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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