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Did you know that Malaysia increased penalties for taxpayers that do not prepare Transfer Pricing Documentation?
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:
- Year of assessment: The years of assessment to be covered will be limited to up to 7 years of assessment. However, this does not extend to cover audit cases that involve fraud, willful default, and negligence.
- Deadline: In a transfer pricing audit, taxpayers are given 14 days to respond to the IRB request for documentation and information, as compared to 21 days as stated in the 2015 TP Audit framework. If the taxpayer does not respond by the deadline, the IRB may proceed with the audit. It will be difficult to be readily available given such a short period deadline. Hence, TP documentation and supporting documents should be properly maintained and updated in advance.
- Presentation of slides: Taxpayers are required to prepare presentation slides in relation to, among other items, business operations and functional analysis. The slides must be submitted to the IRB at least 7 days before the audit visit.
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Submission of documentation and information: Taxpayers are given 14 days to respond to the IRB’s request
for documentation and information. Previously, the taxpayers are given 21 days to respond to the request.
- Days to object: Taxpayers are given 18 days to object to the IRB’s proposed transfer pricing adjustments as compared to the 2013 TP Framework of 21 days.
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.
Questions?
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.
Malaysia
+ 603 2298 7153
services@transferpricingsolutions.my
