Recent Amendments and Penalty provisions in the Malaysian Transfer Pricing

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 The Malaysian Finance Act 2020 introduced, several legislative changes to the Malaysian Income Tax Act 1967 (“IT Act”) in respect of transfer pricing. Particularly, the time to submit the documentation has been reduced to 14 days and a penalty provision has been introduced.


Effective 1 January 2021, taxpayers who fail to furnish the transfer pricing documentation (“TPD”) upon the Malaysian Inland Revenue Board’s (“IRBM’s”) request will be subject to a fine ranging from RM 20,000 to RM 100,000 and / or imprisonment upto six months. The IRBM has also revised the Transfer Pricing Guidelines 2012 to reduce the time given to taxpayers to furnish their TPD from 30 days to 14 days.

Key Takeaways

With the recent introduction of the penalty provisions, strict enforcement measures have been adopted by the IRBM against the backdrop of increasing tax and transfer pricing audit activity. In light of the short time frame of 14 days to furnish TPD, taxpayers will need to be aware that it is important to prepare contemporaneous TPD well in time. Further, the companies that already have a TPD, it might be prudent to review them and ensure that they are aligned with the IRBM’s requirements and that
their transfer pricing policies are defensible in the event of an audit.

Introduction of the Penalty

Introduction of a penalty for the failure to furnish TPD upon the IRBM’s request as per section 113B of the IT Act. The taxpayers are not required to file their TPD along with their annual income tax returns filing. The taxpayers have to furnish their TPD for any year of assessment upon the IRBM’s request. With the introduction of the TPD Penalty, any taxpayer who fails to furnish their TPD to the IRBM within the 14 days period may be liable to a fine ranging from RM 20,000 to RM 100,000 and/or imprisonment upto six months.

The applicable time frames to submit the TPD requested is currently as follows:

 

For transfer pricing audit cases commenced before 1 January 2021 Within 30 days from the date of the IRBM’s written notice of request
For transfer pricing audit cases commenced on or after 1 January 2021 Within 14 days from the date of the IRBM’s written notice of request

 

 

The introduction of the TPD Penalty is significant as it provides the IRBM with the power to penalise a taxpayer without having to undergo the whole audit process, given that the taxpayer may be penalised solely for not being able to furnish TPD for the relevant year of assessment in time.

 

Imposition of Surcharge

Introduction of a provision which allows the Director General of Inland Revenue (DGIR) to impose a surcharge not exceeding 5% on any transfer pricing adjustment made, regardless of whether the adjustment resulted in any additional tax payable (section 140A(3C) of the IT Act).

Insertion of provisions legislating the existing authority for the DGIR to disregard and make adjustments to any structure adopted in a controlled transaction so the transaction may be carried out at arm’s length, having regard to economic and commercial reality (sections 140A(3A) and 140A(3B) of the IT Act).

How can HexaTP help


As a result of the introduction of the penalty for failure to furnish TPD as well as the power to impose a surcharge on any transfer pricing adjustment made, taxpayers should expect increased transfer pricing audit activity and intensified scrutiny on intercompany transactions. In this regard, corporates may have to ensure TPD compliance with a robust transfer pricing policies and documentation to withstand audit and scrutiny.

We have a multi-faceted team of transfer pricing practitioners who are able to provide strategic advice and assistance in respect of the following:

Transfer Pricing Training: We are professionals with over 15 years individually and 50 years cumulative experience in Global Transfer pricing practices. We can help you train your client servicing teams to understand the nuances of transfer pricing compliance and
benchmarking practices.

Transfer Pricing Planning: We are well positioned to support you in developing a sustainable planning and formulation of transfer pricing policies for your clients;


–  TPD Preparation and Defence: We are capable to assist you with the requisite TPD that is compliant and defensible; and;

Transfer Pricing Audit Support: in times of audit, we are well placed to support you and your team.

 

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For any assistance and further information on the above
penalty provisions please contact us on info@hexatp.com
or you can Book an Appointment with us!

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What are the latest policies for Malaysian Transfer Pricing Environment?

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Transfer Pricing is a tax concept where companies operating within a group are required to transact with one another at market prices, similar to how independent companies transact with each other (also known as arm’s length transactions). Globalisation and rapid growth of international trade have made inter-company pricing a common consideration for vast majority of businesses.

To curb manipulation and abuse of transfer pricing, the Government of Malaysia like any other tax jurisdictions, introduced transfer pricing guidelines and law.The first guideline on transfer pricing was published in 2003 by Malaysian Inland Revenue Board (MIRB). Consequently, in 2009, specific transfer pricing provisions were inserted into the Income Tax Act 1967 (ITA) vide section 140A.

In May 2012, prior to the release of the revised Malaysian Transfer Pricing Guidelines in July 2012, the MIRB released the Malaysian Transfer Pricing Rules 2012, both of which have retrospective effect to 1 January 2009.

On 15 July 2017, several chapters of the Malaysian Transfer Pricing Guidelines 2012 were updated (the Guidelines 2017) which governs the standard and rules based on the arm’s length principle to be applied on transactions between associated persons.

Malaysia has well-defined and extensive transfer pricing documentation requirements and with the introduction of Section 113B of the Income Tax Act 1967, which comes into operation on 1 January 2021, the Transfer Pricing Documentation should be made available within 14 days upon request by the Inland Revenue Board of Malaysia (IRBM). This requirement will apply to transfer pricing audit cases which have commenced on or after 1 January 2021.

Since Malaysia has introduced the OECD three-tiered approach on transfer pricing documentation, taxpayers that are to prepare the Country-by-Country Report as per Income Tax (Country-by-Country Reporting) Rules 2016 (with effect as of 1 January 2017), have to also prepare a Master File and submit it together with regular transfer pricing documentation upon request by the IRBM. The requirements to the Master File are very similar to those prescribed by the OECD in Action 13.

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For any assistance and further information on the above
penalty provisions please contact us on support@hexatp.com
or you can Book an Appointment with us!

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