Malaysia: Income Tax (Transfer Pricing) Rules 2023

A person who enters into a controlled transaction shall prepare a contemporaneous transfer pricing documentation which is brought into existence prior to the due date for furnishing a return in the basis period for a year of assessment in which a controlled transaction is entered into.

The contemporaneous transfer pricing documentation shall contain:

·         information of the Multinational Enterprise Group

·         information regarding the person’s business

·         information and documents regarding a cost contribution arrangement

·         index to documents prepared under this rule

·         the date on which the contemporaneous transfer pricing documentation is completed

·         any documents which

-          become the foundation for the development of the transfer pricing analysis

-          support the development of the transfer pricing analysis

-          were referred to in the development of the transfer pricing analysis

-          any information, data or other related documents used by the person entering into the controlled transaction to determine an arm’s length price, including the effect of the material changes to the business conditions during the basis period

A person shall determine the arm's length price for a controlled transaction by applying the most appropriate method as follows:

·         the traditional transactional method

-          comparable uncontrolled price method

-          resale price method

-          cost plus method

·         the transactional profit method

-          profit split method

-          transactional net margin method

·         any other method allowed which provides the highest degree of comparability between the transactions

The person shall ensure the basis for the method selected be supported by an explanation and reasons that the method selected and the profit level indicator are appropriate as a better approximation to determine the arm’s length price and be based on the facts and circumstances, including the economically relevant characteristics of the controlled transaction which has been accurately delineated.

Where the Director General of Inland Revenue Board of Malaysia (DG) has reason to believe that any price including the rate of interest imposed or would have been imposed in a controlled transaction is not at arm’s length, the DG may make an adjustment to reflect the arm’s length price or arm's length interest rate for that transaction by substituting or imputing the price or interest, as the case may be.

Where the price at which a controlled transaction entered by a person is within the arm’s length range, such price may be regarded to be the arm's length price. The DG may adjust the price of the controlled transaction to the median or any other point above median within the arm’s length range where the uncontrolled transaction is the kind which has a lesser degree of comparability; or where any of the comparability defects cannot be quantified, identified, or adjusted.

Where the price at which a controlled transaction entered by a person is outside the arm's length range, the arm's length price shall be taken to be the median.

The DG may impose surcharge of not more than 5% of the amount of increase of any income generally, or reduction of any deduction or loss, as the case may be, as a consequence of exercising his powers to substitute the price in respect of a transaction or to disregard any structure adopted by a person entering into a transaction.

The Income Tax (Transfer Pricing) Rules 2012 are revoked

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Reference/Citation‍

Official Portal of Inland RevenueBoard of Malaysia www.hasil.gov.my