fbpx

Transfer Pricing

Transfer pricing refers to the pricing of goods, services, and intangibles transferred between related entities within a multinational enterprise. In Malaysia, the Inland Revenue Board (IRB) enforces transfer pricing regulations to ensure that transactions between associated persons adhere to the arm’s length principle, thereby preventing profit shifting and tax base erosion.

Key Aspects of Malaysia’s Transfer Pricing Framework

1. Legal Framework
    • Section 140A of the Income Tax Act 1967: Introduced in 2009, this section empowers the IRB to make adjustments on transactions between related parties that are not conducted at arm’s length.
    • Income Tax (Transfer Pricing) Rules 2012: These rules provide detailed guidance on the application of Section 140A, outlining methodologies and compliance requirements for taxpayers.
2. Transfer Pricing Guidelines

The IRB has issued comprehensive guidelines to assist taxpayers in complying with transfer pricing regulations. These guidelines cover various aspects, including:

    • Arm’s Length Principle: Ensuring that intercompany transactions are priced as if they were between independent parties.
    • Transfer Pricing Methodologies: Providing acceptable methods for determining arm’s length prices, such as the Comparable Uncontrolled Price Method, Resale Price Method, and Cost Plus Method.
    • Documentation Requirements: Mandating contemporaneous documentation to substantiate transfer pricing practices.
    • Documentation Requirements
    • Taxpayers engaged in controlled transactions must maintain contemporaneous transfer pricing documentation. This documentation should include:
    • Details of the organizational structure.
    • Nature of the business and industry analysis.
    • Descriptions of controlled transactions and transfer pricing policies.
    • Economic analyses and benchmarking studies.
    • The IRB has provided a Minimum Transfer Pricing Documentation Template to assist taxpayers in preparing the necessary documentation.
3. Compliance and Penalties
    • Non-compliance with transfer pricing regulations can result in:
    • Adjustments to taxable income.
    • Imposition of penalties.
    • Potential double taxation issues.
    • The IRB emphasizes the importance of maintaining proper
    • documentation to mitigate risks associated with transfer pricing audits.

To know more, view here.

  •  
×

Hello!

Click one of our contacts below to chat on WhatsApp

×