Transfer Pricing


Transfer Pricing Improvements

The Inland Revenue Board of Malaysia (IRBM) has taken a significant move to improve transfer pricing compliance by introducing new penalty provisions, whereby taxpayers involved in related party transactions must prepare either full or partial transfer pricing documentation, depending on whether the taxpayer has reached the threshold. Failing to prepare the transfer pricing documentation will incur a penalty of RM 20,000 to RM 100,000 imposed by the IRBM.

With effect from year of assessment 2014, the IRBM formally introduced an additional question asking corporate taxpayers to indicate if they had prepared transfer pricing documentation by way of a “Yes or No.” in the Corporate Income Tax Return Form (Form C). With this additional disclosure, taxpayers would be required to prepare and maintain contemporaneous transfer pricing documentation as an annual tax compliance requirement prior to filing an annual income tax return.

Transactions between related companies include:

  • sales to related companies;
  • purchases from related companies;
  • other payments to related companies;
  • loans to/from related companies; and
  • receipts from related companies.

Referring to the Income Tax (Transfer Pricing) Rules 2012 and Transfer Pricing Guidelines 2012, a person who undertakes related party transactions domestically and across borders should prepare contemporaneous transfer pricing documentation.

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