Tax Planning of a Company Operating Foreign Activity in Malaysia

Abstract

 Abstract—Corporate tax planning studies have been addressed for a number of years within the developed market context, whereas corporate tax planning research for in developing countries is largely non-existent. Studies also associate corporate tax planning with tax avoidance. Tax collection generates large amounts of revenue and is a vital source of income for government to promote overall economic stability and growth. Since Malaysia implemented self-assessment system for in 2001, it is important to ensure compliance by taxpayers. Companies engaging with foreign activities are able to utilize in international tax planning. This study is aimed to examine the influence of engaging in foreign activity on corporate tax planning. This study tests the relationship by using a cross-sectional-time series valuation using panel data analyses which is Tobit estimations. The findings indicate the link between engaging in foreign activity and corporate tax planning in an emerging market. less tax than otherwise required. An example of such a loophole enables the common practice of tax planning through transfer pricing, where profit or income is shifted between countries. With different tax rates or systems to avoid the total amount of tax payable, tax planning also includes income shifting, investing in loss companies, income splitting and gift schemes. Most research on corporate tax planning has been conducted in the US, the UK and Australia. This study investigates corporate tax planning in Malaysia, thus adding to the corporate tax planning literature by examining an emerging market. The Malaysian economy is dependent on foreign activity. As the operations of Malaysian become increasingly global in scope, an important issue is how their foreign activities impact on their tax planning. Companies engaging in foreign activity are fundamentally different from domestic only as they operate in different cultural, political, economic environments and different tax legislations and jurisdictions. The objective of this study is to examine whether or not the engaging in foreign activity in emerging country (Malaysia) would also engage in tax planning. The findings of this study are expected to provide new evidence on the effect of companies foreign activities on corporate tax planning.