Transfer Pricing

Transfer pricing refers to the pricing of goods, services, and intangible assets between related parties. In Malaysia, transfer pricing is governed by the Income Tax Act 1967 and the Transfer Pricing Rules 2012.

The Malaysian Transfer Pricing Guidelines explain the provision of Section 140A in the Income Tax Act 1967 and the Transfer Pricing Rules 2012. It governs the standard and rules based on the arm’s length principle to be applied on transactions between associated persons.

Businesses in Malaysia are required to prepare transfer pricing documentation if their gross income exceeds RM25 million and the total amount of related party transactions exceeds RM15 million. They must also prepare documentation if they provide financial assistance exceeding RM50 million (this requirement does not apply to financial institutions).

Taxpayers who fall below the above thresholds have the option to prepare an abbreviated set of transfer pricing documentation. This abbreviated documentation should cover the organizational structure, description of the controlled transactions, and relevant pricing policies, instead of the full documentation requirements.

To ease the compliance burden, taxpayers that fall outside the thresholds may opt to prepare a simplified transfer pricing documentation. The simplified documentation is a shorter version of the full documentation and covers only the organizational structure, description of the controlled transactions, and relevant pricing policies. The simplified documentation is not a substitute for the full documentation, but it can be used as a supporting document to prove compliance with the arm’s length principle.

Starting from 1 January 2021, failure to provide contemporaneous transfer pricing documentation within 30 days upon request may result in a penalty ranging from RM20,000 to RM100,000, imprisonment of up to 6 months, or both.

What documentation need to prepare?

Taxpayers who engage in controlled transactions must prepare contemporaneous TP documentation according to the Income Tax (Transfer Pricing) Rules 2012. This documentation must be provided to the Inland Revenue Board Malaysia upon their request.

The documentation should include the following information:

• A description of the business and industry in which the taxpayer operates.
• A description of the taxpayer’s organizational structure.
• A description of the taxpayer’s transfer pricing policies.
• A description of the controlled transactions.
• A functional analysis of the taxpayer and the associated enterprises involved in the controlled transactions.
• A comparability analysis.
• A selection and application of the most appropriate transfer pricing method.
• A conclusion and summary of the analysis performed.

Taxpayers who carry out cross-border transactions may apply for an advance pricing arrangement (APA) in relation to a covered transaction for specific terms and conditions. From a country having an income tax treaty, a taxpayer may only apply for a bilateral APA (BAPA) or multilateral APA (MAPA).

Our services include:

• Preparation of Transfer Pricing Documentation
• Conduct benchmarking studies to compare the pricing of intercompany transactions with comparable transactions in the open market.
• Help companies assess and manage transfer pricing risks.
• Assist companies in developing and implementing transfer pricing policies that align with their business strategies and comply with local regulations.
• Support companies in negotiating and securing Advanced Pricing Agreements with tax authorities.
• Training and Education