Transfer pricing refers to the pricing of transactions between associated entities, such as the acquisition or supply of property or services. Ideally, the transfer price should align with the market price that would apply in transactions between independent entities. However, transactions between related parties may not always reflect market dynamics.
The Malaysia Transfer Pricing Guidelines are based on the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TPGL), with some references to the UN Practical Manual on Transfer Pricing for Developing Countries. While the Guidelines adopt many principles from the OECD and UN documents, they may differ to comply with Malaysia’s domestic laws, the Income Tax Act (“ITA”), and procedures set by the Inland Revenue Board of Malaysia.
It is essential to note that the primary legal obligations are outlined in the ITA, Rules, and the ITA, and taxpayers must adhere to these requirements. While influenced by international standards, the Guidelines are adapted to Malaysia’s legal framework and IRBM procedures. The arm’s length principle remains the core guideline, and real cases must be examined based on their specific facts and circumstances before applying any methods described in the Guidelines.
Malaysia Transfer Pricing Guidelines 2024 has been published that serves as guidance for taxpayers to prepare the contemporaneous transfer pricing documentation (“CTPD’) effective from the year of assessment 2023. A new Transfer Pricing Tax Audit Framework 2024 has been released to replace the Transfer Pricing Audit Framework 2019. This new framework is to cater to the imposition of surcharges on TP adjustments and penalty subsection 113B that can be imposed for failure to furnish a CTPD within 14 days from the date the notice is served.
The following is a summary of the scope and application for the preparation of a CTPD:
