Transfer Pricing Solutions and Rules - Malaysia

The introduction of the Malaysian Transfer Pricing Guidelines in July 2003 added a new dimension to the country’s taxation system in as much as it emphasized on the arm’s length principle as the favoured approach for pricing transactions carried out between related parties. In May 2012, prior to the release of the revised Malaysian Transfer Pricing Guidelines in July 2012, the Malaysia Inland Revenue Board released the Malaysian Transfer Pricing Rules 2012, both of which have retrospective effect to 1 January 2009.

Based on the Malaysian Transfer Pricing Rules 2012 and the Malaysian Transfer Pricing Guidelines 2012,[1] it is a requirement for companies that are engaged in a controlled transaction (i.e. transactions between related parties) to prepare transfer pricing documentation on a contemporaneous basis.

On 15 July 2017, several chapters of the Malaysian Transfer Pricing Guidelines 2012 were updated. Among others, an additional chapter on commodities was introduced. The updated chapters are Chapter II (the Arm’s Length Principle), Chapter VIII (Intangibles), and Chapter XI (Documentations). Most of the updates are reflective of the changes adopted in the 2017 OECD Guidelines.

The Income Tax (Advance Pricing Agreement) Rules 2012 were gazetted on 11 May 2012 and are deemed to have come into operation on 1 January 2009

Transfer Pricing in Malaysia

Under paragraph 1.3.1 of the Malaysian Transfer Pricing Guidelines 2017,[7] “the Guidelines are applicable to controlled transactions for the acquisition or supply of property or services between associated persons, where at least one person is assessable or chargeable to tax in Malaysia. To ease compliance burden, persons referred to do not include individuals not carrying on a business, further- (a) for a person carrying on a business, the Guidelines apply wholly to a business with gross income exceeding MYR 25 million, and the total amount of related-party transactions exceeding MYR 15 million; (b) where a person provides financial assistance, the guidelines on financial assistance are only applicable if that financial assistance exceeds MYR 50 million. The Guidelines do not apply to transactions involving financial institutions”. Although not a requirement, the Malaysian Transfer Pricing Guidelines 2017 in paragraph 1.3.2 suggest that companies that do not fall under the “Scope” as per paragraph 1.3.1 may opt to fully apply all relevant guidance or alternatively comply with paragraph 25.4(a), (d), (c) – which will be an abridged version of the transfer pricing documentation.
The Master File concept is laid down in the 2017 Malaysian Transfer Pricing Guidelines. The guidance provided in the Guidelines is very limited. Taxpayers that are obliged under the Income Tax (country-by-country reporting) Rules 2016 to prepare the country-by-country report shall prepare the Master File and submit it together with the transfer pricing documentation when requested. Taxpayers are permitted to file their transfer pricing documentation in Bahasa Malaysia or English. Where supporting documents are in a language other than Bahasa Malaysia or English, a translation should be provided upon submission of the transfer pricing documentation

The Malaysian Transfer Pricing Guidelines 2017 state that taxpayers who engage in controlled transactions are required to prepare transfer pricing documentation contemporaneously. The maintenance of contemporaneous transfer pricing documentation is considered important by the MIRB.

Taxpayers engaged in controlled transactions are required to prepare transfer pricing documentation contemporaneously. There is no revenue threshold. There are no separate transfer pricing provisions for small and medium-sized enterprises.

The Malaysian Transfer Pricing Guidelines 2017 states that transfer pricing documentation is not required to be submitted with the annual tax returns. However, the documentation should be made available to the MIRB within 30 days upon request. On 29 January 2021, the MIRB updated this paragraph to state that with the introduction of section 113B of the ITA which comes into operation on 1 January 2021, transfer pricing documentation should be made available within 14 days of request by the MIRB. They further stated that the new requirement will apply to transfer pricing audits which commence on or after 1 January 2021.

Effective 1 January 2021, new penalty provisions were introduced in the ITA for late submission of transfer pricing documentation. Under the new section 113(B) of the ITA, failure to furnish contemporaneous transfer pricing documentation shall be tantamount to an offence with the following consequences:

  • a fine of MYR 20,000 up to MYR 100,000; or
  • upon conviction, a fine of MYR 20,000 up to MYR 100,000 or imprisonment for a term not exceeding 6 months, or both. The court may direct a convicted taxpayer to comply with the relevant provisions of the Act within 30 days or any such period as deemed fit by the court

In cases where transfer pricing documentation is not submitted within 30 days or 14 days of the request, fine of MYR 20,000 to MYR 100,000 will be applicable.

Malaysia issued the Income Tax (Country-by-Country Reporting) (CbC) Rules on 23 December 2016 which came into effect on 1 January 2017. The CbC Rules were amended in 2017 and are in line with OECD’s recommendations contained in BEPS Action 13. They also published Countryby-Country Reporting Guidelines on 1 November 2018.

The CbC reporting Rules 2017 apply to MNEs where the ultimate holding company is incorporated and resident in Malaysia. Additionally, the following conditions need to be met:

  • the MNE group has a total consolidated group revenue of MYR 3 billion in the financial year preceding the reporting financial year;
  • the MNE group carries out cross-border transactions with constituent entities owned or controlled by the MNE group in other tax jurisdictions; and
  • the constituent entities are incorporated or registered, and resident in Malaysia or any other jurisdiction.

The reports can be filed in English or Bahasa Malaysia. The CbC report must be filed no later than 12 months after the end of the financial year.

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For further information on transfer pricing please contact:

Gyan Prakash Srivastava [MBA, LL.B.]

Leader - South Asia Practice
17+ years experience in Global Transfer Pricing Documentation, Litigation, BEPS compliance & advisory. During his tenure with PwC & Deloitte he has worked for marquee clients. Gyan specializes in assisting clients in developing cross border business models based on on-ground commercial facts and legal issues.
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