Base Erosion and Profit Shifting (BEPS) Inclusive Framework implementation in the Southeast Asian region


Financier Worldwide Magazine

December 2017 Issue

Six ASEAN member countries are already members of the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Inclusive Framework (BEPS Associates) as of October 2017. Brunei Darussalam and Singapore were among the 36 new countries that joined as BEPS Associates during the first meeting of the OECD BEPS Inclusive Framework on 30 June 2016 held in Kyoto, Japan (Kyoto meeting); joining Indonesia, which was then already a BEPS associate.

Another 21 countries attended the Kyoto meeting – including Cambodia, Malaysia, Myanmar, Thailand and Vietnam – as invitees and were expected to join the Inclusive Framework in coming months. Malaysia, Thailand and Vietnam have since joined as BEPS Associates, and participated with all the other BEPS Associates in the June 2017 plenary meeting in the Netherlands. Cambodia, Laos, Myanmar and the Philippines remain non-BEPS Associate countries.

The BEPS Associates committed to the four minimum standards, namely countering harmful tax practices (Action 5), countering tax treaty abuse (Action 6), transfer pricing documentation and country-by-country (CbC) reporting (Action 13), and improving dispute resolution mechanisms (Action 14). Since the Kyoto meeting, significant steps have been taken by the Southeast Asian BEPS Associates, especially with respect to Action 13.

Indonesia was first to implement the BEPS transfer pricing documentation and CbC reporting in line with Action 13. On 30 December 2016, Minister of Finance Regulation number 213/PMK.03/2016 (PMK-213) was issued, providing the type of additional documents and information that must be kept by taxpayers with related-party transactions.  Under PMK-213, taxpayers are required to keep the three-tiered transfer pricing documentation comprising of the master file, local file and CbC report. In June 2017, Indonesia signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The MLI, upon its ratification, will allow Indonesia to swiftly update its avoidance of double taxation agreements to implement the BEPS tax treaty-related measures without the need to renegotiate each treaty.

Malaysia’s income tax CbC reporting rules became effective on 1 January 2017, under which the Malaysian entities of foreign multinational company groups (MNCs) are obliged to inform the Inland Revenue Board of Malaysia if: (i) it is the holding company or if it has been appointed as the surrogate holding company; and (ii) the identity and tax residence of the entity responsible for preparing the CbC reports (if the Malaysian entity is neither the holding company nor the surrogate holding company).

On 15 July 2017, Malaysia further revised its 2012 transfer pricing guidelines to align with BEPS Action 13. Under the revised guidelines, companies required to submit a CbC report under the CbCR Rules – including subsidiaries of foreign MNCs – must also file a master file upon request, with information on organisational structure, description of the business, industry conditions, pricing policies, application of transfer pricing method and financial information, in accordance with the OECD guidance.

On 12 January 2017, the Inland Revenue Authority of Singapore issued the fourth edition of its Transfer Pricing Guidelines, including the framework for spontaneous exchange of information, and an explicit statement that profits should be taxed in jurisdictions where real economic activities driving the profits take place and where value is created. Singapore likewise signed in June 2017 the MLI, in support of the principle that profits should be attributable to the jurisdiction where substantive economic activities generating the profits are based.

Also in June 2017, Singapore signed the Multilateral Competent Authority Agreements (MCAAs) on the automatic exchange of financial account information under the Common Reporting Standard (CRS) and the exchange of CbC reports.

Vietnam issued Transfer Pricing Decree No. 20/2017/ND-CP (Decree 20) applicable to enterprises having controlled transactions. The new decree, which took effect in 1 May 2017, includes the three-tiered transfer pricing documentation requirement, and introduced a restriction on tax-deductible interest using a fixed-ratio to EBITDA, following the guidance of the OECD BEPS Inclusive Framework (Action 13 and Action 4, respectively).

For its part, Thailand’s parliament is expected to pass its transfer pricing legislation. The new legislation will require taxpayers with related-party transactions to prepare compulsory transfer pricing documentation to be submitted to the Thai Revenue Department, and imposes penalties for non-submission.

There has been substantial development in the region in the 16 months since the Kyoto meeting as regards the implementation of the BEPS Inclusive Framework, but countries are not moving at the same pace. Two ASEAN member countries – Laos and Myanmar – still have no formal transfer pricing regulations.

The Philippines, although not a member of the OECD or the BEPS Inclusive Framework, has had its formal transfer pricing guidelines in place since 2013, with the issuance of Revenue Regulations No. 2-2013 (RR2-2013) by the Bureau of Internal Revenue (BIR). RR2-2013 requires companies to maintain transfer pricing documentation to prove arm’s-length pricing for their related-party transactions. However, the transfer pricing documentation is only required to be presented upon BIR audit. There has been no amendment to RR2-2013 to mandate the three-tiered documentation under OECD BEPS Action 13. Despite the ongoing comprehensive tax reform initiative that is pending in the Philippine Congress, there is yet no official position on whether the BEPS Action points will be adopted in the local tax laws.

As others continue to lag behind in the implementation of the BEPS Inclusive Framework, countries that have not taken steps to implement the initiative may see a thinning of margins, and thus, a decrease in tax revenue as MNCs shift reported income to countries that are BEPS Associates where margins must be maintained within standard, and comprehensive transfer pricing documentation is mandated.

The allocation of value for purposes of taxation likewise poses a challenge because countries will always have different perspectives and interpretations. In the ASEAN region, these differences in the interpretation of transfer pricing concepts among countries may be greater at this point, given that most of the revenue authorities of ASEAN member countries have less experience in dealing with transfer pricing issues. For example, Thailand is still in the process of passing its transfer pricing legislation and Cambodia introduced its formal transfer rules only in October 2017, with the issuance by the Cambodian Ministry of Economy and Finance of Prakas No. 986. MEF.P. to address transfer pricing abuses and loss of tax revenue.

The tax authorities’ differing policies, interpretations and practices increase the uncertainty and risk of transfer pricing disputes for MNCs. There is a greater risk of double or multiple taxation, especially with the transfer pricing documentation and disclosure requirements in many but not all jurisdictions. The aim of the OECD BEPS Inclusive Framework, to realign taxation with economic substance and value creation, while preventing double taxation, would be better realised when more countries are onboard with the initiative and there has been a significant implementation of Action 14 on improving dispute resolution.


Virginia B. Viray is a partner at PJS Law. She can be contacted on +632 840 5025 or by email:

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