On 15 December 2019, the Malaysian Inland Revenue Board (“IRB”) issued the updated Tax Audit Frameworks including Transfer Pricing (“TP”) Audit Framework 2019. The updated tax audit frameworks take effect from 15 December 2019.
The 2019 TP Audit Framework introduced several key changes that can impact taxpayers and increase the total value of a transfer pricing adjustment significantly.
The most relevant change relates to the penalty surcharge for taxpayers that do not prepare transfer pricing documentation. If a taxpayer doesn’t prepare transfer pricing documentation and is subject to an audit, the tax authority will impose a penalty of 50% increase on the total transfer pricing adjustment.
For example, a taxpayer is subject to audit and the total value of a transfer pricing adjustment is RM1 million. The adjustment can be increased by 50% (i.e. 500k) if the taxpayer does not have transfer pricing documentation increasing the total adjustment to RM1.5 million.
The different penalty rates introduced by 2019 TP Audit Framework are summarised in the table below.
Other changes in the 2019 TP Audit Framework include:
Be proactive, and manage your transfer pricing compliance and risks since the beginning to avoid future headaches and high penalties. Transfer Pricing Solutions Malaysia can help with practical and cost-effective solutions for Malaysian companies to prepare Transfer Pricing documentation.
Contact Transfer Pricing Solutions Malaysia. We can assist with the preparation of transfer pricing documentation locally and regionally, Master File and Local File to comply with the OECD and also local legislation.
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An interactive and informative webinar ideal for CFOs, tax managers and finance managers with multinational or domestic companies Malaysia to better understand the implications of Covid-19 based on OECD guidelines.
With the new transfer pricing changes in Malaysia and the new transfer pricing documentation standard, a benchmarking analysis that is reliable and defendable, is key when preparing transfer pricing documentation. For this reason, we have compiled key tips that in our experience will help you getting a benchmarking analysis right.
The Inland Revenue Board of Malaysia (“IRBM”) adopts the arm’s length principle as a basis to determine the transfer price of a transaction between associated entities. Arm’s length price is the price which would have been determined if such transactions were entered between independent entities under the same or similar circumstances.