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.
The arm’s length principle is the international standard to determine transfer price and is applicable to all Malaysian taxpayers that entered into a controlled transaction. In Malaysia, taxpayers are required to prepare and maintain contemporaneous transfer pricing documentation annually to prove compliance with the arm’s length principle.
The Malaysian Finance Bill 2020 incorporates transfer pricing-related changes to the current Income Tax Act, 1967 (“ITA”). The changes permit significantly greater authority to the Malaysia Inland Revenue Board (“MIRB”) and re-emphasises the importance of transfer pricing compliance, with effect from 1 January 2021.
Singapore introduced compulsory transfer pricing documentation effective from the year of assessment (YA) 2019. A new penalty regime was also included for non-compliance with the TP documentation requirements.
