Southeast Asia Steps Up Tax Scrutiny, Targets Multinationals to Flood Treasury

In order to fill the huge budget gap caused by the economic impact of the epidemic, Southeast Asian countries are launching a wave of actions to increase corporate taxes, and local multinational companies will be the first to bear the brunt.

The Nikkei News reports that tax authorities in many Southeast Asian countries are speeding up their investigations and imposing stricter rules on companies, such as shortening the deadline for companies to submit tax documents.

This trend should alarm multinational companies that lack sufficient local staff to deal with tax issues, as they are easy targets for increased tax investigations by authorities.

A number of Japanese companies operating in Malaysia and Thailand will start receiving requests from local tax authorities around the beginning of 2021 to provide documents on their business transactions over the past few years.

The Southeast Asia office of Deloitte, a global tax audit firm, has received nearly twice as many inquiries from Japanese companies as it did before the outbreak of Newcastle pneumonia (the Chinese Communist virus).

Jun Igarashi, Deloitte’s head of Japanese transfer pricing for Southeast Asia in Singapore, said countries in the region are stepping up their investigations into transfer pricing taxation, focusing on the prices of transactions between a Japanese company’s head office and its local branches (or subsidiaries).

For example, if a Japanese company in Southeast Asia sells a particular product to its head office in Japan at a price much lower than the price it sells to other companies, the local tax authorities will impose a separate tax if they determine that the difference in price is actually a transfer of profit.

In 2020 and 2021, Vietnam and Malaysia have revised their transfer pricing rules to increase the taxation of such transactions.