Global Forum On Transparency and Exchange of Information For Tax Purposes: Global Forum On Transparency and Exchange of Information For Tax Purposes Peer Reviews: Malaysia 2014

GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES
Peer Review Report Phase 2 Implementation of the Standard in Practice

MALAYSIA
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Malaysia 2014
PHASE 2: IMPLEMENTATION OF THE STANDARD IN PRACTICE
April 2014 (reflecting the legal and regulatory framework as at February 2014)
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 (2014), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Malaysia 2014: Phase 2: Implementation of the Standard in Practice, OECD Publishing. http://dx.doi.org/10.1787/9789264210004-en
ISBN 978-92-64-20998-5 (print) ISBN 978-92-64-21000-4 (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 2014
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TABLE OF CONTENTS 3
Table of Contents
About the Global Forum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Information and methodology used for the peer review of Malaysia . . . . . . . . . .11 Overview of Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Recent developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Compliance with the Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 A. Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 26 78 92
B. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 B.1. Competent Authoritys ability to obtain and provide information . . . . . . . . 99 B.2. Notification requirements and rights and safeguards. . . . . . . . . . . . . . . . . .115 C. Exchanging Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117 C.1. Exchange of information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119 C.2. Exchange of information mechanisms with all relevant partners . . . . . . . 127 C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . .132 C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . .133
PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014
4 TABLE OF CONTENTS Summary of Determinations and Factors Underlying Recommendations. . . .143 Annex 1: Jurisdictions Response to the Review Report . . . . . . . . . . . . . . . . . .153 Annex 2: List of Malaysias Exchange of Information Mechanisms . . . . . . . . 154 Annex 3: List of all Laws, Regulations and Other Material Received . . . . . . .157 Annex 4: List of Authorities Interviewed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .161
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 120 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. The 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 and 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 and www.eoi-tax.org.
EXECUTIVE SUMMARY 7
Executive Summary
1. This report summarises the legal and regulatory framework for transparency and exchange of information in Malaysia as well as the practical implementation of that framework. The assessment of effectiveness in practice has been performed in relation to a three-year period. 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. Malaysia is one of the most developed economies in South-East Asia. 2. 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 22 Double Tax Conventions (DTCs)/protocols to existing DTCs and one TIEA, all of which fully conform to the standard, 17 of which are in force and six are not in force but have already been ratified by Malaysia. A further 24 agreements are under various stages of negotiation. Malaysia has embarked on an ambitious programme of negotiation of protocols to its treaties to bring them to the standard and also reviewed its domestic policies that restricted access to bank information in order to ensure that it is able to exchange information to the standard in respect of all of its EOI agreements. At the time of Phase 1, only 10 of Malaysias 71 DTCs fully met the international standard. Since then, 65 of Malaysias 73 EOI agreements meet the international standard. Sixty-one of the 65 agreements are currently in force.
8 EXECUTIVE SUMMARY
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 companies, partnerships, trusts and foundations. Identity information may not be always available in respect of trusts whose trustees are not subject to the antimoney 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 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. In practice, however, in a couple of instances the enforcement action and existing sanctions appeared to have been insufficient in providing an effective deterrence against non-compliance. Moreover, compliance with ownership and accounting record keeping obligations was not sufficiently monitored in relation to all entities and arrangements in the Labuan IBFC. Adequate sanctions exist with regard to bank information, the availability of which is prescribed under the anti-money laundering legislation which is monitored by the Central Bank of Malaysia. 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. In particular, since 10 February 2012, the Malaysian competent authority is empowered to collect information that is under the control of a person within its territorial jurisdiction, even if the information is held outside Malaysia. 6. Since 1 July 2013, Malaysia is able to access bank information to answer an exchange of information request received pursuant to a DTC/tax information exchange agreement (TIEA) regardless of whether it contains a provision equivalent of Article 26(5) of the OECD Model Tax Convention. Malaysia reports that it has already exchanged bank information under one of its older EOI agreements which does not contain a provision akin to Article 26(5). Malaysia has recently notified its treaty partners concerning its new policy on the exchange of bank information. It is recommended that Malaysia monitor the application of the new policy to ensure that bank information is exchanged with all EOI partners. 7. The laws of Malaysia allow it to enter into TIEAs and Malaysia has concluded its first TIEA with Bermuda in April 2012. In relation to the Labuan IBFC, at the time of the Phase 1 review, Malaysias authorities only had the power to access information from the Labuan IBFC pursuant to a
EXECUTIVE SUMMARY 9
request made under a DTC. In 2012 Malaysia revised its laws to provide its authorities with the power to access information in the Labuan IBFC in response to a TIEA with retroactive effect. 8. During the three-year period under review (1 January 2010 to 31 December 2012), Malaysia has received 61 incoming requests on direct taxation matters from 15 jurisdictions. Malaysia answered 38% of the requests within 90 days, and 54% within 180 days and 77% within one year. Twelve per cent of the requests were replied to after one year had elapsed and 8% of the requests were still pending in 31 July 2013 (four of the pending requests were from 2012 and one from 2011). Three percent of the requests were not answered to the satisfaction of the requesting jurisdictions. Malaysia reports progress has been made in replying to pending requests after 31 July 2013; however this has not been confirmed with the peers. 9. Input received from some of Malaysias peers indicates that some problems were experienced during the period under review, including delays, cases where only partial responses were received or cases where the responses to the requests are still pending. Partners that have a significant relationship with Malaysia, however, have reported that the EOI relationship with the Malaysian authorities has been an increasingly positive experience. Moreover, some of them also reported that the relationship and communication were good throughout the period under review. 10. No dedicated team concentrating solely on EOI was in place during the period under review. The requests received by the competent authority were sent to the Inland Revenue Board of Malaysias investigators and auditors or to the Labuan authorities for collection of information. No internal timelines or follow-up procedures were in place and practical difficulties were encountered which may be attributed to the lack of sensitisation of auditors and investigators to EOI, the complexity or difficulty of some requests received and in a couple of cases access or availability issues. 11. On 1 January 2013 a dedicated EOI team was set up. The EOI team is made up of three officers who are responsible for handling both incoming and outgoing EOI requests. Since then, the EOI Team has taken steps to engage with auditors, investigators and the Labuan authorities to sensitise them of the importance of EOI. An EOI manual and an electronic database were developed establishing procedures, templates and timelines to handle EOI requests. Malaysia appears to be now better equipped to handle EOI requests in an efficient and timely manner. The audit sensitisation concerning EOI has also resulted in Malaysia sending its first EOI requests to treaty partners (one request was sent in 2012 and 2 requests were sent in 2013 (at August 2013)). Malaysia is recommended to monitor the implementation of the measures recently taken to ensure that answers to EOI requests are made in a timely manner in all cases.
10 EXECUTIVE SUMMARY
12. Malaysia has been assigned a rating for each of the 10 essential elements as well as an overall rating. The ratings for the essential elements are based on the analysis in the text of the report, taking into account the Phase 1 determinations and any recommendations made in respect of Malaysia legal and regulatory framework and the effectiveness of its exchange of information in practice. On this basis, Malaysia has been assigned the following ratings: Compliant for elements A.3, B.2, C.2, C.3 and C.4, Largely Compliant for elements A.2, C.1 and C.5, and Partially Compliant for elements A.1 and B.1. In view of the ratings for each of the essential elements taken in their entirety, the overall rating for Malaysia is Largely Compliant. 13. A follow-up report on the steps undertaken by Malaysia to answer the recommendations made in this report should be provided to the PRG within twelve months of the adoption of this report.
INTRODUCTION 11
Introduction
Information and methodology used for the peer review of Malaysia

14. The assessment of the legal and regulatory framework of Malaysia and the practical implementation and effectiveness of this framework 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. 15. The assessment has been conducted in two stages: Phase 1, carried out in 2011, and Phase 2, carried out in 2013. 16. The 2011 Phase 1 Report of Malaysia, which was adopted and published by the Global Forum in October 2011, 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. 17. The Phase 2 assessment looked at the practical implementation of Malaysias legal framework, as well as any amendments made to the legal and regulatory framework since the Phase 1 review. The assessment was based on the laws, regulations, and EOI mechanisms in force or effect as at 7 February 2014. It also reflects Malaysias responses to the Phase 1 and Phase 2 questionnaires, other information, explanations and materials supplied by Malaysia during and after the Phase 2 on-site visit that took place in Kuala Lumpur from 9-13 September 2013 and information supplied by partner jurisdictions. During the on-site visit, the assessment team met with officials and representatives of Malaysias Ministry of Finance, the Inland Revenue Board of Malaysia, the Labuan Financial Services Authority, the Attorney General Office, the Bank Negara Malaysia, the Companies Commission of Malaysia and the Malaysia Bar Association. A list of all those interviewed during the on-site visit is attached to this report at Annex 4.
12 INTRODUCTION
18. The following analysis reflects the Phase 1 and Phase 2 assessments of the legal and regulatory framework of Malaysia in effect as at 7 February 2014 and the practical implementation and effectiveness of this framework during the three-year review period of 1 January 2010 to 31 December 2012. 19. 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. In addition, to reflect the Phase 2 component, an assessment is also made concerning Malaysias practical application of each of the essential elements and a rating of either: (i) compliant, (ii) largely compliant, (iii) partially compliant, or (iv) noncompliant is assigned to each element. An overall rating is also assigned to reflect Malaysias overall level of compliance with the standards. 20. The Phase 1 and Phase 2 assessments were conducted by teams comprising expert assessors and representatives of the Global Forum Secretariat. For the Phase 1 assessment, they were: 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. In the Phase 2 assessment, the assessment team comprised Ms. Jacqueline Jefferson-Ziemniak, Senior Legal Policy Adviser, the Cayman Islands Ministry for Financial Services; Mr. Bernd Person, Tax Analyst, the German Federal Tax Administration; and Ms. Renata Teixeira from the Global Forum Secretariat.
Overview of Malaysia
21. 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 Darussalam and Indonesia. The country covers an area of approximately 329 847 square kilometres. Its population of 29.8 million is unevenly distributed with about 23 million inhabitants living on the Malaysian Peninsula and 8 million on East Malaysia. 1 Malaysias population
1. www.statistics.gov.my, accessed in June 2011.
INTRODUCTION 13
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. 22. 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 superior and subordinate courts are vested with judicial authority. The federation is made up of 13 states (Negeri) and 3 federal territories 2, 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. 23. With a total 2012 gross domestic product (GDP) of MYR 937.53 billion (EUR 205.26) billion, 3 Malaysia is one of the most developed economies in South-East Asia. The service sector accounts for about 55% of total GDP, industry (mining, manufacturing and construction) for about 37% and agriculture for 7%. 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 25 trading nations 4 in the world, with a total merchandise export of MYR 745.8 billion (EUR 163.27 billion in 2012. 5 Its main trading partners are Singapore, the Peoples Republic of China, the United States, the European Union, Japan and Thailand. 24. The official Malaysian currency is the ringgit (MYR). 6 From the middle of 2005, the Central Bank (Bank Negara Malaysia) adopted a managed float foreign exchange regime against several key currencies. 25. Malaysia is a member of the Asia Pacific Economic Co-operation (APEC), the Association of Southeast Asian Nations (ASEAN), the United
2. 3. 4. Labuan, Kuala Lumpur, and Putrajaya. GDP calculated for 2012 based on purchasing-power-parity (PPP). See IMF, World Economic Outlook Database, April 2013. www.imf.org, accessed August 2013. World Trade Organisation International Trade and Tariff Data 2012, www.wto. org/english/res_e/statis_e/statis_bis_e.htm?solution=WTO&path=/Dashboards/ MAPS&file=Map.wcdf&bookmarkState={%22impl%22:%22client%22,%22pa rams%22:{%22langParam%22:%22en%22, accessed August 2013. Asian Development Bank, Asian Development Outlook 2011: Malaysia. www. adb.org/documents/books/ado/2011/ado2011-mal.pdf, accessed June 2011. MYR 1 = EUR 0.22 as of 29 January 2014. www.xe.com, accessed 29 January 2014.
5. 6.
14 INTRODUCTION
Nations (UN) and the World Trade Organization (WTO). It is a founding member of the Global Forum.
General information on the legal and tax system Legal system

26. 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 prevail if inconsistency arises between a federal and a state law. 27. 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. The Federal Constitution provides for the separation of competences 28. 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. 7 States enjoy legislative power over matters such as land, local government, Shariah law 8 and Shariah courts. Federal laws enacted by the Parliament of Malaysia apply throughout the country, including making laws applicable to States as regards international agreements (Art. 76 Constitution).
7. 8.
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 family and inheritance matters as regards only to the Muslim population. Shariah law is administered by a separate system of Shariah courts.
INTRODUCTION 15
29. 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 courts 9 are classified as subordinate courts. The application of common law in Malaysian criminal cases is speci30. fied 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. 31. 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 make laws to give legal effect to 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
32. 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 547 278) or less are subject to corporate tax at 20% on chargeable income up to MYR 500 000 (EUR 109 457) 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. 33. 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 is 10%. There are also other direct taxes such
9. The Sessions Court, Magistrates Court, Juvenile Court, Penghulu Court and Native Court.
16 INTRODUCTION
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. 34. 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 industry-based. Incentives are available under the Promotion of Investments Act 1986 and the ITA. The Labuan Business Activity Tax Act 1990 (LBATA) establishes a separate regime for taxing business activities in the Labuan International Business and Financial Centre (IBFC). The IRBM is the authority responsible for administering the LBATA. 35. 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. 36. Double taxation conventions (DTCs) and taxation information exchange agreements (TIEAs) prevail over all domestic laws (ITA ss.132 and 132A). 37. Malaysia committed to the internationally agreed standard for the exchange of information for tax purposes in 2009. As of December 2013, Malaysia is signatory to 72 DTCs and one TIEA 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

38. Malaysia has a well-developed financial sector, with total financial assets amounting to nearly three times its GDP. As at end 2012, the financial services sector contributes 9.4% to GDP. Malaysia has a dual financial system where both conventional and Islamic financial systems operate in parallel. At the end of 2012, the equity market capitalisation and nominal value of domestic debt securities outstanding were at 156.6% and 110% of nominal GDP
INTRODUCTION 17
respectively. Compared to other regional economies, the size of the Malaysian capital market is relatively large and developed. As of July 2013, there are 836 local and foreign financial institutions 39. in Malaysia, including 27 commercial banks, 12 investment banks, 21 Islamic banks, 6 development financial institutions, 40 insurance companies, 16 takaful (Islamic insurance) operators, 6 money brokers, 34 insurance/takaful brokers, 36 loss adjusters, 18 financial advisers, 45 payment system operators, 61 payment instruments issuers and 514 money changers. From 2011 to 2013, there was a significant change in the number of money changers. Following the enactment of the Money Services Business Act 2011, Malaysia performed an extensive relicensing exercise of all existing money changers and remittance service providers to ensure better consumer protection, improved business conduct and standards, as well as strengthen safeguards against the risk of money laundering and other illegal activities. The relicensing process had reduced the number of money-changer licences by 322 as a result of revocation of license, merger of entities, and voluntary surrender of license as well as conversion of existing licensees to become an agent of a larger entity. In relation to the other financial institutions, such as banks and insurance companies, there was only a slight reduction in the number of entities, due to consolidation and rationalisation in the banking and insurance industry in Malaysia. Several mergers and acquisitions took place in the sector. 40. Capital market institutions and market intermediaries are regulated and supervised by the Securities Commission Malaysia. Licensed dealers, derivatives brokers, portfolio fund managers (in relation to the management of a portfolio of securities or derivatives and asset fund managers (in relation to the management of an asset or a class of assets in a unit trust scheme) are licensed under the Capital Markets & Services Act 2007 (CMSA) and management companies are approved under the CMSA. 41. 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. 42. 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. 43. Malaysia has developed a comprehensive Islamic finance marketplace that has steadily grown. Over more than 30 years, Malaysia has been
18 INTRODUCTION
active in Islamic banking, 10 Islamic insurance 11, the Islamic capital market and the Islamic money market. The total size of the Malaysian Islamic capital market at the end of 2012 was equivalent to 57% of the total capital market. Malaysia also remains the world leader in the Islamic bond (sukuk) market, accounting for 69.2% of global sukuk outstanding and 76.9% of sukuk issuances in 2012. In 2005, Malaysia launched the first Islamic real estate trusts and introduced Asias first Islamic exchange traded fund. In 2012, Malaysias Islamic banking assets reached MYR 494.6 billion (EUR 108.3 billion) with an average growth rate of 20% annually. In 2012, the total assets of Malaysias takaful industry were MYR 19 billion (EUR 4 billion). Takaful assets and net contributions experienced strong growth of an average of 15% and 24% respectively from 2005 to 2012. 44. 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. 12 45. The Financial Services Act 2013 (FSA) and Islamic Financial Services Act 2013 (IFSA) that came into force on 30 June 2013 amalgamated six statutes, namely the Banking and Financial Institution Act 1989, Insurance Act 1996, Payment System Act 2003, Exchange Control Act 1953, the Islamic Banking Act 1983 and Takaful Act 1984. The aim of these statutes is to provide a more cohesive and integrated legal framework to govern the financial sector under a single legislative framework for the conventional and Islamic financial sectors, respectively. The new laws provide Central Bank of Malaysia (Bank Negara Malaysia) with enhanced powers to govern the conduct and supervision of financial institutions in Malaysia towards maintaining financial stability, supporting inclusive growth in the financial system
10. 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. www.mifc.com/index.php?ch=menu_exp&pg=menu_exp_ovr, accessed June 2011.
11.
12.
INTRODUCTION 19
and the economy, as well as providing adequate protection for consumers. The FSA and IFSA explicitly allow for disclosure of customer documents or information by financial institutions to the tax authority for purposes of exchange of information under international agreements.
The Labuan International Business and Financial Centre (Labuan IBFC)

46. 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 the following main areas: holding companies, banking, (re)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. 47. 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 4 390). 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. 48. 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 legislation applicable to financial services carried on in the Labuan IBFC. 13
13. 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.
20 INTRODUCTION
The amount of assets held by banks licensed in the Labuan IBFC in 2012 was USD 42.1 billion. 49. 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. 50. 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
51. 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. 52. There are about 30 503 public chartered accountants in Malaysia. They are required by law to be members of the Malaysian Institute of Accountants (MIA). 53. There are more than 15 664 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. 54. In Malaysia, company secretaries are governed by section 139A of the Companies Act 1965 (CA). A company secretary can either be licensed by the 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 31 December 2013, the total number of company secretaries licensed by the CCM was 9 790. The number of company secretaries regulated by prescribed bodies is 55 440.
INTRODUCTION 21
Recent developments
55. The Finance Act 2012 published in the Official Gazette on 9 February 2012 introduced the following amendments that are relevant for EOI: as of 10 February 2012 the Malaysian competent authority is empowered to collect information that is under a persons control, in addition to information that is in a persons possession (amendment to section 81 of the ITA); with retroactive effect as of 28 January 2011, the Malaysian competent authority is empowered to access information in the Labuan IBFC for the purpose of replying to a request made pursuant to a TIEA.
56. Malaysia signed its first TIEA with Bermuda on 23 April 2012. TIEA negotiations with the Bahamas, Guernsey and Liberia are on-going. 57. The Labuan FSA has issued the Directive on Accounts and Record Keeping describing the accounts and other records to be maintained by Labuan entities and arrangements and clarifying the retention period. The Directive is in effect as of 6 June 2012. 58. In February 2012, Malaysia introduced the framework for the creation of two new entities/arrangements: limited liability partnerships and business trusts. The Limited Liability Partnerships Act 2012 allows for the registration of limited liability partnerships in Malaysia and is effective as of 26 December 2012. Business trusts are established under the Capital Markets and Services (Amendment) Act 2012 (CMSAA), effective as of 26 December 2012. 59. Effective as of 1 July 2013 Malaysia has changed its policy concerning the need of a provision akin to Article 26(5) in its EOI mechanisms in order to exchange bank information with its treaty partners. The change in policy to be effective and to counter any domestic laws limiting access to bank information does not require that it is also implemented through a law or regulation. Following the policy change, Malaysia reports it has already exchanged bank information even in the absence of a provision akin to Article 26(5). Malaysia requires reciprocity in order to apply the new policy. 60. The Companies Bill is expected to be tabled in Parliament during the parliamentary session in March 2014. The Bill provides for the registration of any remaining share warrants to bearer issued by Malaysian companies prior to the prohibition of the issuance of such shares effective as of 29 December 1967. If enacted in its present form, the law will provide for a 12-month transitional period in which the holder of a share warrant to bearer must surrender it to the company for cancellation and to have its name entered in the register of
22 INTRODUCTION
members of the company. After the stipulated period, companies will only be allowed to register the name of the holder of share warrant to bearer, if a court order to that effect has been obtained. Any changes in a companys register of members resulting from the registration of share warrants to bearer will have to be lodged with the Registrar.
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 23
Compliance with the Standards
A. Availability of Information
Overview
61. 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 the Labuan IBFCs legal and regulatory framework on availability of information. It also assesses the implementation and effectiveness of this framework in practice. 62. 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 companies to provide details of their major shareholders. 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 or Labuan FSA). It also requires Labuan companies and protected cell
24 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

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. 63. 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. 64. 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 anti-money 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. 65. 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. 66. Relevant laws applicable in Malaysia and in the Labuan IBFC contain enforcement provisions to ensure the availability of information. 67. 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). 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. 68. In Malaysia, compliance with all entities obligations to maintain ownership and accounting information is monitored by the Registrar, the IRBM and to a certain extent the AML/CFT supervisors. In relation to the Labuan IBFC, while the Labuan FSA has monitored and supervised its licensed entities, it appears that the focus of its work was related to its role as financial regulator and did not sufficiently cover the compliance with the obligation of all Labuan entities to maintain ownership information and accounting records. Therefore, the need for strengthened controls exists. The Labuan FSA is taking action to strengthen its enforcement action and broaden the scope of its monitoring activity. It is recommended that Malaysia ensures that monitoring and enforcement powers are systematically exercised in practice in the Labuan IBFC to support the legal requirements concerning the availability of ownership and accounting information. 69. 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. In Malaysia, the Central Bank of Malaysia performs adequate monitoring and enforcement to ensure that banking information is available. In the Labuan IBFC, monitoring is performed by the Labuan FSA (or jointly by the Central Bank and the Labuan FSA in respect of Malaysian financial institutions operating in the Labuan IBFC). 70. During the three-year period under review (1 January 2010 to 31 December 2012), Malaysia received a total of 61 requests for information from its treaty partners, 15 of those requests referred to entities and arrangements in the Labuan IBFC. From the 61 requests (including the requests related to the Labuan IBFC), 25 contained inquiries for ownership information, 23 for accounting information and 10 for banking information. Malaysia also received requests concerning individuals, pension schemes, and ownership of real estate property. There appears to be a considerable number of companies that are dor71. mant/not carrying on business in Malaysia and that do not comply with their obligations to file annual returns and income tax returns. This has caused delays in replying to EOI requests and in at least one instance the EOI request could not be answered to the satisfaction of the requesting jurisdiction. Malaysia should ensure that all instances of noncompliance are systematically and timely sanctioned, including by means of striking-off actions. Moreover,

Malaysia should evaluate the adequacy of the penalties provided under the relevant tax and commercial laws to ensure that they are effective in providing deterrence against non-compliance.
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.
72. The legal and regulatory framework of Malaysia provides for the possibility to establish different types of entities and arrangements that may be relevant for exchange of information purposes. In addition, a separate legal and regulatory framework exists for the Labuan IBFC, providing for specific types of entities and arrangements that can be established in the financial centre. 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

73. 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.
74. 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. 75. 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).
14. Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information.
76. 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. 77. An unlimited company is one where the members liability for its debts is unlimited. 78. 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). 79. 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. 80. 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.
81. As at 31 July 2013, there were 1 044 688 companies operating in Malaysia (excluding the Labuan IBFC), out of which 1 042 837 were companies limited by shares (1 037 121 private, 5 716 public), 1 869 companies limited by guarantee and 248 unlimited companies. Among the private companies, between August 2011 and July 2013 there were 81 688 exempt private companies.
Information held by authorities in Malaysia

82. Effective as of 1 January 2013, all companies are required to submit information on their five major shareholders in their annual tax returns (2013 Corporate Income Tax return form and ss. 152 and 152A, ITA). Previously, only companies qualified as controlled companies were 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 also 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. 83. 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). 84. 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). 85. With effect from 6 February 2011, businesses began using the Malaysia Corporate Identity System (MyCoID) developed in 2010 to incorporate new companies online, which co-exists with over-the-counter incorporation. Currently, approximately 80% of companies are incorporated online and 20% over-the-counter. The services offered by the online system include incorporation of a company and the submission of post incorporation forms. The registration of companies can normally be completed in one day. The online system also allows the simultaneous registration with five other government agencies, namely the Inland Revenue Board of Malaysia, Employees Provident Fund, Social Security Organisation, Human Resource Development Fund and Small and Medium Enterprise Corporation of Malaysia. At the point of registration, the Companies Commission of Malaysia (CCM) also may, query the application and if the answer provided is not to the satisfaction of the Registrar, the application may be rejected. This is done
in approximately 0.5% of the cases. The CCM reports that it subscribes to the disclosure regime where the information provided at the time of registration is deemed to be true and correct. The directors and the company secretary are required to declare that the information provided is true and all the requirements under the Companies Act 1965 and the Companies Regulations 1966 in respect to the matters precedent to the registration of the company and incidental to its registration have been complied with. Providing false and misleading statements is an offence under section 364(2) which carries a penalty of a term of imprisonment of ten years or a fine of two hundred and fifty thousand ringgit (MYR 250 000) or both. Further, the Registrar is given the power to call for information under section 7(11) of the Companies Act 1965 to require any corporation or person to provide for information as may be required by the Registrar for the purposes of the Companies Act 1965. The Registrar may also under section 7B of the Companies Act 1965, conduct inspection for the purposes of ascertaining whether a corporation or any officer of a corporation is complying with the Act. 86. 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)). 87. 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. 88. 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.

89. 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
90. 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. 91. Since 1 January 2013, foreign companies receiving income from Malaysia must submit information on their five major shareholders as part of their annual tax returns. Previously only 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 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 also have powers to request ownership information based on their general powers to call for information provided for in the ITA (s. 81). 92. 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.
93. 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

94. 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.
In addition, where a company has more than 50 members, it also has 95. 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). 96. 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). 97. 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). In principle, all the registers mentioned must be kept at the registered 98. 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).

99. 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 0.22) for each inspection (CA s. 160(2)). 100. 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 (and, since 1 January 2013, all foreign companies) is nonetheless available to the Malaysian tax authorities, as described above in this section. 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

101. 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 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

102. 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.
103. 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 owners 15 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
104. 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)). 105. 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 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). Nominees that are lawyers, certified accountants, company secretar106. ies 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
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 per cent controlling interest, whichever is applicable.

authorities have indicated that most professionals acting as nominees are indeed financial institutions, lawyers, certified accountants or company secretaries. 107. To date, the Malaysia competent authority has received no requests concerning nominee shareholders from its treaty partners. In addition, the Malaysian tax authorities report that they have not encountered cases in their audit work where the person acting as nominee was not regulated under the AMLATFA.
Conclusion
108. 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. Since 1 January 2013, this requirement applies to all companies. 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. 7(11)(a) and ITA s. 81).
In practice
109. The Companies Commission of Malaysia (CCM) is the authority responsible for administering the CA. Updated shareholder information is generally available with the CCM and can be accessed online by any person at the CCMs website subject to the payment of a fee. The Malaysia competent authority mainly makes use of the CCM website to obtain ownership information when requested by its treaty partners. CCMs website has an English page and annual returns and other corporate information and documents can be accessed by any person. Subsidiary sources of ownership information include tax returns and inquiries made directly with companies and their representatives.
110. The CCM has 70 officers working in the compliance division, 84 in the enforcement unit, 63 in the investigation unit and 30 in the legal unit. 111. The CCMs system automatically detects companies that fail to file annual returns by the due date. In 2011 and 2012, approximately 90% of active companies complied with the obligation to file an annual return with the CCM (see more details regarding dormant companies below). Compliance rates have increased each year (87% in 2010 and 84% in 2009) during the review period. The CCM credited the compliance rate to enforcement action, active engagement with stakeholders and educational programmes to enhance awareness among company directors and officers concerning their legal obligations. 112. The CCM reports that out of the total of registered companies approximately 763 000 companies are considered live companies. The live companies include active companies, defined as the companies required to audit their financial statements and to hold annual general meetings. The number of active companies was 328 043 in 2010, 339 966 in 2011, 360 783 in 2012 and 383 104 in 2013. The live companies that are not considered active companies include companies that (i) are newly incorporate and not yet required to audit their financial statements and to hold annual general meetings; (ii)in the process of being struck-off or wound-up. 113. Monitoring and enforcement action carried out by the CCM includes desk-based and on-site inspection of companies and partnerships, management of complaints received and prosecutions. More details are provided in section A.1.6 of the report. 114. Annual tax returns are filed by companies carrying on business in Malaysia. Since 1 January 2013, all companies must report their five major shareholders as part of their annual tax returns. Prior to that, this obligation was applicable to domestic and foreign controlled companies (i.e. domestic or foreign companies not having more than 50 members/shareholders and controlled by not more than five persons). The Malaysia authorities report that more than 90% of foreign and domestic companies registered in Malaysia are controlled companies. During the period under review (2010-12), the compliance rate with the filing obligations was around 74.4% (statistics refer to all companies in Malaysia, not only controlled companies). For enforcement action on the non-compliant entities, please refer to section A.1.6 of the report. 115. In practice, when the Malaysian competent authority receives an exchange of information request for identity or ownership information concerning companies, it will generally consult the IRBM and CCM databases and, if the requested information is by any reason not available in these databases, the CA will request it from the person under investigation or third parties.

116. During the three-year period under review (1 January 2010 to 31 December 2012), Malaysia has received 12 requests regarding identity and ownership information concerning companies in Malaysia (ten requests referred to Malaysian companies limited by shares and two referred to foreign companies). In relation to the 12 EOI requests, the Malaysian competent authority had the requested information at his disposal in six cases by consulting the CCM /IRBM databases. In other cases, the Malaysian competent authority sought ownership information directly from the person under investigation or from third parties. In some of these cases, information for a particular request was obtained from different sources. 117. In at least one instance during the period under review requests for ownership information could not be answered to the satisfaction of the requesting jurisdiction. The request referred to a domestic company that was dormant or not carrying on business in Malaysia and had not filed annual returns and/or income tax returns. It is not clear if penalties or other enforcement measures were taken in that case. Moreover, based on the indications given by Malaysian officials there were concrete cases where the information could not be obtained or where obtaining the information took more than a year because the entities that were the subject of the requests did not comply with their filing obligations. 118. Although the CCM reports a very significant increase in its efforts to free its register from dormant/ non-compliant companies (see section A.1.6 of this report), there appears to be a considerable amount of work to do in this respect. There appear to be more than 100 000 dormant companies in Malaysia. Those companies do not comply with filing obligations. Moreover, there are questions on whether the penalties provided under the relevant tax laws and commercial laws are set at a sufficient level to provide an effective deterrence against non-compliance (more details in section A.1.6). It is recommended that Malaysia continues its efforts to ensure that the register of companies has reliable and updated information and those instances of noncompliance are systematically and timely sanctioned, including by means of striking-off actions. Moreover, Malaysia should monitor the effectiveness of the penalties provided under the relevant tax and commercial laws to ensure that they are effective in providing deterrence against non-compliance of the filing and reporting obligations.
Companies in the Labuan IBFC (ToR 16 A.1.1) Types of companies in the Labuan IBFC
119. The Labuan IBFC has autonomy to issue laws and regulations on companies. The Labuan Company Act 1990 (LCA) rules the incorporation 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). 120. A Labuan company can be incorporated as: a company limited by shares; a company limited by guarantee; or an unlimited company (LCA s. 14).
121. 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 2 193 000) for banks and MYR 300 000 (EUR 65 704) for captive insurance companies); (iii) minimum of one director (s. 87); and (iv) a resident secretary (s. 93(1)). 122. 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 Minister 17 has given specific notice under the terms described in the LCA (s. 120). A Labuan protected cell company (PCC) is a Labuan company estab123. lished 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
16. 17. Terms of Reference to Monitor and Review Progress towards Transparency and Exchange of Information. Minister is defined as the Minister for the time being charged with the responsibility for financing (LCA s. 2).

(LFSSA) and the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA). 18 The incorporation of or the conversion to a Labuan PCC requires 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). 124. As of June 2013, there were 9 872 Labuan companies, out of which 9 837 were companies limited by shares, 31 companies limited by guarantee and 4 Labuan PCCs. At that date, there were no unlimited companies. In addition, there were 254 foreign Labuan companies registered in the Labuan IBFC. 125. Overall, the number of company formations grew about 10 percent from 2011 to 2012 and from 2012 to 2013. More than half of investors using the Labuan IBFC come from the Asia and Pacific region, but there are also significant investment from Europe, the Middle East and the Americas.
Information held by authorities in the Labuan IBFC

126. There is no express provision in the laws and regulations of the Labuan IBFC 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). Persons desiring to incorporate a company in the Labuan IBFC must 127. lodge the memorandum and the articles of association of the proposed company with the Labuan Financial Services Authority (LFSA or Labuan FSA) together with other documents required under the Labuan Companies Act 1990 (LCA s. 15). 128. 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).
18. 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 (excluding public fund), Labuan Islamic banking business licensees, Labuan takaful and takaful-related licensees, Labuan Islamic financial businesses and exchanges.
Amendments to the memorandum or the articles of association must be lodged with the LFSA (s. 23). 129. 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). 130. 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 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)). Pursuant to the Labuan Business Activity Tax Act 1990 (LBATA), the 131. 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 or TIEA 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).
Foreign companies
132. Foreign companies that wish to 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). In order to register as a foreign Labuan company, the foreign com133. pany 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. 134. 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.
Information held by companies in the Labuan IBFC

135. 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.
136. Labuan protected cell companies (PCCs) are required to keep registers of members and also indexes of the names of their shareholders (LCA s. 130U). 137. 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). 138. 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)). 139. 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.
Information held by directors and officers in the Labuan IBFC

140. 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
141. 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

142. 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). 143. 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).

144. 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

145. 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. 146. 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). 147. 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
148. 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.
In practice
149. The Labuan FSA is the authority responsible for administering the LCA. Labuan companies are required to file shareholder information on an annual basis with the Labuan FSA. In practice, the Labuan trust companies
as the resident secretaries of Labuan companies are responsible for ensuring compliance with filing obligations. As at June 2013, there were 9 872 registered companies in the Labuan FSA, out of which only 4 852 were active companies and filed returns. The Labuan FSA assesses that a number of registered Labuan companies actually have not commenced business and some have failed to comply with filing obligations. Moreover, a number of companies ceased operations, undergone liquidation and dissolution process, and others have been struck off from the registry by the Labuan FSA. Those companies are still shown as registered companies. 150. The Labuan FSA reports it applies penalties for late submission of documents and that it also strikes off non-active companies. More details are provided in section A.1.6. 151. The Labuan FSA reports that the company registration system will be enhanced in 2014 to cater for more efficient and effective surveillance and monitoring of the filing obligations imposed on Labuan entities. Currently, the compliance with filing requirements is monitored manually by the Labuan FSA. 152. During the three-year period under review (1 January 2010 to 31 December 2012), 13 out of 61 EOI requests received by Malaysia related to the Labuan IBFC. All these requests related to identity or ownership information concerning Labuan companies. Malaysia reports that in most cases the requested information was available at the Labuan FSAs files. In relation to six cases, the information was sought from Labuan trust companies. The Labuan FSA reports that the information was obtained in cases where it had to be sought from Labuan trust companies.
Bearer shares in Malaysia (ToR A.1.2)

153. Since 1966 Malaysian law has prohibited the issuance of bearer share warrants (CA s. 57). The bearer of a bearer share warrant issued before 15 April 1966 can 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
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.

such 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. Furthermore, in order to attend and vote at any general meeting of the company, the name of the bearer of a share warrant needs to be entered in the companys register of members (s. 148(1) read with s. 16(6) CA). Finally, the Malaysian authorities are not aware of any case where such shares exist now. The Inland Revenue Board of Malaysia reports that it has not encountered any bearer share warrants during its audit process. In light of these considerations, the gap is not considered to be material. 154. The Malaysian authorities and feedback from peers confirm that no information regarding bearer shares has been requested from Malaysia during the period under review.
Bearer shares in the Labuan IBFC (ToR A.1.2)

155. 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

156. In Malaysia there are two types of partnerships: general partnerships, governed by the Partnership Act 1961 and registered under the Registration of Businesses Act 1956 (ROBA); and limited liability partnerships (LLPs) governed by the Limited Liability Partnerships Act 2012 (LLPA 2012).
157. General partnerships are defined as the relation that exists between persons carrying on a business 20 in common with a view of profit (Partnership
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.
Act 1961 (PA) 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. General partnerships are required to register under the Registration of Businesses Act 1956 (ROBA) 21. A LLP is a body corporate formed with a view of profit (s. 3 (1)). Any 158. change in the partners of a limited liability partnership shall not affect the existence, rights or liabilities of the limited liability partnership (s. 3 (3)). The LLP has a separate legal personality from its partners and is taxed as a body corporate. 159. As at 31 July 2013, the number of registered active general partnerships was 273 375 and the number of registered LLPs was 669.
Information held by public authorities in Malaysia

160. Sections 5(1) and (2)(e) of the Registration of Businesses Act 1956 (ROBA) provide that the managing partner must register the general 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 general partnership can be identified as these details are submitted during the registration of the general 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). 161. To apply for registration of a LLP to the Registrar, the following information must be provided, including the name, nationality and the usual place of residence of every person who is to be a partner and, where any of the partners is a body corporate, the corporate name, place of incorporation, establishment or origin, registration number and registered office of the body
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.

corporate (LLPA s. 10(2)). If any change is made or occurs in the registered particulars of a LLP, it must notify the Registrar of such change within 14 days or such further period as the Registrar may determine (LLPA s. 17(1)). 162. In addition, all partnerships (including general partnerships, LLPs and foreign partnerships carrying on business in Malaysia) must register with the IRBM and are required to file annual tax returns, 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

163. The Malaysian authorities have indicated that the managing partner has to keep documentation on the general 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 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. In addition, under section 30 of the PA, the partners of a general part164. nership 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. 165. A LLP is required to keep at its registered office a number of documents and records, including a register of the name and address of each partner and compliance officer (LLPA s. 19 (1)).
Information held by service providers in Malaysia

166. 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
167. Overall, legal ownership and identity information is available to the Registrar or the IRBM in respect of all partnerships that (i) have income, deductions or credits for tax purposes in Malaysia; (ii) carry on a business in Malaysia, (iii) are limited partnerships formed under the laws of 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.
In practice
168. During the three-year period under review (2010-12), the Malaysian competent authority has not received any requests related to identity or ownership information concerning partnerships. In practice, when the Malaysian competent authority would seek identity or ownership information concerning partnerships, it would first consult the IRBM and CCM databases and, if the requested information is not at its disposal, it would request it from the person under investigation or a third party. The CCM also inspects businesses, including general partnerships, to 169. ensure their compliance with the basic requirements under the ROBA. More details are provided in section A.1.6. 170. With regard to LLPs, the CCM is also the authority responsible for monitoring and compliance of these entities with their obligations under the LLPA. As at 31 July 2013, there were 669 LLPs registered in Malaysia. However, given that the legislation is effective only as of December 2012 and the review period ended on 31 December 2012, the enforcement and monitoring action of the CCM in connection to the LLPA could not be assessed. Malaysia should monitor compliance with the obligations to maintain ownership and identity information under the LLPA and tax law and take enforcement measures as appropriate.
Partnerships in the Labuan IBFC (ToR A.1.3) Types of partnerships

171. 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).

172. The Labuan IBFC also allows partnerships to be established under Shariah principles, as Islamic LPs or LLPs. 173. 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 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). 174. 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). 175. For tax purposes, LPs and LLPs, including those established under Shariah principles, are treated as taxable entities (LBTA ss.15 and 16). As at June 2013, there were 37 LPs and 8 LLPs registered in the Labuan IBFC.
Information held by public authorities in the Labuan IBFC

176. 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)). 177. 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). Regarding ownership information, LPs are required to disclose upon 178. 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. 179. 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 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
180. 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

181. 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)).

182. 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. 183. The information or documents filed at the LFSA must be amended within thirty days of any change in the particulars and must be available 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. 184. 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
185. 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.
In practice
186. The Labuan FSA is the authority responsible for administering the LLPLLPA. In practice, the LPs and LLPs do not appear to be type of entity of choice to most investors in the Labuan IBFC. As referred earlier in this section, in June 2013, there were 37 LPs and 8 LLPs registered in the Labuan IBFC, whilst there were more than 9 000 Labuan companies. 187. Changes in the particulars of the partnership agreement must be informed to the LFSA within 30 days from the date of change is made.
During the period under review, the LFSA has received notices of changes in the particulars of partnership agreements, as described in the table below:
2011 Type of Form Form 3 Notice of Changes to LP Agreements Form 11 Notice of Changes to LLP Agreements 2012 2013
No. of No. of No. of No. of No. of No. of Partnership Changes Partnership Changes Partnership Changes Agreements Reported Agreements Reported Agreements Reported
24
28
40
188. No requests have been received in connection to Labuan partnerships in the period under review.
Trusts in Malaysia (ToR A.1.4) Types of trusts in Malaysia

189. 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. 190. As at 31 July 2013, there were 28 trust companies registered under the TCA, 36 839 active trusts and 32 849 closed trusts registered under the PTCA.

191. 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; unit trusts; and business trusts.
192. 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. 193. 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). 194. Business trusts are unit trust schemes which underlying assets constitute an on-going business (Division 3B of Part VI, CMSA as amended in 2012). It is a hybrid structure with elements of a company and a trust, i.e. a trust that functions through a trustee-manager to own and operate a business for the benefit of unit holders. While a business trust is not a separate legal entity, the trustee-manager is required, under the Guidelines on Business Trust, to manage the fund in a prudent manner and will be accountable to the unit holders. The trustee-manager must be a corporation other than an exempt private company and must hold a capital market services license under the CMSA. As at January 2014, there were no business trusts or trustee-managers of business trusts approved by the Securities Commission Malaysia. Business trusts may apply for listing on the Malaysia stock exchange subject to fulfilling certain requirements.
Establishment of trusts in Malaysia

195. 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.
196. 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 31 July 2013, there were 28 trust companies registered in Malaysia. 197. 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 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, Malaysias 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. 198. 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

199. 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. 200. 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 CMSA, 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 Malaysian Securities Commission together with other information or documents as the Malaysian Securities Commission may specify.
Information to be provided to the tax authorities

201. 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. In relation to business trusts, the trustee-manager is responsible for filing an income tax return of the business trust with the IRBM. A business trust is resident in Malaysia for a given year if its trusteemanager is resident in Malaysia in that year. The residency of the trustee manager in a given year if (a) the trustee manager in its capacity as such carries on the business of such business trust in Malaysia, and (b) the management and control of the business of such business is exercised in Malaysia.
Information held by trustees and service providers in Malaysia

202. 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 duties 22. 203. To date there is no particular case law in Malaysia which deals specifically with the issue of duty of trustees to keep information on the identity of settlors and beneficiaries. Malaysia incorporates the common law of England into Malaysian law in effect before Malaysias independency in 1957 by Section 3 of the Civil Law Act of 1956. The courts apply English common law in force at the time of independence as this is an integral part of Malaysian law. In addition English cases and cases from other common law countries interpreting statutes which are similar to Malaysian statutes are of persuasive value. Therefore, in the specific case concerning trustees duties, the Malaysian authorities consider that, in the absence of specific Malaysian case law, English case law would be referred to as persuasive authority. 204. In relation to business trusts, the Securities Commission Malaysias Guidelines on Business Trusts provides that a trustee-manager must (Paragraph 7.01) (a) keep and maintain, or cause to be kept and maintained, a register of the unit holders of the business trust; and (b) make the register available for inspection, without charge, by any person during the business hours of the trustee-manager. Moreover, the Guidelines also provide that a deed of the business trust must contain specific provisions whereby the trustee-manager undertakes to keep and maintain an up-to-date register of unit holders and to make that register available for inspection in the terms mentioned above (Appendix 5 of Chapter 5 of the Guidelines on Business Trusts). 205. Under the AMLATFA, and the AML/CFT Regulation and guidelines, 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.

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 on-going due diligence and must ensure the information is updated. 206. 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. 207. 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). 208. 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).
209. 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
210. 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. In relation to business trusts, given that the legislation is effective only as of December 2012 and the review period ended on 31 December 2012, the enforcement and monitoring action in connection to them could not be assessed. Malaysia should monitor compliance with the obligations to maintain information that identifies the settlor, trustee and beneficiaries of business trusts under the Capital Markets & Services Act as amended, the Securities Commissions Guidelines on Business Trusts and tax law and take enforcement measures as appropriate.
In practice
211. The Central Bank of Malaysia (Bank Negara Malaysia) supervises the compliance of AML obligated persons with the AMLATFA. Trustees that are banks, financial institutions, trust companies, lawyers, accountants and companies secretaries fall within the scope of supervision of Bank Negara Malaysia. During the period under review, the Bank Negara Malaysia conducted 212. on-site examinations and off-site surveillance on the designated non-financial businesses and professionals (DNFBP) sector, including lawyers and trust companies. More details are included in section A.1.6 of this report.

213. During the period of review, Malaysia has received one request pertaining to settlors, beneficiaries and trustees of trusts. The EOI partner was investigating a particular taxpayer and has requested Malaysia to provide information in relation to several Malaysian companies in which the taxpayer had an interest in. The partner also informed that the taxpayer was the beneficiary of a trust in an unknown country and asked Malaysia whether that trust was known to Malaysia. Malaysia has searched the trust registry (which keeps information on the trusts that chose to be registered there) and could not identify the referenced trust. The trust was not otherwise known to Malaysia.
Trusts in the Labuan IBFC (ToR A.1.4) Types of trusts in the Labuan IBFC
214. 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.
A purpose trust is a trust established under the framework of the LTA 215. for a particular purpose or purposes, charitable or not. 216. 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). 217. 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.
218. 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. 219. 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

220. 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

221. 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 Authority (LFSA) by the trustee (LTA s. 12(1)(2)). As at 5 March 2014, there were 52 trusts that chose to be registered with the Labuan FSA under section 12(1) of the Labuan Trust Act. Out of the 52 trusts, 28 are still in existence and 24 have been terminated in accordance with the trust deed. 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

222. 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

223. 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). 224. 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
225. 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 trustee 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 required under anti-money laundering legislation to obtain information on the ownership chain for all of their customers.
In practice
226. The Labuan FSA is responsible for administering the Labuan Trust Act. It is also responsible for supervising the compliance of the Labuan trust companies with its AML obligations, including CDD. Labuan trust companies are required to inform the Labuan FSA on an annual basis how many trusts in relation to which they act as trustees. More information on the enforcement and supervision carried out by the Labuan FSA is provided in A.1.6 of this report.
227. During the three-year period under review, Malaysia has received two EOI requests concerning the identity of settlors and beneficiaries of a trust having a Labuan trust company as trustee. In relation to one of the requests, after some initial problems in retrieving the request (see section C.5.2 of this report), Malaysia has provided a substantial level of documentation in response to the request, as confirmed by the requesting jurisdiction. The requesting jurisdiction advised that the investigation is still on-going and after the initial response it has asked Malaysia to provide additional information which is still pending (additional information refers to bank statements and more details are provide in section A.3 of this report). In relation to the other EOI request, Malaysia reports that the information requested has recently been obtained from a Labuan trust company and provided to the requesting jurisdiction.
Foundations in Malaysia (ToR A.1.5) and other entities

228. 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. The availability of ownership information for companies limited by guarantee is discussed in Part A.1.1 of this report. 229. 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. As at March 2014, there were 371 tax-exempt societies. 230. 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). While the societies registered under the ROS do not have to provide information on their members unless they are requested to do so, in case they fail to do so, the society is deemed an unlawful society and its registration is cancelled (Societies Act, s. 14(7)).
In practice
231. As at 31 July 2013, there were 1 869 CLBGs of which 868 contained the term foundation/yayasan as part of their name. The usage of that term is not compulsory, however. As at 31 December 2013, there were also 49 746 societies registered under the ROS. CLBGs fall under the scope of supervision of the CCM and societies fall under the purview of the ROS administered by the Ministry of Home Affairs. 232. During the three-year period under review (1 January 201031 December 2012), Malaysia has received no EOI requests concerning companies limited by guarantee (CLBGs), societies, associations, clubs or other non-profit organisations.
Foundations in the Labuan IBFC (ToR A.1.5)

233. 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). 234. 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. 235. As at June 2013, there were 83 foundations registered with the LFSA.
Information held by government authorities in the Labuan IBFC

236. 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). 237. 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)).
238. 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

239. 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)).

240. 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. In addition, financial institutions, lawyers, certified accountants and 241. 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
242. 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.
In practice
243. The establishment of foundations in the Labuan IBFC has significantly increased in the last two years: in June 2011 there were only 12 registered foundations and in July 2013 the number raised to 86. The use of foundations is still limited if compared to the use of Labuan companies. 244. The Labuan FSA is responsible for administering the LFA. 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. The Labuan FSA is responsible for monitoring Labuan trusts companies and monitoring activities appear to have been recently intensified as further described in section A.1.6 of this report. 245. During the period under review, Malaysia has received no EOI requests concerning Labuan foundations.
Enforcement provisions to ensure availability of information in Malaysia (ToR A.1.6)

246. 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

247. Malaysian laws provide for detailed penalties for non-compliance with key obligations to maintain ownership and identity information. 248. 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 219) and to a default penalty of MYR 250 (EUR 55) (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 219) and also to a default penalty (s. 141(7)).
249. Failure to maintain the register or index of members on conviction triggers a fine of MYR 2 000 (EUR 438) and also a default penalty (CA s. 158). For failure to comply with requirements to keep the register of substantial shareholdings, companies are liable on conviction to a fine of MYR 5 000 (EUR 1 096) and also a default penalty of MYR 500 (EUR 109) (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 219 000) and a default penalty of MYR 50 000 (EUR 10 944) (s. 69M). 250. 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 219) 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). 251. 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 2 188) or to imprisonment for a term not exceeding one year or to both (ROBA s. 12(A)). 252. 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 11) 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 438) (CA s. 165).
Specific penalties for professional service providers in Malaysia

253. Any person who commits an offence to the AMLATFA shall on conviction, be liable to a fine not exceeding MYR 250 000 (EUR 54 700). 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 MYR 100 000 (EUR 21 880) 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 219) 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

254. 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 22) and not more than MYR 2 000 (EUR 438) or to imprisonment not exceeding 6 months or to both.
Conclusion
255. 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.
In practice Companies
256. The system maintained by the Registrar automatically detects companies which fail to file annual returns by the due date. Compliance with filing obligations has been around 90% in 2011 and 2012 (statistics cover active companies only; dormant companies are, therefore, excluded). The 2011 and 2012 compliance rates represent a relevant increase in relation previous years (87% in 2010 and 84% in 2009). Based on a balanced approach between enforcement and educational programs, the CCM targets to achieve voluntary compliance at even higher levels (92% in 2013 and 94% in 2014). Education and training initiatives including seminars and e-learning programs to directors, secretaries, managers and other company officers focused on creating awareness of their duties and responsibilities in relation to a companys filing and record-keeping obligations.
257. For monitoring purposes, companies which failed to lodge annual return and audited financial statements for more than 3 consecutive years will be classified administratively as dormant by the system. In the cases the CCM deems necessary (e.g. if the last financial statement lodged shows that the company has a large number of assets), on-site inspection will be carried out to verify the status of company. 258. The CCM has provided the following statistics concerning the enforcement of filing obligations during the period under review: Compound notices were issue to companies/directors that failed to comply submit annual returns (147 134 notices were issued in 2011, 71 071 in 2012 and 113 691 in 2013); Prosecution action was initiated against companies/directors that failed to pay the compound imposed (4 750 prosecutions were initiated in 2011, 4 419 in 2012 and 6 444 in 2013); The CCM has in certain instances (one case in 2012 and one case in 2014) initiated action in Malaysias High Court pursuant to section 12 of the CA to compel the companies/directors to comply with the obligation to lodge statutory reports/returns.
259. The CCM carries on monitoring and enforcement action including desk-based and on-site inspection of companies and partnerships, management of complaints received and prosecutions. In 2011, a total of 568 308 companies were inspected. Ninety-three per cent of these inspections were database inspections, which involved the screening of corporate and business information stored in the CCMs database and 7% were on-site inspections in which CMM officials visited the companys premises. Inspections are made based on a risk-based approach and include samples of public companies, private companies, including exempt private companies. In 2011, the CCM identified 9 806 cases of offences committed by companies and partnerships, including in relation to companies 4 750 cases of failure to lodge annual returns, 4 cases of failure of a substantial shareholder to notify a company of change in his interest and 15 cases of false or misleading statements. Those cases led to prosecutions. 260. The CCM reports that monitoring includes, among other actions, the verification of the consistency of information lodged to the Registrar with the original information kept by the companies in their offices (e.g. the particulars of directors and shareholders), the verification of the register and index of members. Moreover, if a company reports changes in shareholding in its annual return, the CCM will also verify if a notification related to such a change was filed in due time.

261. Companies and officers who are convicted from non-compliance with their reporting obligations are listed in the press releases issued by the CCM and this information is freely accessible by the public on the CCMs website. 23 262. The CCM reports that it is its policy to strike off companies that fail to comply with their filing obligations for more than three years. The number of companies struck-off by CCM under section 308 of the Companies Act 1965 increased by 443% in 2011 to 130 823 companies from 24 098 in the previous year. The considerable increase is due to the concerted effort undertaken to free CCMs register of dormant companies. The CCM reports it also encourages owners of dormant companies to dissolve them and that initiatives taken by the CCM have also led to a reduction in the number of dormant companies. 263. However, despite the enforcement efforts being taken by the CCM, there are still more than 100 000 dormant companies in Malaysia. Those companies do not comply with filing obligations. The level of non-compliance raises questions on whether the penalties provided under the relevant tax laws and commercial laws are set at a sufficient level to provide an effective deterrence against non-compliance. It is recommended that Malaysia continues its efforts to ensure that the register of companies has reliable and updated information and those instances of noncompliance are systematically and timely sanctioned, including by means of striking-off actions. Moreover, Malaysia should monitor the effectiveness of the penalties provided under the relevant tax and commercial laws to ensure that they are effective in providing deterrence against non-compliance of the filing and reporting obligations.
Partnerships
264. The CCM inspects businesses, including general partnerships, to ensure their compliance with the requirements under the ROBA. In 2011, a total of 526 515 businesses inspected, with 93% of these database inspections involving the screening of business information stored in the CCMs database. Seven per cent were on-site inspections in which CCM officials visited the business premises. Also in 2011, there were 68 prosecutions regarding carrying on a business without registration and 339 prosecutions related to carrying on a business after the expiry of business registration. There were also eight prosecutions concerning making or furnishing false declarations to the Registrar. 265. As at 31 July 2013, there were 669 LLPs registered in Malaysia. However, given that the legislation was enacted in February 2012 (effective
23. www.ssm.com.my/en/press-public.
as of 26 December 2012) and the review period ended on 31 December 2012, the enforcement of the LLPA could not be assessed either. Malaysia should monitor compliance with the obligations to maintain ownership and identity information under the LLPA and tax law and take enforcement actions.
Trusts
266. As referred in section A.1.4, the Central Bank of Malaysia (Bank Negara Malaysia) supervises the compliance of AML obligated persons with the AMLATFA. Trustees that are banks, financial institutions, trust companies, lawyers, accountants and companies secretaries fall within the scope of supervision of Bank Negara Malaysia. During the period under review, the Bank Negara Malaysia conducted on-site examinations and off-site surveillance on the designated non-financial businesses and professionals (DNFBP) sector, including lawyers and trust companies. 267. Nineteen on-site examinations assessing the DNFBPs compliance with the AML/CFT laws and guidelines were conducted in the period 201012. General observations from the on-site examinations included inadequate CDD and lack of monitoring for the customers activities and transactions, and lack of AML/CFT policies and procedures. When deficiencies were identified, the Bank Negara Malaysia has taken action, including the issuance of supervisory letters requiring implementation of remedial measures, and the issuance of directives pursuant to the AMLATFA instructing compliance to the requirements imposed on the reporting institution. A follow-up examination is planned to ascertain progress in implementing the remedial measures/ directives. 268. The Bank Negara Malaysia has also undertaken off-site surveillance through the submission and analysis of self-assessment questionnaires. General observations from the analysis of the questionnaires included inadequate AML/ CFT oversight by the senior management/board of directors and no periodic review of the AML/CFT procedures. Based on the observations, the Bank Negara Malaysia has conducted on-site examinations on selected reporting institutions to verify the questionnaire responses as well as to inform the findings to their oversight body where applicable. In addition, an action plan is currently being proposed to address low level of awareness in certain DNFBP sectors. The Bank Negara Malaysia has delivered awareness briefing sessions across Malaysia during the period under review and these covered professionals such as lawyers and company secretaries.
Foundations
269. CLBGs fall under the scope of supervision of the CCM and Societies fall under the purview of the Registrar of Societies administered by the Ministry of Home Affairs. CLBGs and societies do not have shareholders and any change in its founder members are reported in their constitutive documents filed with the CCM and Registrar of Societies, respectively. The rate of compliance of CBLGs carrying charitable activities with their obligation to file an annual return with the CCM was approximately 88% in years 2011 and 2012 and 87% in year 2013. In year 2011, the CCM issued 260 compound notices against non-compliant CBLGs and 112 notices in 2013 concerning the non-compliance with the filing obligations. If societies do not provide information requested by the Registrar of Societies (such as updated information on members, it is deemed an unlawful society and its registration is cancelled (Societies Act, s. 14(7)). During the review period, the compliance of societies with the notices issued by the Register of Societies was around 44-49%. Enforcement action was taken against approximately 16% of the registered societies on an annual basis during the same period.
Tax Law
270. Annual tax returns are filed by domestic and foreign companies carrying on business in Malaysia. Prior to 1 January 2013, domestic and foreign controlled companies (i.e. foreign companies not having more than 50 members/shareholders and controlled by not more than five persons) must file information on their five major shareholders as part of their annual tax returns. The Malaysia authorities report that more than 90% of foreign and domestic companies registered in Malaysia are controlled companies. Since 1 January 2013, domestic and foreign companies must file information on their five major shareholders as part of their annual tax returns regardless of whether they qualify as controlled companies. 271. Monitoring the compliance with tax filing obligations is carried out by the IRBM. In relation to companies, the IRBM reports that the number of returns issued generally covers the companies considered active by the CCM. In years 2009 to 2011 the number of tax returns issued and received by the IRBM and the penalties applied for late submission and furnishing incorrect information were as shown in the table on page 71. 272. In addition, other enforcement measures such as tax audits and court actions were applied. Tax audits are conducted on a regular basis and the audit procedure involves the examination of accounting records and underlying documentation. Depending on the facts and circumstances of the case, the tax audit process can also involve the performance of business surveys (i.e. to compare the taxpayer declared profits with the ones of other taxpayers
Taxable Year No. 124.519 5.976 28.648.602 629 36 N/A 21 56.142 95.448 85.244.870 5.878 38 59.250 60.164 N/A 32.147.571 N/A 22.934 1.773.754 355.717 N/A 52.644.104 No. No.
Type of taxpayer
Number of Returns Issued Number of Late Returns Amount (MYR) Amount (MYR)
Number of Returns Received on time Non.Submission Penalty Late.Submission Penalty
Penalty Filing of Incorrect Returns Amount (MYR)
2010 189.655 4.937 83.737 N/A 941 43.422
Individual
3.173.524 2.651.037 180.028
71.517 49.709.857 53.949 26.584.537 2.266 29.250.066 6 N/A 1.042 N/A 23.591.818 288 32 N/A 2.984.947 330.612 N/A 1.600 19.534.577 6 N/A 46.747.510 14.824 1.042 N/A 6.834.383
Corporate
376.545
Foundation
8.027
Partnership
156.884
2011 158.769 5.143 72.404 N/A 885 57.450
Individual
3.229.504 2.764.403 164.447
72.517 59.153.229 42.446
Corporate
402.131
Foundation
8.338
Partnership
161.348
2012 158.769 5.143 63.318 N/A 885 57.450 61.555 724 62.479
Individual
3.229.504 2.764.403 164.447 278.550
54.773.791 60.566 47.171.453 0 N/A 368 2 N/A
Corporate
402.131
2.828.677 6.033 N/A
110 1 N/A
779.122 12 N/A
Foundation
8.338
Partnership
168.245

in the same business), the cross checking of information with third party data, the co-operation with other government agencies, the cross-checking with information provided for other tax purposes (e.g. stamp duties). Failure to file returns is normally sanctioned based on an estimated assessment or compound and may lead to prosecution. During the period 2010-12, the number of criminal summons issued was: 28 980 in 2010, 26 184 in 2011 and 23 778 in 2012. The number of tax audits per type of entity is included below:
Year 2009 2010 2011 2012 Companies 3 509 2 880 4 347 8 201 Partnerships 1 061 753 1 559 728 Trusts 2 0 0 3
273. As referred in A.1.1, in at least one instance during the period under review requests for ownership information could not be answered to the satisfaction of the requesting jurisdiction. The request referred to a domestic company that was dormant or not carrying on business in Malaysia and had not filed annual returns and/or income tax returns. It is not clear if penalties or other enforcement measures were taken in that case. Moreover, there were other instances during the period under review that information was not fully available to Malaysian competent authority because the entities that were the subject of the requests did not comply with their filing obligations. This caused significant delays for Malaysia obtaining the information requested. In some cases when requests have been pending for a long time the likelihood of the information still being useful to the requesting jurisdiction may be considered low. 274. Moreover, there are questions on whether the penalties provided under the relevant tax laws and commercial laws are set at a sufficient level to provide an effective deterrence against non-compliance. For instance, the failure to lodge annual return with the CCM is subject upon conviction to a fine of MYR 1 000 (EUR 219) and to a default penalty of MYR 250 (EUR 55)). Concerning tax returns, the failure to lodge is subject to a fine between MYR 100 (EUR 22) and MYR 2 000 (EUR 438) and/or to imprisonment not exceeding 6 months (however, the imprisonment penalty has been rarely applied in practice). Malaysia reports that the imprisonment penalty was applied in relation to three domestic cases in 2013 and one in 2012. In those cases, the companies directors were sentenced to imprisonment because the companies were of public interest or because the directors were repeated offenders. 275. Malaysia should ensure that all instances of noncompliance are systematically and timely sanctioned, including by means of striking-off actions.
Moreover, Malaysia should evaluate the adequacy of the penalties provided under the relevant tax and commercial laws to ensure that they are effective in providing deterrence against non-compliance of the filing and reporting obligations.
Enforcement provisions to ensure availability of information in the Labuan IBFC (ToR A.1.6)
276. The laws applicable in the Labuan IBFC also provide for detailed penalties for non-compliance with key obligations to maintain ownership and identity information. 277. 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 2 188) 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 2 188) 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 2 188) and also to a default penalty (LCA s. 105(3)). 278. 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 2 188) (LCA s. 142(2)). In addition, the foreign Labuan company and 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 2 188) and also to a default penalty (s. 123). 279. 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 5 000 (EUR 1 090) to be applied when no penalty is expressly provided (s. 77). 280. Labuan trustees are liable on conviction to a fine of MYR 10 000 (EUR2 188) 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.
281. 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 109) for each day of non-compliance and such amount shall in total exceed MYR 10 000 (EUR 2 188) (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

282. The penalty described in paragraph 253 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
283. 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 liable to a fine not exceeding MYR 1 000 000 (EUR 219 000) 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
284. 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.
In practice
285. In terms of monitoring compliance, the Labuan FSA reports it has recently intensified its supervisory oversight with the Labuan financial institutions and service providers, including Labuan trusts companies. The
annual report of the Labuan FSA lists all Labuan trust companies, their phone number, email address and a contact person. In June 2013, there were 37 Labuan trust companies. 286. During the period under review, the Labuan FSA had 13 officers dedicated to supervisory oversight, including the compliance with the AML framework. The staff has increased and, currently, there are 20 officers dedicated to those activities. These officers are responsible for monitoring Labuan licensed entities, including banks, insurance companies, other financial institutions and Labuan trust companies. 287. In 2011, Labuan trust companies were required to perform internal audits and were given until June 2012 to submit reports to Labuan FSA. Based on such reports, trust company risk profiles were established and are required updated on periodic basis. Moreover, Labuan trust companies are required to appoint a compliance officer. 288. During the period under review, the Labuan FSA reports that, apart from continuous off-site monitoring, it has conducted on-site inspections on 10 of the 37 Labuan trust companies. In most cases, the inspections covered areas that within the competence of the Labuan FSA but that do directly relate to the maintained of ownership information i.e. risk assessment, adequacy and effectiveness of risk management & control function, earnings performance and capital adequacy. In relation to only one trust company, the inspection was focused on the adequacy of customer due diligence. During the inspections, the records of 47 Labuan entities (out of almost 10 000 Labuan registered companies or 4 675 active Labuan companies) were reviewed. Arising from the examination, issues of concern were highlighted to the trust companies which were required to undertake the rectification measures. The issues included inadequacies in corporate governance, risk management, compliance, internal audit, customer due diligence and record keeping. The Labuan FSA reports that, based on the reviews conducted, the issues identified were not material and did not require the application of penalties on the companies under verification. 289. In July 2012, the Labuan FSA set up its prosecution and regulatory compliance unit to undertake enforcement action for non-compliance by Labuan entities. This unit is currently staffed with one senior director and one senior executive. 290. In relation to domestic Labuan companies, ownership information must be filed on an annual basis with the Labuan FSA. The Labuan FSA reports that compliance with filing requirements is monitored manually by the Labuan FSA. 291. Moreover, the Labuan FSA reports it has the policy of strike off companies that failed to comply with their filing obligations and pay annual

fees. During the period under review, it struck off 467 companies in 2010, 436 in 2011 and 420 in 2012. However, there are approximately 4 500 in the Labuan IBFC that do not comply with their filing obligations (whether because they have not commenced business, ceased operations, are dormant or simply failed to comply with filing obligations). The Labuan FSA reports it applies penalties when instances of non-compliance (related to filing or other obligations of Labuan licensed and non-licensed entities) were identified. The Labuan FSA reports that the number of companies that failed to comply with filing obligations was 105 in 2010, 108 in 2011, 193 in 2012 and 310 in 2013. Penalties applied amounted to MYR 237 550 (EUR 52 500) in 2010, MYR 168 650 (EUR 37 300) in 2011 and MYR 243 666 in 2012 (EUR 53 900). 292. While the Labuan FSA has monitored and supervised its licensed entities, it appears that the focus of its work was its role as financial regulator and did not sufficiently cover the compliance by all Labuan entities and arrangements with the obligation to maintain ownership information. Therefore, the need for strengthen controls exists. It is recognised that the Labuan FSA is taking action to strengthen its enforcement action and the scope of its monitoring activity. It is recommended that Malaysia ensure that monitoring and enforcement powers are systematically exercised in practice in the Labuan IBFC to support the legal requirements concerning the availability of ownership and identity information.
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.
Phase 2 rating Partially compliant. Factors underlying recommendations There appear to be more than 100 000 dormant companies in Malaysia. Those companies do not comply with filing obligations. Moreover, there are questions on whether the penalties provided under the relevant tax laws and commercial laws are set at a sufficient level to provide an effective deterrence against non-compliance. In at least one instance during the period under review requests for ownership information could not be answered to the satisfaction of the requesting jurisdiction. Moreover, there were other instances during the period under review that information was not fully available to Malaysian Competent Authority because the entities that were the subject of the requests did not comply with their filing obligations. This caused significant delays for Malaysia obtaining the information requested. While the Labuan FSA has supervised its licensed entities, it did not sufficiently monitor compliance with the obligation of all Labuan entities to maintain ownership information. The Labuan FSA is taking action to strengthen its monitoring and enforcement mechanisms. During the period under review, approximately 50% of the registered Labuan companies were not active and have not filed annual returns. Recommendations Malaysia should ensure that instances of non-compliance are appropriately sanctioned including by means of striking-off actions. Moreover, Malaysia should monitor the effectiveness of the penalties provided under the relevant tax and commercial laws to ensure that they are effective in providing deterrence against noncompliance of the filing and reporting obligations.
Malaysia should ensure that the obligations to keep ownership information in the Labuan IBFC are being appropriately monitored and enforced.

Phase 2 rating Partially compliant. Factors underlying recommendations Malaysia has introduced limited liability partnerships (LLPs) and business trusts in its legal framework effective as of December 2012. Since the review period ended on 31 December 2012, the enforcement and monitoring action of the Companies Commission of Malaysia and the Securities Commission Malaysia in respect of LLPs and business trusts could not be assessed. As at 31 July 2013, there were 669 LLPs registered in Malaysia. As at January 2014, there were no business trusts or trustee-managers of business trusts approved by the Securities Commission Malaysia. Recommendations Malaysia should monitor compliance with the obligations to maintain ownership and identity information in respect of LLPs and business trusts and take enforcement measures as appropriate.
A.2. Accounting records

Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements.
293. 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.
General requirements in Malaysia (ToR A.2.1) Relevant entities governing laws in Malaysia
294. 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. This means companies in Malaysia are required to maintain account295. ing 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)).
296. 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). 297. 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)) 24.The foreign company is still required to prepare and maintain such 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)). 298. 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
24. 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 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.

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. 299. With regard to the LLPs, section 69 of the LLPA provides that every LLP must keep accounting and other records that will sufficiently explain the transactions and financial position of the LLP and enable profit and loss accounts and balance sheets to be prepared from time to time which give a true and fair view of the state of affairs of the LLP. The LLP shall retain the accounting and other records for a period of not less than seven years from the end of the financial year in which the transactions or operations to which those records relate are completed. 300. The accounting and other records must be kept at the registered office or such other place as the partners think fit provided that the Registrar is duly notified of that other place and the accounting and other records shall at all times be open to inspection by the partners. 301. If a LLP fails to keep accounting and other records, the LLP and every of its partner commit an offence and are liable, on conviction, to a fine not exceeding MYR 50 000 or to imprisonment for a term not exceeding six months or to both. 302. 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). 303. To date there is no particular case law in Malaysia which deals specifically with the trustees obligation to maintain accounting records in respect of a trust. It is noted, however, that Malaysia incorporates the common law of England into Malaysian law in effect before Malaysias independency in 1957 by Section 3 of the Civil Law Act of 1956. The courts apply English common law in force at the time of independence as this is an integral part of Malaysian law. In addition English cases and cases from other common law countries interpreting statutes which are similar to Malaysian statutes are of persuasive value.
304. For business trusts, the Capital Market and Services (Amendment) Act 2012 provides that the trustee-manager shall lodge the annual report of the business trust with the Securities Commission (s. 256zo.). Moreover, the Securities Commissions Guidelines on Business Trusts require the trustee-manager to maintain proper accounting records and other records for the business trust as are necessary to (a) sufficiently explain the transactions entered into on behalf of the business trust and the financial position of the business trust in order to enable a true and fair financial statements to be prepared; (b) maintain, or cause to be maintained, such accounting records and other books in such a manner as will enable them to be conveniently and properly audited. Records must be kept for a minimum period of seven years (Paragraphs 3.08 and 3.09). Given that the legislation on business trusts is effective only as of December 2012 and the review period ended on 31 December 2012 the enforcement and monitoring action in connection to them could not be assessed. Malaysia should monitor compliance with the obligations to maintain accounting records and underlying documentation in respect of business trusts as imposed under the Capital Markets & Services Act as amended, the Securities Commissions Guidelines on Business Trusts and tax law and take enforcement measures as appropriate.
Tax law in Malaysia

305. 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 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. 306. 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.

307. If the persons gross receipts from his business in the preceding calendar year exceeded MYR 150 000 (EUR 33 000) from the sale of goods, or MYR 100 000 (EUR 22 000) 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
308. 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)

309. 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 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)). With regard to LLPs, the LLPA requires every LLP to keep accounting and other records that will sufficiently explain the transactions and financial position of the LLP and financial statements to be prepared (s. 306). 310. 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 (including LLPs), 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)

311. 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)). 312. 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). 313. Based on the obligations imposed by the ITA, most entities and arrangements in Malaysia are subject to requirements to keep accounting 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.
In practice Obligations under commercial law

314. Public and private companies, with the exception of exempt private companies, are required to file audited accounts with their annual returns (Practice Note 1 and CA s. 165). The great majority of Malaysias companies have this obligation: in July 2013, of the 1 042 837 Malaysian companies, only 81 688 were exempt private companies. The compliance rate of active companies with the obligation to file annual returns was approximately 90% in 2011 and 2012 and 87% in 2010 (more details in section A.1.1). 315. Monitoring and enforcement action of the obligations to maintain records and file annual returns are carried out by the CCM. This includes a combination

of desk-based and on-site inspections of companies and partnerships, the management of complaints received and prosecutions. Inspections are made based on a risk-based approach and include samples of public companies, private companies, including exempt private companies. For instance, companies that report a sharp increase of assets and/or profits that appear to be disproportional if compared with previous years would be selected for investigation. In 2013 (until the month of August), the CCM completed 433 reviews of financial statements, identifying 70 companies that had issues that demanded a more detailed investigation. Deficiencies identified in investigations lead to prosecutions. 316. In 2011, a total of 568 308 companies were inspected. Ninety-three per cent of these inspections were database inspections, which involved the screening of corporate and business information stored in the CCMs database, and 7% were on-site inspections in which CCM officials visited the companys premises. Inspections are made based on a risk-based approach and include samples of public companies, private companies, including exempt private companies. In 2011, the CCM identified 9 806 cases of offences committed by companies and partnerships, including, in relation to companies, 4 750 cases of failure to lodge annual returns, 1 952 cases of failure to table accounts at the annual general meeting. Those cases led to prosecutions. 317. As reported in section A.1 of this report, the CCM is performing considerable efforts to strike off dormant companies from the register. The number of companies struck-off by CCM under section 308 of the Companies Act 1965 increased by 443% in 2011 to 130 823 companies from 24 098 in the previous year. The CCM reports it strikes off companies that fail to comply with their filing obligations for more than three years. 318. The Malaysian authorities estimate that approximately half of the registered companies are not carrying on a business in Malaysia; a number of them continue to file annual returns, however. 319. With regard to LLPs, the CCM is also that authority responsible for monitoring and compliance of these entities with their obligations under the LLPA. As at 31 July 2013, there were 669 LLPs registered in Malaysia. However, given that the legislation is effective as of December 2012 and the review period ended on 31 December 2012, the enforcement and monitoring action of the CCM in connection to the LLPA could not be assessed. Malaysia should monitor compliance with the obligations to maintain accounting records and underlying documentation under the LLPA and tax law and take enforcement measures as appropriate.
Tax obligations
320. Persons carrying on business in Malaysia are required to register with the IRBM and file annual tax returns.
321. Malaysia reports that there are approximately 12 million registered taxpayers (including corporate taxpayers and individuals). However, of these, only seven million are active filers. Among the active filers, there are approximately 549 000 companies, 197 000 partnerships and 9 300 foundations, associations, clubs and other non-profit entities. In relation to the non-filers, there are entities that have ceased their business, as well as, possibly noncompliant taxpayers. 322. The IRBM issues tax returns to taxpayers. Details of the assessable profits or losses must be provided in the returns. Corporate taxpayers must include their balance sheet and profit and loss accounts in their filings. Monitoring compliance with annual filing obligations is carried out by the IRBM. In years 2009 to 2011 the number of tax returns issued and received by the IRBM and the penalties applied for late submission and furnishing incorrect information were as shown in the table on page 71. 323. Tax audits are conducted on a regular basis and the audit procedure involves the examination of accounting records and underlying documentation. Depending on the facts and circumstances of the case, the tax audit process can also involve the performance of business surveys (i.e. to compare the taxpayer declared profits with the ones of other taxpayers in the same business), the cross checking of information with third party data, the co-operation with other government agencies, the cross-checking with information provided for other tax purposes (e.g. stamp duties). Non-filing is normally sanctioned based on an estimated assessment or compound and may lead to prosecution. During the period 2010-12, the number of criminal summons issued was: 28 980 in 2010, 26 184 in 2011 and 23 778 in 2012. The number of tax audits per type of entity is included below:
Year 2009 2010 2011 2012 Companies 3 509 2 880 4 347 8 201 Partnerships 1 061 753 1 559 728 Trusts 2 0 0 3
324. During the three-year period under review Malaysia received 23 requests to provide accounting records and 15 requests to provide underlying documentation to its EOI partners. The sources of information were generally the database and tax files kept by the IRBM, the CCM database and the accounting records and underlying documentation kept by taxpayers. Malaysia has indicated that it has in most cases replied to the requests (see below for the case where information has not been provided). Peer input has

indicated that some answers were pending. Malaysia recently reported that the pending information was recently provided. 325. Information provided by Malaysia to its EOI partners included accounting records, including information on taxation and dividends paid; information income/fees earned and details of specific transactions. Some requests involved full investigations or a joint investigation with the requesting jurisdiction to determine issues such as pricing and payment details of certain transactions related to the purchase and sale of used cars. 326. In at least one instance during the period under review, Malaysia was requested to provide records concerning certain companies that had failed to file annual returns and income tax returns. It is not clear whether penalties or other enforcement measures were taken in those cases. Moreover, based on the indications given by Malaysian officials there were concrete cases where the information could not be obtained or where obtaining the information took more than a year because the entities that were the subject of the requests did not comply with their filing obligations. In some cases when requests have been pending for a long time the likelihood of the information still being useful to the requesting jurisdiction may be considered low. 327. Moreover, the penalties provided under the relevant tax laws and commercial laws do not appear to be set at a sufficient level to provide an effective deterrence against non-compliance, in particular in case the taxpayers are not liable to Malaysia income tax. For instance, the failure to lodge annual return with the CCM is subject upon conviction to a fine of MYR 1 000 (EUR 219) and to a default penalty of MYR 250 (EUR 55)). Concerning tax returns, the failure to lodge is subject to a fine between MYR 100 (EUR 22) and MYR 2 000 (EUR 438) and/or to imprisonment not exceeding 6 months (however, the imprisonment penalty would not be applied in practice). 328. Malaysia should ensure that all instances of noncompliance are systematically and timely sanctioned, including by means of striking-off actions. Moreover, Malaysia should evaluate the adequacy of the penalties provided under the relevant tax and commercial laws to ensure that they are effective in providing deterrence against non-compliance of the filing and reporting obligations.
General requirements in the Labuan IBFC (ToR A.2.1) Relevant entities governing laws in the Labuan IBFC
329. 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)). 330. 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 an offer for subscription or purchase of securities as detailed in section 113. The LFSA has issued a Circular in November 2007 requiring Labuan companies to adopt any accepted international accounting standards. The directors of a Labuan company are responsible for ensuring that 331. (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.
332. The accounting requirements in the LCA apply to all Labuan companies, including foreign companies and Labuan PCCs (s. 110 combined with s. 2(1)). Under the LLPLLPA (s. 70), limited partnerships and limited liability 333. 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 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)). 334. 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)). 335. 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
336. 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
337. 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)

338. In effect as of 6 June 2012, the Directive on Accounts and Record Keeping, issued by the Labuan FSA, describes the accounts and other records to be maintained by Labuan entities and arrangements. The Directive provides that the terms accounting and other records or accounts or records, whenever appearing in the provisions of relevant Labuan laws (Labuan Companies Act, Labuan Trusts Act, Labuan Foundations Act, Labuan Limited Partnerships and Limited Liability Partnerships shall make reference to the following description of records: Accounting records means documentation and books necessary in the preparation of financial statements or records that will sufficiently explain the transaction and financial position of the Labuan entity or arrangement.
Accounting records include records, either physical or stored on electronic media or in any form of assets and liabilities, monetary transactions, ledgers, journals, and any underlying documents explaining the transactions, including but not limited to cheques, negotiable instruments, payment orders, invoices, receipts, letters of offer, contracts and agreements, of which in combination shall adequately reflect a full and true record that sufficiently explains all transactions and other acts engaged in by the Labuan entity, which are necessary in the preparation of financial statements.
The 5-year retention standard (ToR A.2.3)

339. 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. 25 The exact period depends on the type of record. With regard to underlying documentation, the Labuan FSAs Directive 340. on Accounts and Record Keeping, effective as of 6 June 2012, provides that all Labuan entities must maintain any such records for a period of not less than six years from the date of an account transaction has been completed in line with section 17 of AMLATFA. Moreover, 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. 341. Overall, relevant entities in the Labuan IBFC are subject to requirements to keep accounting records and underlying documentation for the minimum period required by the standards (five years).
25. 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.
In practice
342. The Labuan FSA is the government body responsible for administering the Labuan IBFC acts including the obligations concerning the maintenance of accounting records and underlying documentation. No accounting information is required to be submitted by non-licensed Labuan entities, such as Labuan companies, partnerships, trusts and foundations to the Labuan FSA; however accounting records and underlying documentation must be furnished to the Labuan FSA upon request. 343. Companies and partnerships are required to maintain accounting records and underlying documentation physically in Labuan. Labuan companies must lodge with the Labuan FSA an annual certificate from one of its director stating that he/she has considered the audited or unaudited accounts and certified them with or without qualifications. Moreover, there is a requirement for Labuan trust companies acting as trustees of Labuan trusts or secretaries of Labuan foundations to maintain accounting records. 344. In terms of monitoring compliance, the Labuan FSA reports it has recently intensified its supervisory oversight with the Labuan institutions including Labuan trusts companies. The Labuan FSA reports that as part of the on-site examination process of a Labuan entity, a review of availability of financial records is conducted. During the period under review, the Labuan FSA has reviewed 47 Labuan companies (out of 9 872 registered Labuan companies), out of which 10 were Labuan trust companies. Based on the review conducted, the Labuan FSA reports that it encountered no issues requiring the application of penalties. Supervisory letters were, nonetheless, issued to the inspected entities highlighting issues of concerns. It is noted that the Labuan FSA has only recently (in July 2012) set up a prosecution and regulatory unit to undertake enforcement action in instances of non-compliance identified. 345. Considering the total number of legal entities in the Labuan IBFC, the monitoring and enforcement action of the Labuan FSA should be strengthened. Moreover, the Directive detailing the scope of accounting record keeping has only been introduced recently (effective June 2012) and therefore the compliance of this Directive remains untested. It is recommended that Malaysia ensures a regular system of monitoring and enforcement of penalties is in place in the Labuan IBFC to ensure that all entities maintain accounting records and underlying documents in accordance with the international standard. During the period under review, Malaysia received one request to pro346. vide accounting records and underlying documentation concerning entities in the Labuan IBFC. Information required included financial statements, income tax returns and invoices. Peer input indicates that the responses were still outstanding. It appears that the financial statements were not provided because they had not been submitted to the relevant authorities. The Labuan FSA
reports that information has recently been accessed and the Malaysia competent authorities confirm that it has provided it to the requesting jurisdiction.
Phase 1 determination The element is in place. Factors underlying recommendations There is no express requirement on 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.
Phase 2 rating Largely compliant. Factors underlying recommendations There appear to be more than 100 000 dormant companies in Malaysia. Those companies do not comply with filing obligations. Moreover, there are questions on whether the penalties provided under the relevant tax laws and commercial laws are set at a sufficient level to provide an effective deterrence against non-compliance. In at least one instance during the period under review requests for accounting information could not be answered to the satisfaction of the requesting jurisdiction. Moreover, there were other instances during the period under review that information was not fully available to Malaysian Competent Authority because the entities that were the subject of the requests did not comply with their filing obligations. This caused significant delays for Malaysia obtaining the information requested. Recommendations Malaysia should ensure that instances of noncompliance are appropriately sanctioned. Moreover, Malaysia should monitor the adequacy of the penalties provided under the relevant tax and commercial laws to ensure that they are effective in providing deterrence against non-compliance of the filing and reporting obligations.

Phase 2 rating Largely compliant. Factors underlying recommendations During the review period, the Labuan FSA performed monitoring of the compliance with accounting record keeping requirements in relation to a limited number of Labuan companies. In addition, the Directive detailing the scope of underlying records to be maintained has only been introduced recently and is therefore untested in practice. Malaysia has introduced limited liability partnerships (LLPs) and business trusts in its legal framework effective as of December 2012. Since the review period ended on 31 December 2012, the enforcement and monitoring action of the Companies Commission of Malaysia and the Securities Commission Malaysia in respect of LLPs and business trusts could not be assessed. As at 31 July 2013, there were 669 LLPs registered in Malaysia. As at January 2014, there were no business trusts or trustee-managers of business trusts approved by the Securities Commission Malaysia. Recommendations Malaysia should ensure that the obligations to keep accounting records and underlying documentation are being appropriately monitored and enforced.
Malaysia should monitor compliance with the obligations to maintain accounting records and underlying documentation in respect of LLPs and business trusts and take enforcement measures as appropriate.
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)

347. 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. 348. 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; the identity of the reporting institution where the transaction occurred; and the date, time and amount of the transaction.
349. 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. 350. 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. 351. 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. 352. 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 6 years from the date the transaction has been completed or terminated (s. 17). 353. Compliance by Malaysian banks in respect of the legal obligations under the AMLATFA is supervised by the Central Bank of Malaysia (Bank Negara Malaysia). During the period under review, the Bank Negara Malaysia has conducted on-site and off-site examinations on banks and financial institutions. The scope of the on-site and off-site examinations covers compliance with the AML/CFT requirements under the AMLATFA and the AML/CFT Standard Guidelines, including record keeping requirements. The statistics for the number of financial institutions and the number of on-site examinations are included in the tables below:
Reporting institutions Banking Institutions Commercial banks Investments banks Islamic banks, including International Islamic banks Development financial institutions Insurance companies Insurance companies, including reinsurance Takaful operators, including retakaful operators (Islamic insurance companies) Reporting institutions Banking institutions Insurance companies On-site visits in 2010 52 48 2010 65 23 15 21 6 58 44 14 2011 67 25 15 21 6 58 42 16 2012 66 27 12 21 6 57 41 16
On-site visits in 2011 29 36
On-site visits in 2012 39 10
354. Through the examinations, it is found that banks keep the required information on their clients and transactions. During the period under review, Malaysia has received 10 requests concerning the provision of bank information. The experience of the Malaysian competent authority confirmed that banking information was available with banks when requested. Peer inputs also confirmed that banking information when requested was provided by Malaysia. 355. In 2012, the total number of Labuan banks in operation was 59, comprising 43 banks and 16 investment banks, of which three were Islamic banks and three Islamic investment banks. During the year, one new commercial
bank originating from Ghana was approved to operate through Labuan IBFC. Two banks surrendered their licences in 2012, namely, one foreign commercial bank and one branch of a Malaysian investment bank. 356. Compliance by banks and other financial institutions in the Labuan IBFC, with respect to the legal obligations under the AMLATFA is supervised by the Labuan FSA (or jointly by the Central Bank and the Labuan FSA in respect of Malaysian financial institutions operating in the Labuan IBFC). The Labuan FSA has conducted on-site examinations covering corporate governance, adequacy of risk management and control function, effectiveness of systems and controls and AML/CFT. The statistics for the on-site examinations are as follows:
Reporting institutions Banks Insurance companies Fund managers Reporting institutions Banks Insurance companies Fund managers 2010 57 169 17 On-site visits in 2010 10 6 3 2011 57 181 11 On-site visits in 2011 7 5 2012 59 203 12 On-site visits in 2012 3 10 1
357. The Labuan FSA reports that some deficiencies were identified in the AML/CFT controls maintained by Labuan IBFC financial institutions, including: inadequate policies and procedures, lack of internal audits, inadequacies in customer due diligence, inadequate training, lack of awareness, lack of appointment of compliance officers, failure to maintain documents in Labuan. The Labuan FSA has issued supervisory letters to the relevant financial institutions requesting them to rectify the deficiencies. It also reports that no issues required the application of penalties. In July 2012, the Labuan FSA has set up a prosecution and regulatory compliance unit, which is in charge of undertaking enforcement action. There has not been a problem concerning the availability of bank records for exchange of information purposes. Nonetheless, Malaysia is encouraged to monitor that there is sufficient enforcement action in the Labuan IBFC. Peer input indicates that in one instance bank information was requested 358. from a Labuan bank and that the receipt of the information is still outstanding. Malaysia reports that the request refers to the provision of banks statements concerning three entities for the period of 1997-2011. The information holder (a Labuan bank) has requested more time to provide the information and confirmed that it will be able to provide information covering years 2008 to 2011 in a short

timeframe. On 24 January 2014, Malaysia reports it has received a partial answer from the bank and provided the relevant information to the requesting jurisdiction. Malaysia further reports that the bank confirmed that it will try to provide all the requested information. The peer in reference recognises that the request is complicated and is appreciative of Malaysias efforts to gather the information.
Phase 1 determination The element is in place. Phase 2 rating Compliant.
COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 97
B. Access to Information
Overview
359. 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. 360. 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. In relation to the Labuan IBFC, a separate specific law (Labuan Business 361. Activity Tax Act) gives the competent authority the ability to obtain and provide requested information. At the time of its Phase 1 review, Malaysias power to call for provision of information in relation to entities in the Labuan IBFC could only be exercised where an EOI request was made under a DTC. Nonetheless, information that was already in the hands of its competent authority could still be exchanged under all EOI instruments, including TIEAs. In 2012 Malaysia revised its laws to provide its authorities with the power to access information in the Labuan IBFC in response to a TIEA.
98 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION

362. Malaysias laws regarding access to banking information for EOI purposes were introduced only in 2010. Initially, Malaysias authorities took the view that the application of these laws required an explicit reference in the EOI agreement by means of the inclusion a provision similar to Article 26(5) of the OECD Model Tax Convention, even though the laws on access to bank information on their face did not require such an explicit provision. After gaining more experience with accessing banking information directly from banks, Malaysia also gained a better understanding of the scope of its access powers. Effective as of 1 July 2013, Malaysia reviewed its domestic policies that restricted access to bank information. The change in policy to be effective and to counter any domestic laws limiting access to bank information does not require that it is implemented through a law or regulation. Following the policy change, Malaysia reports it has already exchanged bank information under one of its treaties which do not contain a provision similar to Article 26(5). Malaysia requires reciprocity in order to apply the new policy. Malaysia should monitor the application of the new policy to ensure bank information is exchanged in accordance with the standard with all EOI partners 363. At the time of its Phase 1 report, Malaysia did not have the power to obtain and provide information that was held outside Malaysia, even if such information was in the control of a person within its territorial jurisdiction. This gap in the Malaysian legal framework was mitigated by the fact that Malaysian laws require that most relevant ownership and accounting information is kept in Malaysia. Moreover, as of 2012, the Malaysian competent authority is empowered to collect information that is under a persons control, in addition to information that is in a persons possession. 364. During the period under review, the Malaysian authorities were able to access information to reply to the great majority of EOI requests received. However, Malaysia has encountered practical difficulties in accessing information in a few instances. The difficulties faced by Malaysia may be attributed to the lack of sensitisation of auditors and investigators to EOI, the complexity or difficulty of some requests and in at least one case lack of co-operation from the taxpayer. Malaysia is also recommended to evaluate the adequacy of its penalty regime to ensure that they are effective in providing deterrence against non-compliance in all cases. In a few instances, delays appeared to have been caused due to some miscommunication with the Labuan authorities. Malaysia is taking action to address the problems identified and ensure that information can be accessed in all instances. It reports it has now established a closer co-operation with the Labuan FSA.
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).
365. 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 as his representatives (the Designated Competent Authorities): (i) the Undersecretary Tax Analysis Division of the Ministry of Finance; (ii) the Senior Deputy Undersecretary (Policy), Tax Analysis Division; (iii) Deputy Undersecretary (International), Tax Analysis Division; (iv) the Chief Executive Officer/Director General of the IRBM (DGIR); (v) Deputy Chief Executive Officer (Policy), IRBM; (vi) the Director of the Department of International Taxation of the IRBM. Based on the authorisation given by the Minister, the Designated Competent Authorities are the competent authority for both EOI requests received from treaty partners and Malaysian requests sent to treaty partners. Malaysia usually sends the list of Designated Competent Authorities 366. to its treaty partners upon receipt of a similar list from its partners. Malaysia has not been able to provide its list immediately on signing EOI arrangements. The IRBM website contains contact information of the Designated Competent Authorities, including a general e-mail address of the EOI Team (eoimalaysia@ hasil.gov.my). Requests received by any of the designated competent authorities are 367. channelled to Director of the Department of International Taxation (DIT). The DIT hosts the EOI Team which is responsible for handling EOI requests. The other five Designated Competent Authorities are not involved in the EOI work. In practice, it appears that having six designated competent authorities, whose offices are also located in different buildings, may create delays on the delivery of EOI requests to the EOI Team and impact, therefore, it may affect the request response times. It appears that since the Director of DIT is the only of the Designated Competent Authorities effectively involved in EOI, having him as the sole CA for EOI may expedite the process (more details in section C.5 of this report). 368. 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. 369. 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 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. 370. 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). 371. 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 372. 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.
373. As far as the Labuan IBFC is concerned, section 22 of the Labuan Business Activity Tax Act 1990 (LBATA) 26 empowers the Director General of the Inland Revenue Board to call for information for EOI purposes. As of 9 February 2013, Section 22 allows the DGIR to call for information for the purpose of replying to a request made pursuant to a TIEA, in addition to requests made under a DTC.
Ownership and identity information (ToR B.1.1), and Accounting records (ToR B.1.2)
374. 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). 375. As a result of this provision, the DGIR may not be able to access, for example, certain information held by the Registrar. Based on the CA, the Registrar is 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. 27 In practice, ownership and accounting information collected by the Registrar is publicly available
26. 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 or tax information exchange arrangements referred to in subsection 22A(2) 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 is 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 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 authorised to
27.

and can be consulted in the Registrars website. Therefore, the circumstances where the Registrar would not be in a position to cooperate with the DGIR would be minimal. 376. 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. 377. 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 notice 28 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. 378. 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 from 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 in conformity 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.
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.
28.
379. In sum, the DGIR can require all information, including ownership, identity and accounting information. It also appears 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. Prior to February 2012, persons in control of the information on the other hand were not covered under the ITA, and therefore, the DGIR could not access information from them. As a result, Malaysia did not have the power to obtain and provide information held outside of Malaysia, even if such information was in the control of a person within its territorial jurisdiction. The size of this gap was considered 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. 380. Effective as of 9 February 2012, section 81 of the ITA was amended to close the above-mentioned gap. The DGIRs powers to call for information now cover information that is under a persons control even if it is not under a persons possession (e.g. information held outside of Malaysia which is in the control of a person within Malaysias territorial jurisdiction). The Malaysian authorities report that, in practice, even before the enactment of the ITA amendment, it has no problems to access information controlled by persons in Malaysia, as Malaysian law already required that most information was kept in Malaysia and, therefore, it was already accessible to the Malaysian competent authority. 381. With respect to the Labuan IBFC, since February 2012, 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 or TIEA, by means of a notice in writing. Before that, the power to call for provision of information in relation to entities in the Labuan IBFC could only be exercised where an EOI request was made under a DTC. Nonetheless, information that was already in the hands of its competent authority could still be exchanged under all EOI instruments, including TIEAs. Since February 2012, the DGIR has the same powers to access information under a TIEA or a DTC in the Labuan IBFC. 382. 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.
In practice Access to Information in Malaysia

383. During the period under review, Malaysia has accessed a wide range of information for EOI purposes. This included ownership information, accounting information and underlying documentation and banking information. Malaysia has assisted in the collection of information in relation to at least one criminal case. The case referred to the interview of the subject of the foreign investigation. The requesting jurisdiction sent officials to Malaysia to participate in the interview. 384. During the period under review, once a request was received by the competent authority, it would be forwarded to the IRBMs Department of Compliance or Department of Investigation at headquarters. The Department of Compliance is responsible for standard audits. The Department of Investigation is involved when more exceptional measures are required such as surprise visits, search and seizure, or when handling criminal cases. Most EOI requests were, therefore, handled by the Department of Compliance. 385. In relation to both departments, the director of the department sends the case to a tax audit manager at the branch office with oversight to the relevant taxpayer who in turn appoints a case officer (auditor, investigator) responsible to collect the information. The same powers and procedures used for domestic purposes are also used for EOI. There are basically two procedures used for collection of information: (i) a desk audit, under which the audit will issue a notice for production of information to the information holder; and (ii) a field audit where the auditor will visit the taxpayers office to collect the information. The auditor chooses the most appropriate procedure depending on the facts of the case. Desks audits are more common. Field audits are performed in cases where, for instance, the Malaysian authorities are asked to review accounting records and underlying documentation to identify whether certain transactions have effectively taken place. 386. The auditors are given 30 days to acquire the information requested. If the auditor cannot obtain the information within this timeframe, he or she must provide a status update. The auditor provides the required information to his or her manager, who checks it for completeness and in turn provides it to headquarters. The information is checked once again at headquarters and a memorandum is prepared with the complete information to the EOI unit. 387. Difficulties were reported by the Department of Compliance in accessing information in certain cases (also reflected in section C.5). In few instances the information was not found to be available (see sections A.1 and A.2) or there were some delay. The main difficulties reported concerning the use of access powers were: auditors could not dedicate their full time to handle EOI requests as they had other audit work to perform;
auditors had no training or experience to deal with certain complex requests or requests concerning transfer pricing; companies about which information was sought had been wound-up and, as a result, it took longer to obtain the necessary records, as it was difficult to identify a representative. In a few instances there was a lack of cooperation from taxpayers and tax agents even when fines were applied; taxpayers could not be traced due to their failure to update IRBM on their latest corresponding address.
Since beginning of 2013, the EOI team has been working to sensitise 388. auditors to the importance of the EOI work. Auditors have also participated in international training seminars on EOI. The audit sensitisation has resulted in Malaysia sending its first EOI requests to treaty partners (one request was sent in 2012 and two requests were sent in 2013 (as at August 2013)). Moreover, the IRBM has implemented initiatives to train auditors to deal with more complex cases, including transfer pricing. It is recommended that Malaysia continues its efforts to sensitise and train auditors to gather information for EOI purposes.
In practice Access to Information in the Labuan IBFC

389. Even though the Malaysian CA has direct powers to collect information from the Labuan IBFC, the Malaysian CA relies on the Labuan Financial Service Authority (FSA) to collect information concerning Labuan entities and arrangements. This is because the Labuan FSA, being the supervisory authority in the Labuan IBFC, in many instances may have the information requested in its Registry (e.g. ownership information of companies) or can easily request the information from Labuan banks and service providers, as its office is located in Labuan IBFC as well. The co-operation between the Malaysian competent authority and the Labuan FSA concerning the collection of EOI information was formalised by means of letter sent from the DGIR to the Labuan FSA. 390. During the three-year period under review (1 January 2010 to 31 December 2012), 15 of the 61 requests received by Malaysia referred to information of Labuan IBFC entities and arrangements. In relation to each of those requests, the IRBM officers sent a memorandum to the Labuan FSA requesting assistance to collect the relevant information. The memorandum contained the following information (i) it informed that an EOI request had been received; (ii) the name of the requesting jurisdiction; (iii) the information requested. The full request received from requesting jurisdiction was not sent to the Labuan FSA.

391. The Labuan FSA has the powers under section 28B of the Labuan Financial Services Authority Act 1996 to request information from any persons in the Labuan FSA including banks, service providers or other Labuan entities. If information is available in the register maintained by the Labuan FSA (e.g. annual returns, articles of incorporations), the Labuan FSA will provide the information directly to the EOI team. In case the information is held by third-party information holders in the Labuan IBFC (such as banks and Labuan trust companies), the Labuan FSA needs to issue a notice to the information holder for production of information. The notices only make reference to the powers of the Labuan FSA and no reference to the existence of an EOI request and to, for instance, the requesting jurisdiction is added. The Labuan FSA requests the information holder to provide the information within 14 days. 392. The Labuan FSA aimed at providing the information within 30 working days to ensure that Malaysia meets its requirement of 90 days. However, in some cases, information could not be provided within that timeframe. The Labuan FSA and the Malaysia competent authorities reported information has recently been provided in relation to all pending cases. 393. In a few instances during the period under review, the Labuan FSA authorities requested clarifications from the Malaysian CA before proceeding with accessing the information. The Labuan FSA had concerns as to whether some EOI requests met the foreseeable relevance standard. The Malaysian CA reports that it has clarified to the Labuan FSA that the analysis of foreseeable relevance is the responsibility of the CA and that the Labuan FSA is required to provide the information requested by the CA. 394. It is noted that the Labuan FSA is not the competent authority/ EOI team and does not have access to the requests received by the Malaysian CA. Without having access to the background facts of an EOI request, it is not in the position to perform an analysis on the foreseeable relevance. This analysis in Malaysia is the sole responsibility of the CA (and the EOI team). Malaysia is recommended to ensure that information is adequately and timely accessed in the Labuan IBFC. The Malaysia competent authority reports that the co-operation with the Labuan FSA has improved significantly and that information can be obtained in a timely manner.
Banking information (ToR B.1.1)

395. 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. 396. 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 a request for information. 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) 397. Since 30 June 2013, banks operating in Malaysia are expressly authorised by law to disclose any documents or information required by the IRBM under section 81 of the ITA for purposes of facilitating exchange of information pursuant to DTC or a TIEA (Financial Services Act 2013; s. 134 and Schedule 11; Islamic Financial Services Act 2013, s. 146 and Schedule 11; and Development Financial Institutions Act 2002, s. 120). 398. Prior to that, in order for banks to co-operate with the DGIRs requests under the Rules, they needed an authorisation from the Central Bank in writing 29. The Central Banks authorisation was given through Circular on the Disclosure of Customer Information to the Inland Revenue Board of Malaysia of 29 July 2011 (the Circular). Pursuant to the Circular, the Central Bank 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. 399. After the enactment of the Financial Services Act 2013 and Islamic Financial Services Act 2013, the Central Bank of Malaysia has issued Standards on (i) the Disclosure of Customer Documents and Information and (ii) the Disclosure of Customer Documents and Information by Development Financial Institutions of 2 July 2013 (collectively referred to as the Guidelines). The Guidelines retain the permitted disclosure mechanism as well as the operational procedure as set out in the previous Circular. With the issuance of the Guidelines, the previous Circular is superseded. As required under section 7.1(2)(a) of the two Guidelines (similar to what was already prescribed at 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 Guidelines provide 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. 7.1(2)(b), similar to the Circular, s. 6.3). In such a case, the bank is required to notify its
29. 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)).

customer of the information and documents it has furnished to the IRBM. As an exception to this requirement, section 7.1(2)(d) of the Guidelines (similar to 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. 400. In conclusion, the requirements for accessing bank information under a DTC or TIEA, as provided in the statutory provisions and detailed in the Rules and in the Guidelines are in accordance with the international standard, including with respect to the identification of the taxpayer. Malaysias laws regarding access to banking information directly for 401. EOI purposes were introduced only in 2010. Initially, Malaysias authorities took the view that the application of these laws required an explicit reference in the EOI agreement by means of the inclusion a provision similar to Article 26(5) of the OECD Model Tax Convention, even though the laws on access to bank information on their face did not require such an explicit provision. Malaysias policy used to be that only under EOI agreements that contained a provision similar to Article 26(5) had the contracting parties agreed to lift domestic secrecy provisions for EOI purposes. Malaysias policy on the matter was not documented in any particular legal or regulatory provision. 402. After gaining experience with accessing banking information directly from banks under the Rules and the Circular, Malaysia also gained understanding of the scope of its access powers. It is noted that the ITA, the Finance Act 2013, the Rules and the Guidelines do not impose any legal or regulatory restrictions to the use of powers to access bank information absent a provision akin to Article 26(5). The Malaysia competent authority, in consultation with its Solicitor General and the Central Bank, revisited their interpretation of the law, reversing the previous policy. The Malaysian authorities were convinced that they were interpreting their powers too narrowly, given that bank information is clearly foreseeably relevant and that the provision of Article 26(5) of the OECD Model Tax Convention would merely be clarificatory in nature, in accordance with the OECD Commentary. 403. Effective as of 1 July 2013 Malaysia has changed its policy on the matter and is now in a position to provide bank information to all its treaty partners, regardless of whether relevant treaties contain a provision equivalent to Article 26(5). Malaysia reports it has already accessed bank information during the period under review in order to respond to three requests from one treaty partner under a treaty which did not contain a provision similar to Article 26(5). Moreover, very recently (on 30 January 2014), a notification was sent to Malaysias treaty partners informing them about its
new policy. Malaysia also reports that it requires reciprocity in order to apply the new policy. Malaysia should monitor the application of the new policy to ensure bank information is exchanged in accordance with the standard with all EOI partners. 404. With respect to the Labuan IBFC, the DGIR has powers to directly request information from Labuan banks, financial institutions and any other person (LBATA s. 22). Effective as of 28 January 2011, the Malaysian competent authoritys power to call for provision of information in relation to entities in the Labuan IBFC, including banks and financial institutions, can also be exercised when a request is made under TIEA, in addition to requests made under a DTC which were previously covered by the law.
Use of information gathering measures absent domestic tax interest (ToR B.1.3)
405. 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. 406. 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

407. 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 44) and 2 000 (EUR 438) and/or to imprisonment up to six months.

408. 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 committed within 30 days, or such other period as the court deems fit, from the date the order is made. In the Labuan IBFC, breach of the disclosure obligation in section 22 409. of the LBATA is an offence punishable by a fine of up to MYR 1 000 000 (EUR 219 000).
In practice
410. As required by the international standard, sanctions should be set at the appropriate level to ensure compliance with information keeping requirements and such sanctions are regularly enforced in practice. 411. Some of the penalties provided in Malaysia law are relatively low in particular where no tax liability arises in Malaysia. The failure to comply with a notice issued by the Malaysian tax authority is subject to a penalty ranging between MYR 200 (EUR 44) and 2 000 (EUR 438) and/or imprisonment (however, the penalty of imprisonment would not be applied in practice). The Malaysian authorities reported that in their experience occasionally taxpayers would rather pay a penalty than comply with certain reporting obligations in particular where taxpayers were not or no longer carrying on business in Malaysia. That seemed to have impacted EOI in isolated occasions. It is recommended that Malaysia reviews the adequacy of its penalty regime to ensure that they are effective in providing deterrence against non-compliance.
Search and seizure

412. 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. 413. 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. The DGIR can use these powers without the need for a court order. The 414. 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).
415. 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 219) and MYR 10 000 (EUR 2 190) and/or by imprisonment of up to one year (ITA s. 116). 30 416. 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 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. 417. During the period under review, Malaysia has not issued search and seizure warrants for purposes of collection of information for EOI.
Secrecy provisions (ToR B.1.5)

418. 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
419. The secrecy of bank information is protected under Malaysia law. Since 30 June 2013, the Financial Services Act 2013 (FSA) (s. 133) and section 145 of the Islamic Financial Services Act 2013 (IFSA) (s. 145) prohibit licensed financial institutions from disclosing any information relating to the affairs or account of a customer, except where such disclosure is permitted under the referenced acts. A similar prohibition is provided under section 119(2) of the Development Financial Institutions Act 2002 (DFIA), according to which prescribed institutions under the DFIA are not allowed
30. 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.

to disclose any information relating to the affairs or account of a customer, except where such disclosure is permitted under the DFIA. Based on the FSA, IFSA and DFIA, licensed financial institutions are authorised to disclose any documents or information required by the IRBM under section 81 of the ITA for purposes of facilitating exchange of information pursuant to DTC or a TIEA (FSA; s. 134 and Schedule 11; IFSA 2013, s. 146 and Schedule 11; and DFIA 2002, s. 120). 420. Prior to that, a prohibition to disclose bank information was provided under the (Banking and Financial Institutions Act 1989 (BAFIA) s. 97; Islamic Banking Act 1983 (IBA) s. 34(3). Exceptions also existed, including for the purposes of any criminal proceedings or where such a disclosure is authorised in writing by the Central Bank. To allow the competent authority to have access to bank information, the Central Bank had 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 punishable as a breach of section 81 of the ITA (see above). 421. 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 219 000). Among the exceptions to this prohibition on disclosure of bank information is any lawful disclosure required by the DGIR (under LBATA s. 22) or by the LFSA (under LFSAA s. 28B).
Professional secrecy
422. 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.
423. 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. 424. 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. 425. Moreover, the scope of legal professional privilege has been held by the Malaysian courts to cover all advice (and communications) between lawyers and their clients relating to, or in contemplation of, litigation or obtaining legal advice. The privilege extends to cover documents or reports by third parties, prepared on the instructions of a lawyer, with a view to litigation. 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 which apears to cover not only the provision of legal advice and communication related to legal proceedings, but any communication connected to the lawyers employment and documents or reports by third parties, prepared on the instructions of a lawyer, with a view to litigation. The Malaysian authorities have confirmed, however, that privilege applies only to legal advice and communications between lawyers and their clients and not to other activities undertaken by lawyers in relation to which no client-lawyer relationship exists 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 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 outside a client-lawyer relationship. 426. 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.

427. During the three-year review period, Malaysia has not requested or been asked to request information from lawyers in connection with exchange of information requests. Moreover, Malaysia reports that there have been no instances where a request for information was not answered because of secrecy provisions. This would tend to corroborate with the view of the Malaysian authorities that there is no evidence or indication of any abuse of legal professional privilege in Malaysia.
Phase 1 determination The element is in place. Phase 2 rating Partially compliant. Factors underlying recommendations Malaysian law does not require a provision akin to Article 26(5) of the OECD Model Tax Convention in order to exchange bank information with its treaty partners. Although Malaysia currently exchanges bank information with its treaty partners regardless of a provision akin to Article 26(5) of the OECD Model Tax Convention, this is a new policy in place since 1 July 2013. The Malaysian competent authority relies on the Labuan FSA to access information on Labuan IBFCs entities and arrangements. In a few instances there were communication difficulties between the two authorities which triggered delays in the access to information. The Malaysia competent authority reports the issues have been recently resolved. In isolated cases during the period under review, the penalties provided under the relevant tax laws and commercial laws appeared to have been insufficient in providing an effective deterrence against non-compliance. Recommendations Malaysia should monitor the application of the new policy to ensure that bank information is exchanged in accordance with the standard with all EOI partners.
Malaysia should ensure that information concerning entities and arrangements in the Labuan IBFC is timely accessed.
It is recommended that Malaysia reviews the adequacy of its penalty regime to ensure that they are effective in providing deterrence against non-compliance.
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)

428. 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). As a general rule, neither section 81 of the ITA nor the Rules require 429. 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. 430. The Malaysian authorities indicate that there are no notification requirements in regard to seeking information for exchange of information purposes in the Labuan IBFC. 431. 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 7.1(2)(c) of the Guidelines (and previously by section 6.3 of the Central Bank Circular). However, section 4(3) of the Rules (combined with section 7.1(2)(d) of the Guidelines (and previously by 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 7.1(2)(d) of the Guidelines do not exhaustively list the conditions or cases for its application, but expressly include the cases where (i) the request is of a urgent nature and (ii) prior notification to the accountholder would likely undermine the action of the foreign jurisdiction. Section 4(3) of the Circular, in turn, did not specifically list the conditions or cases for its application and was interpreted by the Malaysia authorities as giving discretionary powers to the IRBM to decide when prior communication to the accountholder could be waived and that could include urgent cases or cases where the notification might undermine the success of the foreign investigation. 432. In practice, during the period under review Malaysia has collected banking information directly from the bank in all instances it was

specifically requested to do by its treaty partners. In no instance, Malaysia has refused such requests or has tried to collect information from other sources (e.g. from the account holder). 433. 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 (Guidelines, s. 7.1(2)(b); previously Circular, 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 s. 7.1(2)(d) of the Guidelines (previously 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. In practice, during the period under review, in no instance have banks refused to provide information when requested by the IRBM for purposes of EOI. Moreover, four of Malaysias treaty partners have requested Malaysia to request the banks not to notify the accountholder. In those cases, Malaysia has directed the bank not to notify its customer. 434. The notification requirements and exceptions to notification are in accordance with the international standard. 435. 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. During the period under review, Malaysia reports that there were no instances where persons appealed against access or exchange of information pursuant to an EOI agreement. The peer input received indicates that rights and safeguards have not 436. unduly prevented or delayed effective EOI.
COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 117
C. Exchanging Information
Overview
437. 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. 438. Malaysia has a large treaty network of 73 exchange of information instruments which include most of its main trading partners. The network was developed over the years, with a great number of Malaysias EOI instruments signed a long time ago and the first treaties dating from 1970. Since 2009, when it committed to the standards for transparency and exchange of information in tax matters, Malaysia has signed 22 DTCs/protocols to existing DTCs and one TIEA, all of which fully conform to the standard, and 17 of which are in force. A further 11 agreements have been initialled and 24 agreements are under various stages of negotiation. 439. Malaysias laws regarding access to banking information for EOI purposes were introduced in 2010. Initially, Malaysias authorities took the view that the application of these laws required an explicit reference in the EOI agreement by means of the inclusion a provision similar to Article 26(5) of the OECD Model Tax Convention, even though the laws on access to bank information on their face did not require such an explicit provision. The restrictions, therefore, were a result of Malaysias previous policy on the matter. Malaysia had then embarked on an ambitious programme of negotiation of protocols to its treaties to bring them to the standard. After gaining more experience with accessing banking information directly from banks, Malaysia also gained a better understanding of the scope of its access powers
118 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION

and reviewed its domestic policies that restricted access to bank information. Malaysia reports it has already exchanged bank information under one of its old EOI agreements. Malaysia has recently informed its EOI partners accordingly so that they are aware of the possibility of requesting bank information to Malaysia even under EOI agreements that do not contain a provision akin to Article 26(5) of the OECD Model Tax Convention. 440. Currently, 65 of Malaysias 73 EOI agreements meet the international standard. 61 of the 65 agreements are currently in force. This is a significant development since at the time of Phase 1, when only 10 EOI agreements that were in force fully met the international standard. Malaysia should continue to bring all agreements in line with the international standard. 441. When negotiating protocols to existing DTCs, Malaysia should upgrade the EOI provision of the few treaties that do not allow exchange of information in respect of all persons. 442. 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. 443. 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. 444. Finally, there are 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. 445. During the three-year period under review (1 January 2010 to 31 December 2012), Malaysia received 61 incoming requests on direct taxation matters from 15 jurisdictions. Malaysia answered 38% of the requests within 90 days, and 54% within 180 days and 77% within one year. Twelve per cent of the requests were replied after one year had elapsed and 8% of the requests were still pending in 31 July 2013 (4 of the pending requests were from 2012 and 1 from 2011). Three percent of the requests were not answered to the satisfaction of the requesting jurisdictions. Although peer input indicates approximately 10 requests that were partially replied to, these were work-in-progress and Malaysia reports that the outstanding cases have been recently replied to.
C.1. Exchange of information mechanisms

Exchange of information mechanisms should allow for effective exchange of information.
446. Malaysia has signed 73 agreements which provide for the exchange of information upon request. 72 of these are DTCs and one is a TIEA. 447. 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. In practice, during the period under review, Malaysia has exchanged information spontaneously with its treaty partners.
Foreseeably relevant standard (ToR C.1.1)

448. 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 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. 449. 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 Tax 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.
31. 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.

450. 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. Indeed, during the period under review, Malaysia has used its access powers to reply to exchange of information requests from two of the above-mentioned jurisdictions. Moreover, a new protocol was signed with New Zealand which also meets the international standard. 451. The DTCs with Austria, Bangladesh, the Russian Federation 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. Malaysia reports it has approached Austria, Bangladesh, the Russian Federation and the UAE to renegotiate the abovementioned agreements. Malaysia should continue its efforts to bring all agreements in line with the international standard. 452. In practice, since the EOI team has been established, when receiving an EOI request, an officer from the EOI team assesses the validity of the request against the EOI instrument and the Income Tax (Request for Information) Rules 2011. Malaysia interprets the term foreseeable relevance in accordance with the OECD Model Tax Convention and the OECD Model TIEA and their Commentaries. During the three year period under review, no clarification has been requested by Malaysia in relation to the EOI requests received to date to assess their foreseeable relevance. Moreover, Malaysia has not declined to reply a request on the basis that it was not foreseeably relevant.
In respect of all persons (ToR C.1.2)

453. 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
32. The agreement signed with the Union of Soviet Socialist Republics in 1987 is in force with respect to the Russian Federation.
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. 454. 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. Malaysia reports that it has approached the above-mentioned jurisdictions to renegotiate the treaties. 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. The treaties/ protocols to the treaties with Germany, India, Indonesia, 455. Poland (not yet in force) and South Africa 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 Business Activity Tax Act 1990. Labuan entities are only excluded from benefits of the agreement, for example with respect to reduced withholding tax rates. The protocol to the treaty with India expressly provides that the Malaysia competent authority will exchange information in relation to the Labuan entities that are entitled to the benefits of the Labuan Business Activity Tax Act 1990. 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 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. In practice, Malaysia has already exchanged information concerning Labuan entities with some of the above treaty partners. Of concern however, is the treaty with Chile that completely excludes 456. 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 Business Activity Tax Act 1990. Malaysia should bring the agreement with Chile in line with the international standard. 457. 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)

458. Jurisdictions cannot engage in effective exchange of information if they cannot exchange information held by financial institutions, and 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. 459. 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. Seventeen of Malaysias DTCs or protocols and one TIEA that are currently in force contain such a provision. 460. 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. 461. Malaysias laws regarding access to banking information for EOI purposes were introduced only in 2010. Initially, Malaysias authorities took the view that the application of these laws required an explicit reference in the EOI agreement by means of the inclusion of a provision similar to Article 26(5) of the OECD Model Tax Convention, even though the laws on access to bank information on their face did not require such an explicit provision. Malaysias policy was that having a provision akin to Article 26(5) would give more certainty of its powers to access information in the context of EOI (see section B.1.1 of this report). As a result of this policy, until recently most of Malaysias DTCs were not to the standard, as its treaty network comprises a number of agreements signed prior to the introduction of Article 26(5) in the OECD Model. Malaysia started to engage in an ambitious renegotiation program to bring its EOI agreements to the standard. 462. After gaining more experience with accessing banking information, the Malaysia competent authority, in consultation with its Solicitor General and the Central Bank, revisited their interpretation of the law, reversing the previous policy concerning the need of a provision akin to Article 26(5) in order to exchange bank information. This change is fairly recently i.e. the new policy was formally adopted on 1 July 2013. Malaysia reports it has already exchanged bank information under EOI agreements that do not
contain a provision akin to Article 26(5). Malaysia reports that, on 30 January 2014, it sent a letter to all its treaty partners to notify them about the change in policy and the possibility of requesting bank information to Malaysia even under old EOI agreements (provided that there is reciprocity). Since this has taken place very recently, it was not possible to monitor whether partners are now fully aware of the change in policy. It is therefore recommended that Malaysia ensures that its new policy is publicised and that treaty partners are fully informed in this regard. 463. Although Malaysia no longer requires a provision akin to Article 26(5) in order to exchange bank information, limitations in a treaty partner laws may prevent effective EOI. Fifty of Malaysias older DTCs do not include provisions akin to Article 26(5) of the OECD Model Tax Convention. Out of these, 27 are with Global Forum members and 23 are with non-Global Forum members. The peer review of four Global Forum members (Austria, Lebanon, Luxembourg and Singapore) 33 which have taken before the current review indicate that these member jurisdictions have restrictions in accessing information in the absence of an express provision corresponding to Article 26(5) of the OECD Model Tax Convention. Moreover, other Global Forum members which have not undergone the peer review or other non-Global Forum member jurisdictions may have similar restrictions. In these cases, the absence of a specific provision requiring exchange of bank information unlimited by bank secrecy may serve as a limitation on the exchange of information which can occur under the relevant DTC. Malaysia is recommended to continue to renegotiate its older DTCs to include paragraph 26(5) of the OECD Model Tax Convention.
Absence of domestic tax interest (ToR C.1.4)

464. 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. 465. All 22 DTCs/protocols and the one TIEA signed by Malaysia since 2009, 17 of which are currently in force, contain wording akin to Article 26(4) of the OECD Model Tax Convention, specifically requiring that the
33. Singapore amended its domestic legislation in November 2013 with a view to being able to exchange information to the international standard under all of its DTCs on the basis of reciprocity. This legislation has not yet been reviewed by the Global Forum.

contracting parties use their information-gathering powers to exchange the required information without any reference to a domestic tax interest. 466. 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). 467. 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. 468. In practice, no concerns in relation to domestic tax interest were raised by Malaysias exchange of information partners.
Absence of dual criminality principles (ToR C.1.5)

469. 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 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. 470. None of the information exchange mechanisms established by Malaysia apply the dual criminality principle to restrict exchange of information, and in practice no issue linked to dual criminality has arisen.
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.
Exchange of information in both civil and criminal tax matters (ToR C.1.6)
471. 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). 472. 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. 473. Peers have not raised any issues specifically related to requests pertaining to either civil or criminal tax matters. Malaysia reports that processes involved in the collection of information are the same regardless of whether the request involved civil or criminal investigation. During the period under review, Malaysia assisted in the collection of information in relation to at least one criminal case. The case referred to the interview of the subject of the foreign investigation. The requesting jurisdiction sent officials to Malaysia to participate in the interview.
Provide information in specific form requested (ToR C.1.7)

474. 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. 475. 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. 476. In practice, no particular problems were raised by peers regarding the form in which the information was exchanged.
In force (ToR C.1.8)

477. 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.

478. Malaysia has information exchange agreements with 73 jurisdictions. 65 of Malaysias 73 EOI agreements meet the international standard. 61 of the 65 agreements complying with the international standard are currently in force 35 and one other is awaiting ratification. 36 479. 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 In the last three years, Malaysia has been able to complete its ratification process within less than six months. Among the eight instruments that have not yet entered into force, six (with Belgium, Indonesia, Kuwait, New Zealand, Senegal and the Seychelles) were ratified by Malaysia and are awaiting ratification by the other party, and the two others were signed less than a year ago. 480. On a procedural point, even though Federal Parliament has the power to make laws to give effect to 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 international treaties. The procedure to bring an EOI agreement into force in Malaysia is as follows: (i) after signature the agreement is declared by an order of the Ministry of Finance under sections 132 or 132A of the ITA; (iii) the agreement is subsequently tabled for approval by the Malaysian Parliament; (iv) the parliamentary approval of the agreement is published in the official gazette; (v) the Federal Government ratifies the treaty and Malaysia informs its partners of the completion of the ratification process via diplomatic channels.
Be given effect through domestic law (ToR C.1.9)

481. In order for information exchange to be effective, the contracting parties have to take the necessary measures to comply with their commitments. All of Malaysias agreements which have been signed and ratified by 482. 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.
35. 36. 37.
All agreements included in Annex 2, except the ones with Austria, Bangladesh, Chile, Lebanon, Luxembourg, Singapore, the Russian Federation and the UAE. With Zimbabwe. 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.

Phase 1 determination The element is in place. Phase 2 rating Largely compliant Factors underlying recommendations Malaysia has recently changed its policy concerning the need of a provision akin to Article 26(5) of the OECD Model Tax Convention in order to exchange bank information. Malaysia reports it has already exchanged bank information under EOI agreements that do not contain a provision akin to Article 26(5). On 30 January 2014, it has informed its treaty partners about the change in policy. Recommendations Malaysia is recommended to publicise the new policy and ensure that EOI partners are fully aware of the possibility of requesting bank information to Malaysia even under EOI agreements that do not contain a provision akin to Article 26(5) of the OECD Model Tax Convention.
C.2. Exchange of information mechanisms with all relevant partners

The jurisdictions network of information exchange mechanisms should cover all relevant partners.
483. 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. 484. 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 73 information exchange agreements. Since making its commitment to the international

standard in transparency in 2009, Malaysia has entered into nine new treaties (one TIEA and eight DTCs) 38 and 15 new protocols. 39 485. Malaysias network of signed agreements comprises: all four of its bordering countries (three of these are to the international standard); four of its five major trading partners (three of these are to the international standard); 24 of the 34 OECD member countries (20 of these are to the international standard); and 49 of the 121 other members of the Global Forum (46 of these are to the international standard).
486. 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, 11 DTCs/protocols/TIEAs 40 have been initialled and a further 24 DTCs/Protocols/TIEAs 41 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. Finally, no indication has been received that Malaysia has ever declined to enter into an EOI agreement when requested to do so.
38. 39. 40. 41.
A TIEA was signed with Bermuda and DTCs were signed with Brunei Darussalam, Germany, Hong Kong (China), India, Lao Peoples Democratic Republic, Poland, San Marino and Senegal. With Australia, Bahrain, Belgium, France, Indonesia, Ireland, Japan, Kuwait, the Netherlands, New Zealand, Qatar, the Seychelles, South Africa, Turkey and the United Kingdom. With Barbados, Canada, Denmark, Finland, the Republic of Korea, Mauritius, Norway, Oman, Singapore, the Slovak Republic and the Ukraine, With Austria, Brazil, the Bahamas, Chile, the Peoples Republic of China, the Czech Republic, Guernsey, Italy, Kenya, Lesotho, Liberia, Luxembourg, Malta, Mexico, Morocco, Nepal, Pakistan, Philippines, Portugal, Romania, the Russian Federation, Thailand and Uruguay.
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)

487. 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. 488. 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. 489. 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)). 490. 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)

491. 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

requesting and requested jurisdictions and communications within the tax authorities of either jurisdiction.
Ensuring confidentiality in practice

492. The competent authority and all other authorities handling EOI have been made aware of their confidentiality obligations under the ITA and the LBATA and have observed them during the review period. There has not been any instance where information received by the competent authority from an EOI partner has been made public other than in accordance with the terms under which it was provided. 493. Access to premises is secured in the IRBM. The EOI unit is housed in a building of exclusive use by the IRBM. Access by members of the public is restricted. 494. Since June 2013, all officers of the EOI Team are briefed by the Director of IAD on the processes and procedures to be followed to ensure that confidentiality is protected. The EOI Team follows the guidance provided in the OECD/Global Forum Guide Keeping It Safe which is also incorporated in Malaysias EOI Manual. The manual should be adhered to by all officers handling EOI cases. The confidentiality rules cover both the information provided and received in connection to an EOI request. 495. Pursuant to sections 5.3(1) and 5.3(2) of the EOI Manual, all information received in the course of EOI must be treated as confidential and governed by section 138 of the ITA. Section 5.3(3) of the EOI Manual warns that any unauthorised disclosure of information constitutes a breach of confidentiality and any official who contravenes this provision will be subject to criminal prosecution under section 117 of the ITA (see above). To protect confidentiality, section 5.3(6) stipulates that the following practices should be adhered to: hard copies of incoming information should only be made if necessary; all unused documents containing confidential information must be shredded; all EOI working files must be kept in secure locked filing cabinets when not being used; access to EOI files/information is restricted to the competent authority and members of the EOI Team; secure systems cannot be accessed from personal devices;
the case officer handling the EOI case must confirm that the person who has requested the information was authorised to make the request and to receive the information; the case officer handling an EOI request must check if the requesting competent authoritys name and address are correct before sending any information. all letters and enclosures sent by the competent authority must be stamped with the following warning: This information is furnished under the provisions of a tax treaty and its use and disclosure are governed by the provisions of such treaty. For electronic exchanges, a watermark with similar warning must be included. Such warnings are placed on documents that are forwarded to other officers of IRBM involved in the collection of information. all mail received by the competent authority is forwarded to the EOI Unit and stored in secured cabinets. all mail to EOI partners is sent via an international registration system with a mail tracking function.
496. The notices for the production of information issued by Malaysia only contain reference to access powers under the ITA (i.e. sections 81 and 132/132A). No references to the specific EOI agreement, the requesting jurisdiction, the foreign competent authority, the background of the request, the foreign taxpayer under investigations are included. Naturally, a reference to the identity of the person that is the subject of the request is included as this information is necessary to locate the information being requested. Similar practice is followed by the Labuan FSA in relation to requests related to Labuan entities and arrangements handled by that authority. In this case, only a reference to the Labuan FSAs powers under section 28B of the Labuan Financial Services Authority Act 1996 are included. 497. No issues regarding the confidentiality of information have been raised by Malaysias exchange of information partners.
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)

498. 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. 499. 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 the one with Pakistan ensure the parties concerned will not be required to supply information that would involve disclosure of professional secrets. A DTC with New Zealand contained a similar exception. A protocol with New Zealand was signed on 6 November 2012. Malaysia has completed the process for ratification of this agreement and is currently waiting for New Zealand to do the same. In any case, the lack of a reference to professional secrets does not narrow the scope of information exchange. In addition, paragraphs 17 and 19 of the Commentary to the OECD Model Tax Convention (2005 version) mention that it remains within the framework of the agreement on the exchange of information which is laid down in the Convention if a requested State provides requested information which may be covered by a secret as defined in the Convention. It is stated in the Commentary that it cannot be objected that a State has failed to observe the obligation to secrecy in such cases. 500. 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. 501. 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. 42 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
42. 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.
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 and relating to any such activity cannot be declined because of the legal professional privilege rule. 502. 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. 503. In practice, during the three-year period under review Malaysia has neither requested information connected an EOI request to an attorney nor attorney-client privilege was not invoked. More broadly, no issues in relation to the rights and safeguards of taxpayers and third parties have been encountered in practice, nor have they been raised by any of Malaysias exchange of information partners.
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)

504. 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. There are no specific legal or regulatory requirements in place which 505. 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.

506. During the three-year period under review (1 January 2010 to 31 December 2012), Malaysia received 61 incoming requests on direct taxation matters from 15 jurisdiction. Malaysia answered 38% of the requests within 90 days, and 54% within 180 days and 77% within one year. Fifteen per cent of the requests were replied after one year had elapsed and 8% of the requests were still pending in 31 July 2013 (four of the pending requests were from 2012 and one from 2011). Further requests on the same matter where the original request had not yet been fully satisfied are counted as the same case. Although peer input indicates approximately 10 requests that were partially replied to, these were work-in-progress and Malaysia reports that the outstanding cases have been recently replied to.
Response times for requests* received during 3 year review period
2010 nr. Total number of requests received (a+b+c+d+e) 7 Full response**: 90 days 180 days (cumulative) 1 year (cumulative) >1 year Declined for valid reasons Failure to obtain and provide information requested Requests still pending at end of the review period 4 4 (a) 5 (b) 0 (c) 0 (d) (e) 2 0 % 57 57 0 0 29 0 2011 nr. 1 8 3 0 0 1 % 2012 nr. % 47 55 78 11 0 0 11 Total Average nr. 61 23 33 47 7 0 2 5 % 100 38 54 77 12 0 3 8
100 16 100 38 100 6 18 50 21 75 30 19 0 0 6 4 0 0 4
71 12
* Malaysia counts each written request from an EOI partner as one EOI request even where more than one person is the subject of an inquiry and/or more than one piece of information is requested. ** The time periods in this table are counted from the date of receipt of the request to the date on which the final and complete response was received.
507. During the period under review, Malaysia has not been able to reply to all EOI requests in a timely manner. Input received from some of Malaysias peers confirms that delays were experienced and some requests were only partially replied or responses are still pending. Practical difficulties to respond to EOI requests in a timely manner were encountered by Malaysias competent authority as summarised below: there was no dedicated team concentrating on EOI during the period under review. The requests received by the competent authority were sent to the IRBM investigators and auditors or to the Labuan
authorities for collection of information. No internal timelines or follow-up procedures were set. The auditors and investigations were not sensitised to the importance of the EOI work and had their own work load on domestic tax matters to handle; some cases were complex involving several types of information covering several years. Moreover, the auditors and investigators had not received particular training to deal with some complex matters (such as transfer pricing cases); the EOI requests were incomplete (the identification information provided in the EOI request was not complete or was incorrect (e.g. name of company or individual given is incomplete, passport number not provided or old company name was given)) and Malaysia failed to request clarifications on a timely manner to make sure it could proceed with replying to such requests; there has been considerable staff turnover and the IRBM headquarters relocated to a new office; in some instances Malaysia waited to gather all the information requested before providing a reply (i.e. no interim responses were provided when part of information had already been gathered); in one isolated case Malaysia could not locate the original request; in one instance, the information requested was not available (as referred to in part A of the report); one request was cancelled, after several attempts from the partner in following-up the case with Malaysia.
508. The situation appears to have improved since the beginning of 2013 i.e. outside the review period. Since 1 January 2013, a dedicated EOI Team was set up comprising three officers who are responsible for handling both incoming and outgoing EOI requests. 509. During the period under review, it was not Malaysias practice to provide status updates where requests were not responded within 90 days. Effective from 1 July 2013, Malaysia reports that it has been its policy and practice to systematically provide an update or status report to its EOI partners within 90 days when it was unable to provide a substantive response within that time. This has not been confirmed with the peers, as it refers to developments outside the review period. 510. Malaysia has not declined to reply to any requests during the period under review.

511. Input received from some of Malaysias peers confirms that problems of delay were occasionally experienced during the period under review. This included delays, lack of status updates, pending cases and cases where only partial responses were received. Partners that have a significant relationship with Malaysia, however, have unanimously reported that the EOI relationship with the Malaysian authorities has been an increasingly positive experience. Moreover, some of them also reported that the relationship and communication were good throughout the period under review. Malaysia should monitor the implementation of the measures recently taken to ensure that answers to EOI requests are made in a timely manner in all cases.
Organisational process and resources (ToR C.5.2) Organisational process The Competent Authority
512. 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 a number of senior officials from the Ministry of Finance/ IRBM (the Designated Competent Authorities), as described in section B.1 of this report. Based on authorisation received, they are the competent authority for both EOI requests received from treaty partners and requests sent by Malaysia to its treaty partners. 513. Malaysia usually sends the list of Designated Competent Authorities to its treaty partners upon receipt of a similar list from its partners. Malaysia does not have the practice to provide its list immediately on signing EOI arrangements. Requests received by any of the designated competent authorities are channelled to Director of the Department of International Taxation (DIT). The DIT hosts the EOI Team which is responsible for handling EOI requests. 514. In practice, it appears that having six designated competent authorities, whose offices are also located in different buildings, may create delays on the delivery of EOI requests to the EOI Team. Even though Malaysia has not reported any delays associated to this issue during the period under review, it seems that the process could be streamlined if one person is the designated competent authority for EOI purposes and that the contact details of this person is available to EOI partners (by means of correspondence and posted in the Ministry of Finance/ IRBM websites and in the Global Forum database). Since in practice all requests are channelled to the Director of DIT, it appears that he should be the designated CA for EOI purposes.
Human Resources
515. During the three-year period under review (1 January 2010 to 31 December 2012), Malaysia did not have a dedicated team concentrating solely on EOI. The requests received by the competent authority were sent to the IRBM investigators and auditors or to the Labuan authorities for collection of information or for coordination with other governmental authorities. No internal timelines or follow-up procedures were in place. As a result, in some cases, requests were not handled in a timely manner or only partial responses were provided. The Malaysia competent authority reports that practical difficulties were encountered which may be attributed to the lack of sensitisation of auditors and investigators to EOI, the complexity or difficulty of some requests received and other issues as analysed in parts A and B of the report. As the auditors and investigators had their own work load to handle, and EOI was not part of their core duties, information was not obtained in a timely manner in some cases. 516. Since 1 January 2013, a dedicated EOI Unit was set up for handling both incoming and outgoing EOI requests. The EOI Unit is hosted in the International Affairs Division (IAD), Department of International Taxation (DIT) of the IRBM. The EOI Unit is headed by the Director of IAD and assisted by two Assistant Directors. 517. All officers of the EOI Unit have minimum tertiary qualifications of bachelor degree and years of experience in tax administration. They have also have undergone training specific to international EOI. The EOI Unit reports directly to the Director of DIT. 518. Malaysia anticipates that the number of incoming and outgoing EOI requests will increase in the near future, as a number of DTCs and TIEAs have recently entered or will enter into force. The competent authority does not foresee any problems in obtaining more human resources if necessary. 519. Since beginning of 2013, the EOI team has been working to sensitise auditors to the importance of the EOI work. Auditors have also participated in international training seminars on EOI. The audit sensitisation has resulted in Malaysia sending its first EOI requests to treaty partners (one request was sent in 2012 and two requests were sent in 2013 (as at August 2013)).
Technical Resources
520. During the three-year period under review, the EOI requests were maintained in a physical register. No working manuals or tracking systems were in place to ensure all EOI requests were responded to in a timely manner.

521. Since 1 July 2013, an EOI manual and an electronic database were developed establishing procedures, templates and timelines to handle EOI requests. The electronic database is in the form of a spread sheet detailing relevant information for all EOI requests, including: IRBM reference number, foreign CA reference number, name of the requesting jurisdiction, name of the foreign legal person/ individual, name of Malaysian legal person/ individual, date of the request, date of receipt of the request, types of information requested (for example ownership, accounting, bank information), date of the request for clarification (if applicable), date of receipt of the clarification requested (if applicable), status of the request, date of interim reply (if applicable), date of final reply, number of days taken to provide replies (interim and/or final replies), number of days waiting for clarification from the requesting jurisdiction, other remarks).
Processes and timelines

522. During the period under review, there were no specific procedures concerning the verification of the validity of the requests. Since June 2013, the EOI Team will process each EOI request according to the following steps to determine its validity or foreseeable relevance: when a request is received, the EOI team checks whether the signatory is the competent authority (by checking files, the website of foreign competent authority, the Global Forum CA database or calling the foreign CA directly to confirm). the EOI team checks the EOI provisions of relevant agreement to determine the scope of EOI under the relevant agreement; the EOI team confirms whether the request contain all essential elements such as the identity of the person under examination or investigation, the period for which the information is requested; the tax purpose for which the information is sought (as per the terms of the EOI agreement and Income Tax (Request for Information) Rules 2011).
523. Since 2013, the EOI team has been more active in communicating with EOI partners also by phone. Previously, Malaysia did not have the practice of scheduling regular meetings or conference call with its treaty partners. Meetings, telephone or e-mail communications did take place on an ad hoc basis when necessary. For the period between January 2010 and December 2012, Malaysia hosted four face-to-face meetings with three of its EOI partners. Malaysia has not yet entered into competent authority agreements with its treaty partners, but it is open to this possibility.
524. During the period under review, the competent authority would immediately assign the EOI request to an auditor or investigator of the IRBM. Since 2013, after recording the details of the request in the database, the Director of IAD then assigns the request a case officer in the EOI Unit. The case officer checks the request for validity and completeness and proceeds with collecting the information requested if available in the database. In practice as well as a policy, the EOI unit now requests for clarification or additional information to the requesting jurisdiction if there is not sufficient information to process the request. 525. If EOI requests related to entities and arrangements in the Labuan IBFC, the EOI Team will send a memo by courier to the Labuan FSA mentioning that (i) an EOI request has been received; (ii) the name of the requesting jurisdiction; (iii) the information requested. The full request received from abroad is not sent to the Labuan FSA. The EOI Team and the Labuan FSA also communicate by phone on the status of the requests or if clarification is needed. The Labuan FSA has designated two officers to deal with EOI requests. 526. To ensure timely responses to EOI partners, the EOI Team is guided by the timelines set out in the EOI Manual. The EOI Team can also monitor the response time by checking the status of the cases using the computerised spread sheet. The following procedures and timelines are provided in the EOI Manual: where the information requested is in the hands of IRBM (e.g. tax return information), the EOI Team directly accesses the general database to retrieve the requested information. The timeline for replying to the request is 30 days from receipt; where the information requested is in the hands of another governmental authority, the EOI team shall obtain the requested information from the said governmental authority within 30 days. The timeline to reply to the request is 60 days from receipt; where the information requested is in the possession or control of the subject of the enquiry, the EOI Team requests the IRBMs Department of Compliance to obtain the information. The Department of Compliance is given 60 days to obtain the information from the relevant branch. The auditors at the branch will either issue a notice to request for information or if the request is urgent, the auditor will deliver the notice in person. The timeline to reply to the request is 90 days from receipt; where information requested is in the possession or control of a third party such as a service provider, the EOI Team requests the IRBMs Department of Compliance to obtain the information. The

auditor from the Department of Compliance in charge of the request will generally deliver the notice in person. The Department of Compliance is given 60 days to provide the information to the EOI Team. The timeline to reply to the request is 90 days from receipt; where information requested is in the possession of a bank, the EOI Team, as a rule, first issues a notice directly to the accountholder to obtain the information. If the accountholder does not provide information within 21 days from the date of the letter, the EOI Team issues a notice directly to the bank to request the information. The bank is given a time period of 21 days to provide the information. The EOI Team has discretionary powers to request information directly from the bank. The EOI Teams maximum timeline to reply to requests for banking information is 60 days from receipt. where information requested refers to entities or arrangements in the Labuan IBFC, the EOI requests the Labuan FSA to collect the information. The Labuan FSA is given 30 days to collect the information. The EOI Teams maximum timeline to reply to the request is 60 days from receipt.
527. To ensure quality of the EOI work, actions taken for every case are supervised by the Director of IAD. Moreover, all letters to the Department of Compliance for gathering information are checked and signed by the Director of DIT. Responses to EOI Partners are checked and signed by the Director of DIT. 528. When preparing the response to the requesting competent authority, the EOI officer examines the information received against the list of information requested to ensure completeness. The draft response is again checked by the Director of IAD and the Director of DIT before being sent to the requesting competent authority. 529. Answers to requests are normally sent by courier.
Statistics maintained
530. Since July 2013, the EOI Team maintains statistics on the number of the exchanges made (including incoming and outgoing requests, automatic and spontaneous exchanges) and the number of actions taken are reported monthly for purposes of IRBM Headquarters Meetings and also the Department of International Taxation Meetings. The following statistics are maintained: number of incoming and outgoing requests from the various EOI Partners under specific, spontaneous and automatic EOI;
number of cases opened; number of cases closed; number of cases outstanding within 30 days, 60 days, 90 days or more timelines; additional tax/duties collected as a result of EOI.
Conclusion
531. During the period under review, Malaysia was not able to reply to all requests in a timely manner. There was no dedicated team concentrating solely on EOI and no internal timelines or follow-up procedures were in place. Practical difficulties were encountered which may be attributed to the lack of sensitisation of auditors and investigators to EOI, the complexity or difficulty of some requests received and in a few cases access or availability issues (recommendations in relation to these have been made in sections A and B of this report). Input received from some of Malaysias peers confirms that delays, cases where only partial responses were received or cases where the responses are still pending were often experienced. On 1 January 2013 a dedicated EOI team was set up. Since then, the EOI Team has taken steps to engage with auditors, investigators and the Labuan authorities to sensitise them of the importance of EOI. An EOI manual and an electronic database were developed establishing procedures, templates and timelines to handle EOI requests. Malaysia appears to be now better equipped to handle EOI requests in an efficient and timely manner. Malaysia is recommended to monitor the implementation of the measures recently taken to ensure that answers to EOI requests are made in a timely manner in all cases.
Absence of unreasonable, disproportionate or unduly restrictive conditions on exchange of information (ToR C.5.3)
532. Exchange of information assistance should not be subject to unreasonable, disproportionate, or unduly restrictive conditions. 533. There are no laws, regulations or practices in Malaysia that impose unreasonable, disproportionate, or unduly restrictive conditions on exchange of information.
Phase 1 determination This element involves issues of practice that are assessed in the Phase 2 review. Accordingly no Phase 1 determination has been made.

Phase 2 rating Largely Compliant Factors underlying recommendations During the three years under review, Malaysias competent authority was not adequately resourced and working procedures were not in place, resulting in some delays or incomplete responses. Following the review period, the structure of the competent authority and management of EOI requests has improved, and specific responsibilities and working procedures have been introduced but they could not be assessed in practice. During the three years under review, Malaysias competent authority has experienced difficulties co-ordinating with other departments of the Inland Revenue Board of Malaysia or other governmental agencies which has led to delays in gathering information necessary to respond to an exchange of information request. The new procedures put in place by competent authority to address this issue could not be sufficiently assessed in practice. During the three years under review, Malaysia did not systematically provide an update or status report to its EOI partners within 90 days when it was unable to provide a substantive response within that time. The new procedures put in place by competent authority could not be sufficiently assessed. Recommendations Malaysia should monitor the processing and management of EOI requests, and of the internal processes as practice develops, and improve them as necessary. Malaysia should monitor the implementation of the measures recently taken to ensure that answers to EOI requests are made in a timely manner.
Malaysia should monitor the co-ordination procedures between the competent authority and with other departments of the Inland Revenue Board of Malaysia and other governmental agencies and establish priority guidelines for the regional tax office staff in relation to exchange of information casework in order to respond to requests in a timely manner. Malaysia should monitor the new system put in place to provide status updates to EOI partners within 90 days to ensure it operates effectively.
SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 143
Summary of Determinations and Factors Underlying Recommendations
Overall Rating LARGELY COMPLIANT. 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) Phase 1 determination: 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.
144 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS

Factors underlying recommendations There appear to be more than 100 000 dormant companies in Malaysia. Those companies do not comply with filing obligations. Moreover, there are questions on whether the penalties provided under the relevant tax laws and commercial laws are set at a sufficient level to provide an effective deterrence against non-compliance. In at least one instance during the period under review requests for ownership information could not be answered to the satisfaction of the requesting jurisdiction. Moreover, there were other instances during the period under review that information was not fully available to Malaysian Competent Authority because the entities that were the subject of the requests did not comply with their filing obligations. This caused significant delays for Malaysia obtaining the information requested.
Determination Phase 2 rating: Partially Compliant
Recommendations Malaysia should ensure that instances of non-compliance are appropriately sanctioned. Moreover, Malaysia should monitor the effectiveness of the penalties provided under the relevant tax and commercial laws to ensure that they are effective in providing deterrence against non-compliance of the filing and reporting obligations.
Determination
Factors underlying recommendations While the Labuan FSA has supervised its licensed entities, it did not sufficiently monitor compliance with the obligation of all Labuan entities to maintain ownership information. The Labuan FSA is taking action to strengthen its monitoring and enforcement mechanisms. During the period under review, approximately 50% of the registered Labuan companies were not active and have not filed annual returns. Malaysia has introduced limited liability partnerships (LLPs) and business trusts in its legal framework effective as of December 2012. Since the review period ended on 31 December 2012, the enforcement and monitoring action of the Companies Commission of Malaysia and the Securities Commission Malaysia in respect of LLPs and business trusts could not be assessed. As at 31 July 2013, there were 669 LLPs registered in Malaysia. As at January 2014, there were no business trusts or trusteemanagers of business trusts approved by the Securities Commission Malaysia.
Recommendations Malaysia should ensure that the obligations to keep ownership information in the Labuan IBFC are being appropriately monitored and enforced.
Malaysia should monitor compliance with the obligations to maintain ownership and identity information in respect of LLPs and business trusts and take enforcement measures as appropriate.

Factors underlying recommendations
Determination
Recommendations
Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. (ToR A.2) Phase 1 determination: There is no express The element is in place. requirement on certain trusts that do not carry on business in Malaysia and do not derive or receive income in Malaysia, to keep underlying documentation. Phase 2 rating: Largely Compliant There appear to be more than 100 000 dormant companies in Malaysia. Those companies do not comply with filing obligations. Moreover, there are questions on whether the penalties provided under the relevant tax laws and commercial laws are set at a sufficient level to provide an effective deterrence against non-compliance. In at least one instance during the period under review requests for accounting information could not be answered to the satisfaction of the requesting jurisdiction. Moreover, there were other instances during the period under review that information was not fully available to Malaysian Competent Authority because the entities that were the subject of the requests did not comply with their filing obligations. This caused significant delays for Malaysia obtaining the information requested. 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. Malaysia should ensure that instances of noncompliance are appropriately sanctioned. Moreover, Malaysia should monitor the adequacy of the penalties provided under the relevant tax and commercial laws to ensure that they are effective in providing deterrence against noncompliance of the filing and reporting obligations.
Determination
Factors underlying recommendations During the review period, the Labuan FSA performed monitoring of the compliance with accounting record keeping requirements in relation to a limited number of Labuan companies. In addition, the Directive detailing the scope of underlying records to be maintained has only been introduced recently and is therefore untested in practice. Malaysia has introduced limited liability partnerships (LLPs) and business trusts in its legal framework effective as of December 2012. Since the review period ended on 31 December 2012, the enforcement and monitoring action of the Companies Commission of Malaysia and the Securities Commission Malaysia in respect of LLPs and business trusts could not be assessed. As at 31 July 2013, there were 669 LLPs registered in Malaysia. As at January 2014, there were no business trusts or trusteemanagers of business trusts approved by the Securities Commission Malaysia.
Recommendations Malaysia should ensure that the obligations to keep accounting records and underlying documentation are being appropriately monitored and enforced.
Malaysia should monitor compliance with the obligations to maintain accounting records and underlying documentation in respect of LLPs and business trusts and take enforcement measures as appropriate.
Banking information should be available for all account-holders. (ToR A.3) Phase 1 determination: The element is in place. Phase 2 rating: Compliant

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) Phase 1 determination: The element is in place. Phase 2 rating: Partially Compliant Malaysian law does not require a provision akin to Article 26(5) of the OECD Model Tax Convention in order to exchange bank information with its treaty partners. Although Malaysia currently exchanges bank information with its treaty partners regardless of a provision akin to Article 26(5) of the OECD Model Tax Convention, this is a new policy in place since 1 July 2013. The Malaysian competent authority relies on the Labuan FSA to access information on Labuan IBFCs entities and arrangements. In a few instances there were communication difficulties between the two authorities which triggered delays in the access to information. The Malaysia competent authority reports the issues have been recently resolved. Malaysia should monitor the application of the new policy to ensure bank information is exchanged in accordance with the standard with all EOI partners.
Malaysia should ensure that information concerning entities and arrangements in the Labuan IBFC is timely accessed.
Determination
Factors underlying recommendations In isolated cases during the period under review, the penalties provided under the relevant tax laws and commercial laws appeared to have been insufficient in providing an effective deterrence against non-compliance.
Recommendations It is recommended that Malaysia reviews the adequacy of its penalty regime to ensure that they are effective in providing deterrence against non-compliance.
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) Phase 1 determination: . The element is in place. Phase 2 rating: Compliant Exchange of information mechanisms should allow for effective exchange of information. (ToR C.1) Phase 1 determination: The element is in place. Phase 2 rating: Largely Compliant Malaysia has recently changed its policy concerning the need of a provision akin to Article 26(5) of the OECD Model Tax Convention in order to exchange bank information. Malaysia reports it has already exchanged bank information under EOI agreements that do not contain a provision akin to Article 26(5). On 30 January 2014, it has informed its treaty partners about the change in policy. Malaysia is recommended to publicise the new policy and ensure that EOI partners are fully aware of the possibility of requesting bank information to Malaysia even under EOI agreements that do not contain a provision akin to Article 26(5) of the OECD Model Tax Convention. .
The jurisdictions network of information exchange mechanisms should cover all relevant partners. (ToR C.2) Phase 1 determination: The element is in place. Phase 2 rating: Compliant

Determination
Recommendations
The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (ToR C.3) Phase 1 determination: The element is in place. Phase 2 rating: Compliant The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (ToR C.4) Phase 1 determination: The element is in place. Phase 2 rating: Compliant The jurisdiction should provide information under its network of agreements in a timely manner. (ToR C.5) This element involves issues of practice that are assessed in the Phase 2 review. Accordingly no Phase 1 determination has been made. Phase 2 rating: Largely Compliant During the three years under review, Malaysias competent authority was not adequately resourced and working procedures were not in place, resulting in some delays or incomplete responses. Following the review period, the structure of the competent authority and management of EOI requests has improved, and specific responsibilities and working procedures have been introduced but they could not be assessed in practice. Malaysia should monitor the processing and management of EOI requests, and of the internal processes as practice develops, and improve them as necessary. Malaysia should monitor the implementation of the measures recently taken to ensure that answers to EOI requests are made in a timely manner.
Determination
Factors underlying recommendations During the three years under review, Malaysias competent authority has experienced difficulties co-ordinating with other departments of the Inland Revenue Board of Malaysia or other governmental agencies which has led to delays in gathering information necessary to respond to an exchange of information request. The new procedures put in place by competent authority to address this issue could not be sufficiently assessed in practice. During the three years under review, Malaysia did not systematically provide an update or status report to its EOI partners within 90 days when it was unable to provide a substantive response within that time. The new procedures put in place by competent authority could not be sufficiently assessed.
Recommendations Malaysia should monitor the co-ordination procedures between the competent authority and with other departments of the Inland Revenue Board of Malaysia and other governmental agencies and establish priority guidelines for the regional tax office staff in relation to exchange of information casework in order to respond to requests in a timely manner.
Malaysia should monitor the new system put in place to provide status updates to EOI partners within 90 days to ensure it operates effectively.
ANNEXES 153
Annex 1: Jurisdictions Response to the Review Report 43
We wish to acknowledge and thank the assessment team for the hard work, commitment and dedication in conducting this review. We would also like to extend our sincere appreciation to our colleagues in the Peer Review Group for their constructive comments and useful observations, and also to our EOI partners for their invaluable inputs and contributions. We agree with the findings of the report. With regard to the recommendations put forward in the report, Malaysia considers them seriously and will take the necessary measures and steps to address them. In fact, Malaysia has already taken initial steps to review the penalty regime in the various legislations to ensure their effectiveness. Moving forward, we are set to be more engaged with our treaty partners in EOI cooperation. Malaysia remains committed to the principles of transparency and exchange of information for tax purposes, and the effective implementation of the international standards.
43.
This Annex presents the jurisdictions response to the review report and shall not be deemed to represent the Global Forums views.
154 ANNEXES
Annex 2: List of Malaysias Exchange of Information Mechanisms
Jurisdiction 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Albania Argentina Australia Austria Bahrain Bangladesh Belgium Bermuda Bosnia and Herzegovina Brunei Darussalam Canada Chile China, Peoples Republic of Croatia Czech Republic Denmark Egypt Fiji Finland
Type of arrangement Double taxation convention (DTC) DTC DTC Protocol DTC DTC Protocol DTC DTC Protocol TIEA DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC Protocol
Date signed Date in force 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 23-04-2012 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 24-04-1975 12-11-2009 21-08-1995 09-02-2001 1981 08-08-2011 20-09-1990 31-07-2000 20-02-2012 1984 1977 28-12-2012 30-07-2012 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 23-07-1976 01-12-2010
18-12-2009 Not yet in force
20 France
ANNEXES 155
Jurisdiction 21 Germany
Type of arrangement DTC New DTC DTC DTC DTC DTC Protocol DTC DTC Protocol DTC DTC Protocol DTC DTC DTC DTC Protocol DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC Protocol DTC Protocol DTC
Date signed Date in force 08-04-1977 23-02-2010 25-04-2012 22-05-1989 09-05-2012 12-09-1991 12-01-2006 11-11-1992 28-11-1998 16-12-2009 28-01-1984 19-02-1999 10-02-2010 02-10-1994 26-06-2006 20-04-1982 05-02-2003 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 06-11-2011 23-12-1970 11-02-1979 21-12-2010 28-12-2012 26-10-1992 26-12-2012 11-08-1992 01-09-2010 15-04-2005 10-09-1999 15-02-2011 18-04-1986 31-12-1999 01-12-2010 29-05-2000 20-05-2010 13-12-1982 29-05-2007 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 Not yet in force 09-09-1971
22 Hong Kong, China 23 Hungary 24 India
25 Indonesia 26 Iran 27 Ireland 28 Italy 29 Japan 30 Jordan 31 Kazakhstan 32 Korea 33 Kuwait 34 Kyrgyz Republic 35 Lao Peoples Democratic Republic Luxembourg
36 Lebanon 37 38 Malta 39 Mauritius 40 Mongolia 41 42 Morocco Myanmar
43 Namibia 44 Netherlands 45 New Zealand 46 Norway
156 ANNEXES
Jurisdiction 47 Pakistan 48 Papua New Guinea 49 Philippines 50 Poland 51 52 Qatar Romania Type of arrangement DTC DTC DTC DTC New DTC DTC Protocol DTC DTC DTC DTC DTC DTC Protocol DTC DTC Protocol DTC DTC DTC DTC DTC DTC DTC Protocol DTC DTC DTC Protocol DTC DTC DTC DTC Date signed Date in force 29-05-1982 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 03-12-2003 05-10-2004 26-07-2005 05-04-2011 24-05-2006 16-09-1997 07-10-1993 12-03-2002 26-02-2007 29-03-1982 27-09-1994 19-11-2008 28-11-1995 10-12-1996 22-09-2009 06-10-1997 28-08-2006 07-09-1995 09-11-1982 11-06-1999 27-07-1984 15-12-1978 28-01-2009 18-09-2012 07-04-1984 04-07-1988 28-12-2010 01-07-2007 10-07-2006 13-02-2006 06-07-2006 06-03-2012 28-12-2007 13-08-1998 18-12-2002 28-01-2005 31-08-2007 02-02-1983 28-01-1997 06-10-2009 18-09-1996 18-05-1998 28-12-2010 10-08-1999 08-01-2008 13-08-1996
53 Russian Federation 54 San Marino 55 Saudi Arabia 56 Senegal 57 Seychelles 58 Singapore 59 South Africa 60 Spain 61 Sri Lanka 62 Sudan 63 Sweden 64 Syria 65 Thailand 66 Turkey 67 Turkmenistan
17-02-2010 Not yet in force 22-12-2009 Not yet in force
68 United Arab Emirates 69 United Kingdom 70 71 73 Uzbekistan Venezuela Zimbabwe
72 Vietnam
ANNEXES 157
Annex 3: List of all Laws, Regulations and Other Material Received
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
158 ANNEXES
Guidelines on Unit Trust Funds Guidelines on the Minimum Contents Requirements for Trust Deeds Limited Liability Partnerships Act 2012 Labuan FSAs Directive on Accounts and Record Keeping
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
ANNEXES 159
Financial legislation
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 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
160 ANNEXES
Securities Industry (Central Depositories) (Amendment) Act 2003 Financial Services Act 2013 (FSA) Islamic Financial Services Act 2013 (IFSA) Finance Act 2012 Capital Markets and Services (Amendment) Act 2012
Other legislation
Accountants Act 1967 Evidence Act 1950 Exchange Control Act 1953 High Court Order 39 High Court Order 66
ANNEXES 161
Annex 4: List of Authorities Interviewed
Representatives, Ministry of Finance Representatives, the Inland Revenue Board of Malaysia (Departments of Compliance, Investigation and International Taxation Representatives, the Labuan Financial Services Authority Representatives, the Attorney General Office Representatives, the Bank Negara Malaysia Representatives, the Companies Commission of Malaysia Representatives, the Malaysia Bar Association.
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

The OECD is a unique forum where governments work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to coordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The European Union takes part in the work of the OECD. OECD Publishing disseminates widely the results of the Organisations statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members.
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Global Forum on Transparency and Exchange of Information for Tax Purposes
PEER REVIEWS, PHASE 2: MALAYSIA

This report contains a Phase 2: Implementation of the Standards in Practice review, as well as revised version of the Phase 1: Legal and Regulatory Framework review already released for this country. 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.
Consult this publication on line at http://dx.doi.org/10.1787/9789264210004-en. This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org for more information.
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GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES

Peer Review Report Phase 2 Implementation of the Standard in Practice

ISBN 978-92-64-20998-5 (print) ISBN 978-92-64-21000-4 (PDF)

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

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

ABOUT THE GLOBAL FORUM 5

About the Global Forum

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

Information and methodology used for the peer review of Malaysia

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

General information on the legal and tax system Legal system

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

Overview of the financial sector and relevant professions Financial sector

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

The Labuan International Business and Financial Centre (Labuan IBFC)

PEER REVIEW REPORT PHASE 2 MALAYSIA OECD 2014

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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 23

Compliance with the Standards

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24 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

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26 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

A.1. Ownership and identity information

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

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Information held by authorities in Malaysia

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Information held by companies in Malaysia

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Information held by directors and officers in Malaysia

Information required to be held by service providers in Malaysia

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34 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 37