The Inland Revenue Board of Malaysia (IRBM) had recently announced new updates and changes to the Transfer Pricing Guidelines 2012 (“TPG 2012”). The Malaysian Transfer Pricing Guidelines explain the provision of Section 140A in the Income Tax Act 1967 and the Transfer Pricing Rules 2012. They govern the standard and rules based on the arm’s length principle to be applied on transactions between associated persons.
Currently, the Guidelines are being updated to reinforce the existing standard and reformatted on the website. The Guidelines will then be updated over time as required. The updated version of the TPG 2012 (“UTPG 2012”) has introduced changes to the following chapters:
- Chapter II – The Arm’s Length Principle (updated)
- Chapter VIII – Intangibles (updated)
- Chapter X – Commodity Transactions (new)
- Chapter XI – Documentation (updated)
Under the new guidelines, taxpayers entering into controlled transactions involving intangibles must now consider the performance of development, enhancement, maintenance, protection and exploitation (DEMPE) functions in allocating profits according to the guidance provided by the IRB. The Transfer Pricing Documentation is not required to be submitted with the annual Return Forms. However, the documentation should be made available within 30 days upon request by the IRBM.
Under the new guidelines, companies required to submit a CbC report under the Income Tax (Country-by-Country Reporting) Rules 2016 must also file a master file upon request including an organizational structure, the description of the business and industry conditions, pricing policies, application of transfer pricing method and financial information.
A penalty of 35% will be imposed if taxpayers do not prepare contemporaneous transfer pricing documentation. 25% will be imposed for failure to prepare pricing documentation in accordance with the requirements of the Guidelines. The penalty rate will increase by 20% as compared to the last penalty rate imposed for the previous offence but limited to a sum not exceeding 100% of the amount of tax undercharged, where the taxpayer obstructs or interferes with a transfer pricing audit; or the taxpayer fails to comply with the arm’s length principle after previous transfer pricing audits.
