YYC - TRANSFER PRICING ADVISORY SERVICES | KL | MALAYSIA

The concept of transfer pricing was first introduced into the Malaysian tax legislation effective from 1 January 2009 with the enactment of the Section 140A of the Income Tax Act, 1967 as well as the gazettement of the Income Tax (Transfer Pricing) Rules 2012 (“Malaysian Transfer Pricing Rules”). 

However, many Malaysian business especially Small Medium Enterprises (“SMEs”) have the wrong perception that the Malaysian transfer pricing compliance requirements is only applicable to transactions between multinational enterprises (“MNEs”) with cross border transactions.

What is Transfer Pricing? All you need to know...

Transfer Pricing refers to the pricing of goods, services and intangibles between associated parties.

Associated parties are parties who control one another, or who are under the common control of another party, whether directly or indirectly. They include branches and head offices.

All related party transactions (“controlled transactions”) are required to be conducted at arm’s length prices, e.g. the prices between associated persons should be approximately the prices between independent parties undertaking transactions under similar terms and conditions.

What are your Transfer Pricing obligations?

It is a statutory requirement for the taxpayers to prepare a contemporaneous comprehensive set of transfer pricing documentation (“TPD”) (e.g. Full TPD) annually under the Malaysian Transfer Pricing Guidelines 2012, provided that: 

There is no de minimis rule in Malaysian Transfer Pricing legislation. However, taxpayers are allowed to prepare documentation that is less extensive, i.e. Limited TPD, if the taxpayers does not exceed the above financial threshold. The obligation to prepare a contemporaneous TPD is based on each year of assessment to demonstrate that its controlled transactions are transacted according to the arm’s length principles.

What is the Transfer Pricing landscape for year 2021?

The Budget 2021 announcements which have gazetted the law under Finance Act 2020 which have tightened the Transfer Pricing compliance requirements in Malaysia with effective from 1 January 2021 with the introduction of the following provisions:

With the introduction of penalty for non-compliance of TPD, the requirement to prepare TPD is absolute and mandatory and there is no discrimination between large and small medium sized companies. 

The non-compliance for TPD penalty is hefty as it provides the IRB with the absolute power to penalise a taxpayer prior to the commencement of the audit process for not being able to furnish the TPD for the relevant year of assessment on time. Further, a 5% surcharge would be imposed on any taxpayer on transfer pricing adjustment regardless of whether the taxpayer is a loss or a tax-exempt company for non-compliance of the arm’s length principle.  

What are the Common Mistakes that taxpayers needed to avoid?

The following practices with associated persons are not likely to be viewed favourably by the IRB:

• Transacting below market value 
• Providing free-of-charge services 
• Adopting the cost sharing or cost reimbursement approach 
• Non-standardised pricing policies
• Charging based on a pre-determined percentage on sales
• Providing interest free loan or advance

How can YYC help?

Early identification of existing issues and compliance with local regulatory requirements is important in managing transfer pricing risks.

Our esteemed tax advisory team of transfer pricing specialists are able to provide strategic advice and assistance in respect of transfer pricing planning, preparation and tax audit support.

Our Team

Feel free to contact us to find out more.