Global Tax Alert (News from Transfer Pricing) | 8 August 2014

Malaysia requires transfer pricing documentation confirmation

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To better monitor taxpayers’ compliance with Malaysia’s contemporaneous transfer pricing (TP) documentation (documentation) requirement, a Malaysian taxpayer will be required to affirmatively disclose whether it has prepared TP documentation in its tax return for a taxable year beginning in 2014.

Requirements for contemporaneous transfer pricing documentation

The Income Tax (Transfer Pricing) Rules 2012 (TP Rules)1 provide that persons entering into a controlled transaction must prepare documentation when developing or implementing the controlled transaction. The documentation must include specific information and be updated for any material changes prior to the due date for filing a tax return that includes the affected transaction.

Transfer pricing methods

The TP Rules require the hierarchical selection of transfer pricing methods, which places the traditional transaction methods as the primary methods. If none of the primary methods is applicable, one of the transactional profit methods may be selected.

TP Rules provide guidance on establishing an arm’s length pricing for the following transactions:

  • Intra-group services
  • Intangible property transfers
  • Financing transactions

Penalty

The 2012 TP Guidelines set out the following specific penalty rates under Section 113(2) on tax adjustments arising from a TP audit:

No contemporaneous TP documentation 35%

TP documentation prepared not according to requirements in the Guidelines 25%

A negative answer would likely trigger a TP audit by the Inland Revenue Board of Malaysia based on the risk profile disclosed in a schedule detailing transactions between related companies. Accordingly, it is important that companies seek professional tax advice to ensure that they are compliant with TP laws.

Endnote

1. See EY International Tax Alert, Malaysia issues new transfer pricing and advance pricing arrangement rules, dated 7 June 2012.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Consultants Sdn Bhd, Kuala Lumpur
  • Yeo Eng Ping
    +6 03 7495 8214
    eng-ping.yeo@my.ey.com
  • Sockalingam Murugesan
    +6 03 7495 8224
    sockalingam.murugesan@my.ey.com
  • Anil Kumar Puri
    +6 03 7495 8413
    anil-kumar.puri@my.ey.com
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris Finnerty
    +1 212 773 7479
    chris.finnerty@ey.com
  • Kaz Parsch
    +1 212 773 7201
    kazuyo.parsch@ey.com
  • Bee-Khun Yap
    +1 212 773 1816
    bee-khun.yap@ey.com

EYG no. CM4650