On 29 May 2023, the Malaysian Inland Revenue Board of Revenue (IRBM) officially published Order No P.U. (A) 165 (TP Rules 2023) introducing a new transfer pricing documentation process effective from assessment year 2023 onwards.

The main changes introduced under the TP Rules 2023 are summarized below:

• The Inland Revenue Board (IRB) currently accepts documentation as ‘contemporaneous’ if it is submitted within 14 days of a written request. This additional stipulation strengthens the need for taxpayers to prepare contemporaneous documentation when filing their tax returns. Failure to do so may result in penalties ranging from RM20,000 to RM100,000 per year of assessment (YA).
• The new TP Rules revised the definition of contemporaneous transfer pricing documentation and removed the previous definition, which includes documentation prepared at the time the transaction is developed or implemented. This clarifies that documentation should be prepared and updated annually prior to filing the tax return.
• The TP Rules 2023 have integrated the comprehensive documentation requirements previously outlined in the Malaysian Transfer Pricing Guidelines. The revised requirements expand the documentation scope to include content that was previously limited to the master file alone. This represents a significant increase in documentation obligations for Malaysian taxpayers due to the following reasons: (i) the master file requirements, which previously applied solely to MNE Groups with consolidated revenues of EUR750 million / RM3 billion (whichever threshold is applicable), now extend to all taxpayers surpassing the thresholds for full scope documentation; (ii) information that may not have been readily available to the Malaysian taxpayer must now be obtained and documented before filing the tax return for the relevant basis period.
• The TP Rules 2023 introduce the best method approach from the OECD Guidelines as a replacement for the hierarchy of methods. Additionally, taxpayers are now obligated to provide an explanation and justification for their choice of method and profit level indicator if using the TNMM. In cases where there is a belief that the selected method is not the most appropriate, the Director General (“DG”) has the authority to substitute it with the most suitable method.
• The arm’s length range is described as a range or single figure within the 37.5 percentile to 62.5 percentile of the dataset. Taxpayers are advised to reassess their current transfer pricing policies to ensure that their transfer prices align with Malaysian standards, considering that the range used is narrower compared to the interquartile range commonly used in other jurisdictions.
• Under the TP Rules 2023, it is permissible to consider previous year data to assess the influence of business cycles or life cycles when selecting comparables. However, it remains mandatory to compare the taxpayer’s results with the results of the chosen comparables for the same basis year.