Evolving transfer pricing documentation requirements – Best practices for Malaysian taxpayers

Malaysia’s transfer pricing landscape has seen significant changes over the last decade. Beginning with the introduction of Section 140A of the Income Tax Act, 1967 (ITA) in 2009 to the most recent 2023 Rules released in 2023, transfer pricing is riding on the crest of the tax wave. The imposition of a fine of between RM20,000-RM100,000 and/or imprisonment of not more than 6 months (Section 113B) as well as a surcharge of up to 5% (Section 140A (3C)) effective 1.1.2021 are further evidences of increasing scrutiny by the Inland Revenue Board (IRB) to ensure strict adherence to contemporaneous documentation on arm’s length pricing.

Undoubtedly, the changing tax landscape will bring about both challenges and opportunities. Nevertheless, the cardinal rule for all taxpayers is to avoid significant penalties. Following the release of the 2023 Rules whereby reports must be dated upon completion to ensure being contemporaneous, the following challenges, amongst others, will be faced by taxpayers viz:- Adherence to stipulated timeline Need for appropriate resources Ignorance of potential penalties

For 2023 onwards, it is of crucial importance for taxpayers to be aware of the timeline in preparing the contemporaneous documentation. Taxpayers are required to ensure documentation is completed on time.

Recently the IRB released the ‘Frequently Asked Questions’ (FAQ) in an effort to respond to taxpayers’ queries. The answers to these questions provided more clarity on documentation issues, amongst which are:- Highlighting the importance of ensuring contemporaneous documentation Usage of local versus foreign (i.e. pan-asian) benchmarking study

Through these efforts, it is hoped that taxpayers will now understand the rationale behind IRB’s actions. Pending the release of the updated/new Transfer Pricing Guidelines and Transfer Pricing Audit Framework, taxpayers should continue their best practices of ensuring arm’s length transactions. To those taxpayers who have not given due attention to transfer pricing, may we suggest that you relook into your existing related party transactions to ensure the arm’s length nature of the transactions and that the documentation is in order. If you deem necessary to seek external support, the transfer pricing team in RSM Tax Consultants (Malaysia) Sdn Bhd is ever ready to provide you the support.