Malaysia Transfer Pricing Tax Audit Framework 2025

The TPTAF 2025 (which supersedes TPTAF 2024) administers the adherence and compliance of domestic as well as cross-border controlled transactions with the arm’s length principle. The rights and responsibilities of the IRBM, taxpayers and tax agents are spelled out so that TP tax audit examinations are performed in a fair, transparent and impartial manner. The TPTAF 2025 also provides clarity on some key areas, for example, the TP tax audit examination procedures, TP penalty structure and appeal processes.

Key highlights include:

• A comprehensive TP tax audit examination covers six years of assessment and may be extended to seven years of assessment depending on the audit findings. The limit for this coverage period does not apply to TP tax audit cases involving fraud, willful default or negligence.
• The IRBM has broadened its basis and parameters in the selection of taxpayers for TP tax audit examinations, which include:
  • Risk assessment of the taxpayer’s controlled transactions
  • Business restructuring activities of the taxpayer and its group affiliates
  • Information received from third-party sources and exchange of information from foreign tax authorities.
• The IRBM clarifies that the TP tax audit examination case needs to be completed within 450 calendar days from the audit commencement date. Audit commencement date is established as below:
  • Formal notification by the IRBM in determining the commencement date; or
  • Date of the physical field audit visit; or
  • Any other date pre-agreed between the IRBM and the taxpayer.
• However, the IRBM may notify if an extension of time is required to conclude the audit examination.
• In cases involving offsetting adjustments for the taxpayer’s local counterparty, the IRBM shall perform a separate audit examination on the counterparty. 

The penalty structures in relation to TP issues are bifurcated based on the following basis periods.

• Basis periods commencing before 1 January 2021 – The imposition of penalty equivalent to the amount of tax that has been undercharged (100%) in accordance with subsection 113(2) of the Income Tax Act (ITA) 1967.

• Basis periods commencing on or after 1 January 2021 – The imposition of the TP surcharge in accordance with subsection 140A(3C) of the ITA.

In accordance with Section 113B of the ITA, the following monetary penalties or imprisonment, or both may be imposed in the following situations:

• Failure to submit TP documentation (TPD) within 14 days from the date of the IRBM’s written notice.
• Non-compliance with the TPD requirements under P.U.(A) 165/2023 and the MTPGL 2024.

The monetary penalty that will be imposed based on the period of delay in submitting the TPD is as follows: 

Note:

• Penalty concession may apply for taxpayers who have an accounting period prior to 29 May 2023 [Gazette order date of P.U.(A) 165/2023].
• The TP penalties above will be imposed at the final stage of the audit process.

Insufficient record-keeping may also lead to fines between RM300 and RM10,000, imprisonment up to one year, or both (Section 119A of the ITA).

The taxpayer may apply for a voluntary disclosure post the submission deadline of the income tax return form but before the audit examination commences.

• TP surcharge rate ranging from 0% to 4% on TP adjustment, subject to fulfilling the IRBM’s voluntary disclosure criteria.
• A taxpayer who wishes to make a voluntary disclosure needs to fill out the voluntary disclosure form for TP case and furnish the necessary information (inclusive of TPD) to the IRBM.
• Taxpayers may hold preliminary discussions with the IRBM, subject to the discretion of the IRBM and the completeness of the information furnished.