Transfer pricing in Malaysia at a glance
|Regulation Type||National regulations based on OECD Guidelines|
|Are there specific transfer pricing regulations?||Yes|
|Submission deadline upon request||30 days|
|Annual update required||No|
|Official language requirements||Malay, English|
|Potential impact of penalties||35% of the adjustment|
Malaysian tax law
Rules for transfer pricing in Malaysia are based upon:
- Transfer Pricing Provision sections 140A and 138 C
- Income Tax (Transfer Pricing) Rules 2012 (P.U. [A] 132)
- Income Tax (Advanced Pricing Arrangement) Rules 2012 (P.U. [A] 133)
The Malaysian transfer pricing regulations are largely based on the OECD Transfer Pricing Guidelines. Therefore, the OECD guidelines are generally followed.
Accepted methods are:
- The comparable uncontrolled price method
- The resale price method
- The cost plus method
- The transactional net margin method
- The profit split method
Priority of methods
Rules for transfer pricing in Malaysia prescribe that the traditional methods are preferred of the transactional methods. Only when the traditional methods can’t be applied, the transactional methods may be used.
Information that should be included in the documentation:
- Organizational structure including an organization chart covering persons involved in a controlled transaction
- Nature of the business or industry and market conditions
- The controlled transaction
- Strategies, assumptions and information regarding factors that influenced the setting of any pricing policies
- Comparability, functional and risk analysis
- Selection of the transfer pricing method
- Application of the transfer pricing method
- Documents that provide the foundation for or otherwise support or were referred to in developing the transfer pricing analysis
- Index to documents
- Any other information, data or document considered relevant by the person to determine an arm’s length price
Rules for transfer pricing in Malaysia prescribe that the documentation should be either in Malay or English.
Requirements to prepare documentation annually
Rules for transfer pricing in Malaysia do not prescribe that documentation should be updated annually. However, documentation should be prepared contemporaneously.
Submission deadline upon request by tax authorities
Upon request of the Malaysian tax authorities, a taxpayer has 30 days to submit the required documentation.
Advance Pricing Agreements
Rules for transfer pricing in Malaysia make it possible to obtain for Advance Pricing Agreements (APA).
An APA can be agreed upon for a period in between three and five years. The APA may be renewed for an additional period as agreed upon by the parties concluding the APA, subject to the fulfillment of all requisite criteria and conditions.
Rules for transfer pricing in Malaysia provide for the following potential penalties for non compliance with the Malaysian transfer pricing regulations:
- For non-existent contemporaneous transfer pricing documentation a 35 percent penalty applies
- For transfer pricing documentation not prepared in accordance with the requirements stipulated in the transfer pricing guidelines a 25 percent penalty applies
- For taxpayers exempt from the obligation to prepare contemporaneous transfer pricing documentation, in the event related-party transactions are not executed at arm’s length, a penalty of 25 percent applies
The penalty rate will be increased by 20 percent compared to the last penalty rate imposed for a previous offense, but limited to a sum not exceeding 100 percent of the amount of tax undercharged when the taxpayer obstructs or interferes with a transfer pricing audit or fails to comply with the arm’s length principle subsequent to undergoing transfer pricing audits in the past.