Msc Malaysia Status 2.0 msc status

IP Regimes according to OECD


As agreed as part of the BEPS Action 5 minimum standard, peer reviews are undertaken to identify features of IP regimes that can facilitate base erosion and profit shifting (BEPS) and therefore have the potential to unfairly impact the tax base of other jurisdictions. The Action 5 Report placed a renewed focus on requiring substantial activity for any preferential regime, and the "nexus approach" is the Substantial Activity requirement developed for IP regimes.


Substantial Activity in its simplest term mean undertaking a substantial amount of Time and Money to bring about the IP. This is what it means as a Nexus Approach linking between the income benefiting from the IP regime and the extent to which the taxpayer has undertaken the underlying R&D that generated the IP asset. In short, if you have spent Time and Money in bringing about your IP (copyright, patent), then you are considered to have earned your IP and thus to be given tax exemptions.

Mdec's meaning of IP income - Generally (there are exceptions), IP (intellectual property) income is income deriving from exploitations of an Intellectual Property (IP), of which said company is the owner of the IP (which will mean licensor). In other words, the said company is the one who came up with the soft code (programe) and who might use it by itself or license it to others to use, thus deriving royalty income from the exercise. Non-IP derived income on the other hand are income not derived from own IP. Examples of IP are patents and copyrights

OECD's IP regime Nexus Approach

"Importantly, one needs to take into account that the very conceptual basis of the Modified Nexus Approach is intended to ensure that, in order for a significant proportion of IP income to qualify for benefits, a significant proportion of the actual R&D activities must have been undertaken by the qualifying taxpayer itself. Accordingly, such up-lift needs to be restricted. It may only be granted to the extent that expenditure in the context of outsourcing and acquisitions has actually taken place, and it is in any case limited to a certain percentage of the qualifying expenses of the respective company: 30%. This percentage-based limitation relates to the overall amount of both outsourcing and acquisition costs. For the avoidance of doubt, acquisition costs and expenditures for outsourcing to related parties are not included in qualifying expenditures, but are taken into account in determining the limitations."

OECD's examples of how to calculate qualifying expenditures.

"Example (1): Parent company incurred qualified expenses of 100, parent company incurred costs for acquisition of IP assets of 10, subsidiary company incurred R&D expenses of 40. * Maximum up-lift amount = 100 x 30 % = 30 * Overall qualifying expenses including a limited percentage of outsourcing and acquisition costs = 130 Example (2): Parent company incurred qualified expenses of 100, parent company incurred costs for acquisition of IP assets of 5, subsidiary company incurred R&D expenses of 20. * Maximum up-lift amount = 100 x 30 % = 30 * Overall qualifying expenses including a limited percentage of outsourcing and acquisition costs = 125"

Msc Malaysia Status Approved activities effective 1/1/19 for preview as they are not being confirmed by MDEC as of this moment.


1. Big data analytics
2. Artificial intelligence
3. Fintech
4. Internet of things
5. Cybersecurity (technology/software/design and support)
6. Data centre and cloud (technology/software/design and support)
7. Blockchain
8. Creative media technology
9. Sharing economy platform
10. User interface and user experience
11. Integrated circuit design and embedded software
12. Additive Manufacturing ( 3D technology/software/design and support)
13. Robotic (technology/software/design)
14. Autonomous (technology/software/design and support)
15. Systems or network architecture design and support
16.

Global business services or knowledge process outsourcing excluding:

(a) Non-technical

(b) Low value call centre

(c) Data entry

(d) Recruitment process outsourcing


However, Mdec has yet to confirmed as to what they termed as the final IP regime derived income and thus we will have to wait until they confirm it.

Since it is of critical importance for you to have your IP in order to obtain the pioneer status, we will be offering our advisories on the creation and the filing of your IP as we are intellectual property practisioners for many years. But even if you don't aim to obtain pioneer status, you would still be in safer hand if you have your IP protected as you will never know when someone comes along and say that you have copied their business model, worse still if they go ahead and sue you! Please be reminded that IP theft occurs quite often, more often than you think.