The transfer pricing landscape in Malaysia continues to develop with the Malaysian tax authority becoming increasingly proactive and vigilant in examining the controlled transactions of multinational enterprises (MNEs). The intensity of tax audits has increased in recent years and the Malaysian tax authority has successfully challenged the transfer pricing practices of taxpayers.

Malaysia’s Transfer Pricing Rules (TPG 2012) specify the responsibilities of taxpayers regarding TP compliance and also highlight the need to prepare contemporaneous TP documentation to prove that transactions with associated persons are at arm’s length. The TPG 2012 sets out thresholds to ease the compliance burden of taxpayers with low levels of controlled transactions and allow them to opt to prepare limited scope TP documentation.

The Malaysian tax authority MIRB has introduced a form – Form MNE [1/2012] – to collect certain information from selected taxpayers relating to their cross-border transactions. The form is modified for local related party transactions – Form JCK. The data collected through this form is designed to enable the MIRB to assess  the transfer pricing risk and allocate its resources efficiently in its transfer pricing audits. It is likely that those taxpayers that are considered high risk by the MIRB will be prioritized for a transfer pricing audit. It would not be unreasonable to expect that multinational companies with significant related party transactions and local groups with operations overseas would be targeted.

Other than targeting taxpayers through the Form MNE/JCK, the routine request for information for MIRB’s desk audit is also carried out. In recent months, it has been noticed a significant increase in the number of taxpayers who are targeted for desk audits.