with their commitments. 335. All of Malaysias agreements which have been signed and ratified by both parties are in effect in Malaysia. According to sections 132 and 132A of the ITA, double taxation conventions (DTCs) and tax information exchange agreements (TIEAs) prevail over all domestic laws. 336. However, as discussed in Part B.1 of this report and above, there are limitations in the access to information by the Malaysian authorities.

35. 36. 37.

With Australia, Brunei, France, Germany, Ireland, Japan, Laos, the Netherlands, San Marino and the United Kingdom. With Bahrain, Belgium, Kuwait, Qatar, Senegal, the Seychelles, South Africa, and Turkey. In the 1990s and beginning of the 2000s it sometimes took Malaysias DTCs a much longer time to enter into force, e.g. with jurisdictions like Iran, Myanmar, Sudan or the Kyrgyz Republic.

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Determination and factors underlying recommendations


Phase 1 determination The element is in place, but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations As a result of limitations with respect to access to information, in particular bank information, only 18 of Malaysias 71 signed agreements provide for effective exchange of information to the standard. Of these 18 agreements, 10 are in force. Recommendations Malaysia should ensure that all its agreements provide for exchange of information to the standard.

C.2. Exchange of information mechanisms with all relevant partners


The jurisdictions network of information exchange mechanisms should cover all relevant partners.

337. Ultimately, the international standard requires that jurisdictions exchange information with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement. Agreements cannot be concluded only with counterparties without economic significance. If it appears that a jurisdiction is refusing to enter into agreements or negotiations with partners, in particular ones that have a reasonable expectation of requiring information from that jurisdiction in order to properly administer and enforce its tax laws it may indicate a lack of commitment to implement the standards. 338. Malaysia has a solid history of exchange of information in tax matters. The first conventions in this regard were signed with Denmark and Norway in 1970. Malaysia possesses a broad network of 71 information exchange agreements. Since making its commitment to the international standard in transparency in 2009, Malaysia has entered into 5 new treaties38 and 13 new protocols.39

38. 39.

With Brunei, Germany, Laos, San Marino and Senegal. With Australia, Bahrain, Belgium, France, Ireland, Japan, Kuwait, the Netherlands, Qatar, the Seychelles, South Africa, Turkey and the United Kingdom.

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339. Malaysias network of signed agreements comprises: all 4 of its bordering countries (1 of these is to the international standard); 4 of its 5 major trading partners (1 of these is to the international standard); 24 of the 34 OECD member countries (9 of these are to the international standard); and 41 of the 100 other members of the Global Forum (15 of these are to the international standard). 340. A program of negotiations is underway in order to bring older agreements in line with the standard and to establish new agreements. The Malaysian authorities advise that, in addition to the already signed agreements, 9 DTCs/protocols have been initialled and a further 15 DTCs/ Protocols/TIEAs allowing for international exchange of information are under negotiation. In addition, Malaysia has also proposed to all its top 19 trading partners to sign/update DTCs. The introduction of section 132A to the ITA in February 2011 enables the Government to enter into TIEAs with any foreign country. Malaysia has indicated thatTIEA negotiations have been concluded with Bermuda and the TIEA will be signed soon. Finally, no indication has been received that Malaysia has ever declined to enter into an EOI agreement when requested to do so. 341. While most of Malaysias treaties are not yet in line with the international standard, the extensive work done by the jurisdiction to bring its network of agreements completely in line with the international standard should be acknowledged. That work must be continued and concluded so that Malaysia can exchange information in line with the international standard with all its partners.
Determination and factors underlying recommendations
Phase 1 determination The element is in place, but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations Malaysia can exchange information in accordance with the standard with 10 EOI partners and has ratified an additional 5 DTCs/protocols to the standard. Recommendations Malaysia should update and develop its EOI network to ensure it has agreements (regardless of their form) for exchange of information with all relevant partners.

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C.3. Confidentiality
The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received.

Information received: disclosure, use, and safeguards (ToR C.3.1)


342. Governments would not engage in information exchange without the assurance that the information provided would only be used for the purposes permitted under the exchange mechanism and that its confidentiality would be preserved. Information exchange instruments must therefore contain confidentiality provisions that spell out specifically to whom the information can be disclosed and the purposes for which the information can be used. In addition to the protections afforded by the confidentiality provisions of information exchange instruments countries with tax systems generally impose strict confidentiality requirements on information collected for tax purposes. 343. All treaties signed by Malaysia, contain provisions akin to Article 26(2) of the OECD Model Tax Convention aimed at keeping confidential all information received from the treaty partner. Moreover this information cannot be used for other purposes than those expressly mentioned in the incoming request. 344. By virtue of section 138(1) of the Income Tax Act 1967 (ITA), any information received by the Director General of the Inland Revenue Board (DGIR) must be treated as confidential. Thus, any unauthorised disclosure of such information will amount to a breach of confidentiality and any official who contravenes this provision will be subject to criminal prosecution under section 117 of the ITA, which carries a fine of not exceeding MYR 4 000 (EUR 920) or imprisonment for a term not exceeding one year, or to both. However, any information received by the DGIR can be disclosed in judicial proceedings involving the ITA or other tax law or with the written authority of the Minister, legal or natural person or partnership to whose affairs it relates (ITA ss.138(2) and 138(3)). 345. In the Labuan IBFC, section 20 of the LBATA provides for a confidentiality duty. Section 22A lifts this confidentiality duty to allow tax officials to answer EOI requests related to the Labuan IBFC.

All other information exchanged (ToR C.3.2)


346. The confidentiality provisions in Malaysias exchange of information agreements and domestic law do not draw a distinction between information received in response to requests and information forming part of the requests themselves. As such, these provisions apply equally to all requests for such information, background documents to such requests, and any other document reflecting such information, including communications between the

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requesting and requested jurisdictions and communications within the tax authorities of either jurisdiction.
Determination and factors underlying recommendations
Phase 1 determination The element is in place.

C.4. Rights and safeguards of taxpayers and third parties


The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties.

Exceptions to requirement to provide information (ToR C.4.1)


347. The international standard allows requested parties not to supply information in response to a request in certain identified situations where an issue of trade, business or other secret may arise. 348. All the information exchange arrangements which Malaysia has signed ensure that the parties concerned will not be required to supply information that would involve disclosure of an industrial or commercial secret, information that might be subject to attorney-client privilege or information the disclosure of which would be contrary to public policy (ordre public). All treaties, with the exception of those with New Zealand and Pakistan, also ensure the parties concerned will not be required to supply information that would involve disclosure of professional secrets. 349. In respect of trade secrets, based on the judicial pronouncements laid down by the courts, it has been held that trade secrets are confidential in nature. Thus, the DGIR may decline to exchange information on this basis. 350. An information request can also be declined where the requested information would disclose confidential communications protected by legal professional privilege. However, communications between a client and his/her lawyer or other admitted legal representative are, generally, only privileged to the extent that, the lawyer or other legal representative acts in his/her capacity as an advocate or other legal representative.40 Where legal professional privilege is more broadly defined it does not provide valid grounds on which to decline a request for EOI. To the extent, therefore, that a lawyer acts as a nominee shareholder, a trustee, a settlor, a company director or under a power of attorney to represent a company in its business affairs, EOI resulting from
40. Paragraph 19.3 of the commentary to the OECD Model Tax Convention and paragraphs 84 to 90 of the commentary to the OECD Model TIEA.

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and relating to any such activity cannot be declined because of the legal professional privilege rule. 351. Legal professional privilege is covered under the limb of professional secrets in the DTCs. Considering the provisions of Article 3(2) of the respective tax treaties, for application of the tax treaties by Malaysia, this term will derive its meaning from the one it has under the domestic laws of Malaysia. As discussed previously (see Part B.1 of this report), the scope of the legal privilege in Malaysia is in line with the international standards.
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Factors underlying recommendations Recommendations

Malaysia should bring these Two of Malaysias treaties do not agreements up to the standard. ensure the parties concerned will not be required to supply information that would involve disclosure of professional secrets.

C.5. Timeliness of responses to requests for information


The jurisdiction should provide information under its network of agreements in a timely manner.

Responses within 90 days (ToR C.5.1)


352. In order for exchange of information to be effective it needs to be provided in a timeframe which allows tax authorities to apply the information to the relevant cases. If a response is provided but only after a significant lapse of time the information may no longer be of use to the requesting authorities. This is particularly important in the context of international co-operation as cases in this area must be of sufficient importance to warrant making a request. 353. There are no specific legal or regulatory requirements in place which would prevent Malaysia responding to a request for information by providing the information requested or providing a status update within 90 days of receipt of the request. In practice, the officers dealing with EOI keep a register to monitor every case for the purpose of meeting the time frames specified in the OECD Model TIEA. As regards the actual timeliness for responses to requests for information, the assessment team is not in a position

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to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.

Organisational process and resources (ToR C.5.2)


354. The Minister of Finance is empowered to make provisions, by Order (by way of notification in the Government Gazette), for affording relief from double taxation and exchange of information foreseeable relevant to the administration or assessment or collection or enforcement of the taxes under the ITA or other taxes of every kind under any written law and any foreign tax (ITA ss.132 and 132A). The Director of the Department of International Taxation is the competent authority for international exchange of information in tax matters. 355. A review of Malaysia organisational process and resources will be conducted in the context of its Phase 2 review.

Absence of restrictive conditions on exchange of information (ToR C.5.3)


356. Exchange of information assistance should not be subject to unreasonable, disproportionate, or unduly restrictive conditions. 357. There are no laws or regulatory practices in Malaysia that impose restrictive conditions on exchange of information.
Determination and factors underlying recommendations
Phase 1 determination The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.

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Summary of Determinations and Factors Underlying Recommendations


Factors underlying recommendations

Determination

Recommendations

Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. (ToR A.1) The element is in place, but certain aspects of the legal implementation of the element need improvement. Not all nominees are required to have information available on the persons for whom they act. An obligation should be established for all nominees to maintain relevant ownership and identity information where they act as the legal owner on behalf of any other person. An obligation should be established to maintain information in all cases in relation to settlors, trustees and beneficiaries of trusts with a trustee in Malaysia.

Not all trustees are required to have information available on the identity of settlors and beneficiaries of trusts.

Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. (ToR A.2) The element is in place, but certain aspects of the legal implementation of the element need improvement. There is no express requirement on (i) entities in the Labuan IBFC, and (ii) certain trusts that do not carry on business in Malaysia and do not derive or receive income in Malaysia, to keep underlying documentation. There should be an express requirement for all relevant entities and arrangements to keep accounting records and underlying documentation for a minimum five year period.

Banking information should be available for all account-holders. (ToR A.3) The element is in place.

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94 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS


Factors underlying recommendations

Determination

Recommendations

Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information). (ToR B.1) The element is in place, but certain aspects of the legal implementation of the element need improvement. While most laws specifically require that information is kept within Malaysia, Malaysian authorities do not have the power to obtain and provide information held outside of Malaysia, even if such information is in the control of a person within its territorial jurisdiction. Restrictions on access to bank information provided for by Malaysias domestic legislation is currently overridden in respect of only 18 of the 71 signed DTCs (10 of which are in force). Although the competent authority can exchange any information already in its possession, it does not currently have powers to access information in the Labuan IBFC in order to respond to an EOI request made pursuant to a TIEA. Malaysia should ensure that it has the power to access information sought under its EOI instruments which is controlled by persons in Malaysia, even if it is located extra-territorially.

In respect of EOI requests made pursuant to its EOI agreements, Malaysia should ensure that its competent authority has access to bank information. Before entering into any TIEAs, Malaysia should ensure that its competent authority has the power to obtain and provide information that is the subject of a request under a TIEA from any person within its territorial jurisdiction who is in possession or control of such information, including from financial institutions.

The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information. (ToR B.2) . The element is in place. .

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SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 95

Determination

Factors underlying recommendations

Recommendations

Exchange of information mechanisms should allow for effective exchange of information. (ToR C.1) The element is in place, but certain aspects of the legal implementation of the element need improvement. As a result of limitations with respect to access to information, in particular bank information, only 18 of Malaysias 71 signed agreements provide for effective exchange of information to the standard. Of these 18 agreements, 10 are in force. Malaysia should ensure that all its agreements provide for exchange of information to the standard.

The jurisdictions network of information exchange mechanisms should cover all relevant partners. (ToR C.2) The element is in place, but certain aspects of the legal implementation of the element need improvement. Malaysia can exchange information in accordance with the standard with 10 EOI partners and has ratified an additional 5 DTCs/protocols to the standard. Malaysia should update and develop its EOI network to ensure it has agreements (regardless of their form) for exchange of information with all relevant partners.

The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (ToR C.3) The element is in place. The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (ToR C.4) The element is in place. Two of Malaysias treaties do not ensure the parties concerned will not be required to supply information that would involve disclosure of professional secrets. Malaysia should bring these agreements up to the standard.

The jurisdiction should provide information under its network of agreements in a timely manner. (ToR C.5) The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.

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ANNEXES 97

Annex 1: Jurisdictions Response to the Review Report 41

Malaysia would like to express its sincere appreciation to the assessment team for its excellent work in evaluating Malaysias legal and regulatory framework for this Phase 1 peer review report. We believe that this report clearly demonstrates Malaysias commitment to the international standards of transparency and exchange of information. Malaysia will give due consideration to the recommendations made in the report. In particular, we have already started the legislative process of amending the Labuan Business Activity Tax Act and the Income Tax Act to provide for the exchange of information under a TIEA and to empower the Director General of Inland Revenue Board to access information in the control of a person within the jurisdiction of Malaysia. These amendments will be tabled in the coming 2012 Budget Proposals scheduled on 7 October 2011. In addition, we will introduce a transitional provision for registration of bearer shares after which such shares will no longer be recognized. As regards the remaining recommendations, Malaysia will now begin the process of examining the best way to implement them. Malaysia would also like to take this opportunity to reiterate Malaysias commitment to comply with the international standards for transparency and the exchange of tax information with our treaty partners. We also acknowledge the findings of the report and will continue to be committed to the review process.

41.

This Annex presents the jurisdictions response to the review report and shall not be deemed to represent the Global Forums views.

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98 ANNEXES

Annex 2: List of all Exchange-of-Information Mechanisms in Force

Jurisdiction 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Albania Argentina Australia Austria Bahrain Bangladesh Belgium Bosnia and Herzegovina Brunei Canada Chile China Croatia Czech Republic Denmark Egypt Fiji Finland

Type of arrangement Double taxation convention (DTC) DTC DTC Protocol DTC DTC Protocol DTC DTC Protocol DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC

Date signed 24-01-1994 03-10-1997 20-08-1980 24-02-2010 20-09-1989 14-06-1999 14-10-2010 19-04-1983 24-10-1973 18-12-2009 21-06-2007 05-08-2009 16-10-1976 03-09-2004 23-11-1985 18-02-2002 08-03-1996 04-12-1970 14-04-1997 19-12-1995 28-03-1984

Date in force 21-08-1995 09-02-2001 1981 08-08-2011 20-09-1990 31-07-2000 Not yet in force 1984 1977 Not yet in force Not yet in force 17-06-2010 18-12-1980 25-08-2008 14-09-1986 15-07-2004 31-03-1997 04-06-1971 09-07-2002 30-07-1997 23-02-1986

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Jurisdiction 19 France

Type of arrangement DTC Protocol DTC New DTC DTC DTC DTC DTC DTC Protocol DTC DTC Protocol DTC DTC DTC Protocol DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC Protocol DTC DTC DTC

Date signed 24-04-1975 12-11-2009 08-04-1977 23-02-2010 22-05-1989 14-05-2001 12-09-1991 11-11-1992 28-11-1998 16-12-2009 28-01-1984 19-02-1999 10-02-2010 02-10-1994 26-06-2006 05-02-2003 25-01-2010 17-11-2000 03-06-2010 20-01-2003 21-11-2002 03-10-1995 23-08-1992 27-07-1995 02-07-2001 09-03-1998 28-07-1998 07-03-1988 04-12-2009 19-03-1976 23-12-1970 29-05-1982

Date in force 23-07-1976 01-12-2010 11-02-1979 21-12-2010 26-10-1992 14-08-2003 11-08-1992 15-04-2005 10-09-1999 15-02-2011 18-04-1986 31-12-1999 01-12-2010 29-05-2000 20-05-2010 29-05-2007 Not yet in force 26-12-2006 23-02-2011 10-11-2004 29-12-2004 01-09-2000 19-08-1993 07-11-1996 29-12-2006 21-07-2008 13-12-2004 02-02-1989 19-10-2010 02-09-1976 09-09-1971 09-11-1982

20 Germany 21 Hungary

22 India 23 Indonesia 24 Iran

25 Ireland 26 Italy 27 Japan 28 Jordan 29 Kazakhstan 30 Kuwait 31 Kyrgyz Republic

32 Laos 33 Lebanon 34 Luxembourg 35 Malta 36 Mauritius 37 Mongolia 38 Morocco 39 Myanmar 40 Namibia 41 42 Netherlands New Zealand

43 Norway 44 Pakistan

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100 ANNEXES
Type of arrangement DTC DTC DTC DTC Protocol DTC DTC DTC DTC DTC DTC Protocol DTC DTC Protocol DTC DTC DTC DTC DTC DTC DTC DTC Protocol DTC DTC DTC Protocol DTC DTC DTC DTC

Jurisdiction 45 Papua New Guinea 46 Philippines 47 Poland

Date signed 20-05-1993 27-04-1982 16-09-1977 03-07-2008 16-02-2011 26-11-1982 31-07-1987 19-11-2009 31-01-2006 17-02-2010 03-12-2003 22-12-2009 05-10-2004 26-07-2005 05-04-2011 20-04-1982 24-05-2006 16-09-1997 07-10-1993 12-03-2002 26-02-2007 29-03-1982 27-09-1994 17-02-2010 19-11-2008 28-11-1995 10-12-1996 22-09-2009 06-10-1997 28-08-2006 07-09-1995 28-04-1994

Date in force 11-06-1999 27-07-1984 15-12-1978 28-01-2009 Not yet in force 07-04-1984 04-07-1988 28-12-2010 01-07-2007 Not yet in force 10-07-2006 Not yet in force 13-02-2006 06-07-2006 Not yet in force 13-12-1982 28-12-2007 13-08-1998 18-12-2002 28-01-2005 31-08-2007 02-02-1983 28-01-1997 Not yet in force 06-10-2009 18-09-1996 18-05-1998 28-12-2010 10-08-1999 08-01-2008 13-08-1996 Not yet in force

48 Qatar 49 Romania 50 Russia (USSR) 52 51 San Marino Saudi Arabia

53 Senegal 54 Seychelles 55 Singapore 57 South Africa 58 South Korea 56 Spain 59 Sri Lanka 60 Sudan 61 Sweden 62 Syria 63 Thailand 64 Turkey 65 Turkmenistan 66 United Arab Emirates 67 United Kingdom 68 Uzbekistan 69 Venezuela 70 71 Vietnam Zimbabwe

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ANNEXES 101

Annex 3: List of all Laws, Regulations and Other Relevant Material


Federal Constitution Civil Law Act 1956 Criminal Procedure Code

Commercial legislation
Companies Act 1965 Legal Profession Act 1976 Labuan Companies Act 1990 Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 Labuan Business Activity Tax Act 1990 Partnership Act 1961 Registration of Businesses Act 1956 Societies Act 1966 Trust Companies Act 1949 Trustees (Incorporation) Act 1952 Trustees Act 1949 Labuan Companies Regulations 1990 Labuan Foundations Regulations 2010 Labuan Limited Partnerships and Limited Liability Partnerships 2010 Labuan Trusts Regulations 2010 Guidelines on Allowing a Person to be Appointed or to Act as a Trustee Under Subsection 69(2) of The Securities Commission Act 1993 Guidelines on Unit Trust Funds Guidelines on the Minimum Contents Requirements for Trust Deeds

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102 ANNEXES

Tax legislation
Blanket Authorisation Disclosure of Customer Information to DGIRB Income Tax Act 1967 Income Tax (Request for Information) Rules 2009 Income Tax (Request for Information) Rules 2011

Anti money laundering legislation


Anti-Money Laundering and Anti-Terrorist Financing Act 2001 Anti-Money Laundering and Counter Financing of Terrorism (AML/ CFT)-Standard Guidelines Anti-Money Laundering and Counter Financing of Terrorism (AML/ CFT) Sectoral Guidelines 1 Anti-Money Laundering and Counter Financing of Terrorism (AML/ CFT) Sectoral Guidelines 2 Anti-Money Laundering and Counter Financing of Terrorism (AML/ CFT) Sectoral Guidelines 3 Anti-Money Laundering and Counter Financing of Terrorism (AML/ CFT) Sectoral Guidelines 6 Labuan AML/CFT Standard Guidelines Labuan AML/CFT Sectoral Guidelines 1 Labuan AML/CFT Sectoral Guidelines 2 Labuan AML/CFT Sectoral Guidelines 3 Guidelines on Prevention of Money Laundering & Terrorism Financing For Capital Market Intermediaries

Financial legislation
Accountants Act 1967 Banking and Financial Institutions Act 1989 Capital Markets and Services Act 2007 Capital Markets and Services (Amendment) Act 2010 Development Financial Institutions Act 2002 Insurance Act 1996

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ANNEXES 103

Islamic Banking Act 1983 Kootu Funds (Prohibition) Act 1971 Labuan Financial Services and Securities Act 2010 Labuan Islamic Financial Services and Securities Act 2010 Labuan Foundations Act 2010 Labuan Trusts Act 1996 Labuan Financial Services Authority Act 1996 Money-Changing Act 1998 Promotion of Investments Act 1986 Payment Systems Act 2003 Securities Commission Act 1993 Securities Commission (Amendment) Act 1995 Securities Commission (Amendment) Act 1998 Securities Commission (Amendment) Act 2000 Securities Commission (Amendment) Act 2003 Securities Commission (Amendment) Act 2007 Securities Commission (Amendment) Act 2010 Takaful Act 1984 Securities Industry (Central Depositories) Act 1991 Securities Industry (Central Depositories) (Amendment) Act 1996 Securities Industry (Central Depositories) (Amendment) Act 1998 Securities Industry (Central Depositories) (Amendment) Act 1998 Securities Industry (Central Depositories) (Amendment) Act 2000 Securities Industry (Central Depositories) (Amendment) Act 2003

Other legislation
Evidence Act 1950 Exchange Control Act 1953 High Court Order 39 High Court Order 66

PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MALAYSIA OECD 2011

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OECD PUBLISHING, 2, rue Andr-Pascal, 75775 PARIS CEDEX 16 (23 2011 57 1 P) ISBN 978-92-64-12664-0 No. 59647 2011

Global Forum on Transparency and Exchange of Information for Tax Purposes

PEER REVIEWS, PHASE 1: MALAYSIA


The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 100 jurisdictions which participate in the work of the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the standards of transparency and exchange of information for tax purposes. These standards are primarily reected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004, which has been incorporated in the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised, but all foreseeably relevant information must be provided, including bank information and information held by duciaries, regardless of the existence of a domestic tax interest or the application of a dual criminality standard. All members of the Global Forum, as well as jurisdictions identied by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 plus Phase 2 reviews. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes. All review reports are published once approved by the Global Forum and they thus represent agreed Global Forum reports. For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the published review reports, please visit www.oecd.org/tax/transparency and www.eoi-tax.org.

Please cite this publication as: OECD (2011), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Malaysia 2011: Phase 1: Legal and Regulatory Framework, OECD Publishing. http://dx.doi.org/10.1787/9789264126657-en This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information.

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