A new check-the-box named “Box R4” has been inserted on the 2014 tax return form (Form C) of Malaysia to declare by the corporate taxpayer for the confirmation that the preparation of contemporaneous transfer pricing documentation is complied in accordance with the requirement. It is a small development with significant consequences.

It is the requirement of the Income Tax (Transfer Pricing) Rules 2012 of Malaysia and Transfer Pricing Guidelines 2012 to prepare “contemporaneous” transfer pricing documentation for the persons those who enters into a related party transaction. In other words, if a controlled transaction exists in any year, the transfer pricing documentation needs to be prepared.

The meaning of Contemporaneous transfer pricing documentation is to bring into existence the documentation at the time of developing or implementing any controlled transactions by any person and to update the documentation prior to the due date for furnishing the return for the basis period of a particular year of assessment.

The new check-the-box requirement in the 2014 tax return form is for a company with 31 December 2014 year-end which would be due for submission on 31 July 2015. If the contemporaneous transfer pricing documentation is prepared by the company then it needs to enter ‘X’ in the box for ‘Yes’ and if not or is not relevant is require to enter ‘X’ in the box for ‘No’.

If the answer is “Yes” then such documentation must be available for submission to the Inland Revenue Board (“IRB”) normally within 30 days of a request. Any “No” response will be treated as a “red flag” by the IRB, with the result that the chances of a transfer pricing audit will be increased significantly.

If a taxpayer with related party transactions answers “Yes”, that it does have contemporaneous transfer pricing documentation, such documentation must be available for submission to the Inland Revenue Board (“IRB”) normally within 30 days of a request. Any transfer pricing documentation prepared in a rush to meet this deadline would not be “contemporaneous”, so it will be clear to the IRB that the taxpayer will have made a false statement on the Form C.

So, the risks of transfer pricing audit and adjustments in Malaysia have been increased significantly as a result of this additional disclosure requirement though small but significant.