Transfer pricing

With the increasing collaboration amongst tax authorities across borders and intensified transfer pricing audit activities by the local tax authority, business organisations are now subject to higher transfer pricing risk and scrutiny. In the Malaysia context, companies are now required to make declaration in the annual tax return whether transfer pricing documentation has been prepared according to the requirement in the Transfer Pricing Guidelines and Transfer Pricing Rules in Malaysia. More often than not, a transfer pricing audit on an unprepared taxpayer will result in transfer pricing adjustments which give rise to additional tax liability and penalty being imposed.

Further, Malaysia has also introduced the Country-by-Country Reporting ["CbCR"] rules which took effect from 1st January 2017, as part of the three-tiered approach to transfer pricing documentation to enhance the transparency for tax administration purposes. The three-tiered standardised approach to transfer pricing documentations is represented by Master File, Local File and CbCR.

In addition, Malaysia has also introduced the Earning Stripping Rules ["ESR"] which take effect for the basis period beginning on or after 1st July 2019. Under the ESR, interest deductions on loans provided by foreign related parties are limited to 20% of the company's Earnings Before Interest, Tax, Depreciation and Amortisation ["EBITDA"] if the total interest expense for a year of assessment in respect of the foreign related party loan exceeds RM500,000.

Generally, in the event of a transfer pricing audit by the tax authorities, they would require transfer pricing documentation detailing the transfer pricing methodologies adopted and the documentary proof to support the transfer pricing policies to be made available to them for review. In practice, the transfer pricing documentation would normally serve as the first line of defence in the event of a transfer pricing audit.

As consultants, we can reduce your exposure to the often-conflicting regimes that affect how much one should charge in cross-border, related-party sales of goods, services, financial assistance and intellectual property. We stand ready to assist and advise on transfer pricing issues and also help you to comply with the Malaysian transfer pricing rules and regulations.

Our transfer pricing services include:

  • Undertaking a transfer pricing study to determine whether the transfer prices in the related party transactions meet the arm's length standard for Malaysian transfer pricing purposes
  • Benchmarking exercise
  • Representing our clients to defend their transfer pricing policy and the financial result of a related party transaction in the event of a transfer pricing audit
  • Assisting our clients to comply with the CbCR rules
  • International tax planning through effective transfer pricing techniques