Malaysian TP Guidelines specify that taxpayers are required to prepare contemporaneous transfer pricing documentation to support the arm's length nature of their related party transactions, in English or Malay languages and must be provided to IRBM within 14 days of a request.

While transfer pricing documentation prepared overseas can be used as a reference or a supporting documentation, in our experience, majority of the documentation prepared overseas do not meet the transfer pricing requirements in Malaysia.

Usage of local comparables is preferred by Malaysia tax authority.  as the economic conditions of local comparables closely align with the economic conditions of a local tested party.

The TP Guidelines recognize that in certain cases, where there are no suitable local comparables, foreign comparables may be used to determine the arm's length price of related party transactions in Malaysia. However foreign comparable companies for transfer pricing purposes are subject to certain conditions and requirements.

The TP Guidelines specify that the foreign comparables should be selected based on similarity with the tested party in terms of industry, product or service, functions performed, risks assumed, and economic conditions.

The comparability analysis should take into consideration any differences between the tested party and the foreign comparables that may affect the prices or profit margins, and appropriate adjustments should be made to eliminate such differences. It is also important to ensure that foreign comparables are appropriate and reliable for making transfer pricing adjustments.

It's important to note that the use of foreign comparables for transfer pricing in Malaysia is subject to scrutiny by the IRBM during a transfer pricing audit or review.

The Malaysian TP guideline has not referenced any safe harbour provisions or indicative price/margins to be earned by the taxpayer. All types of related party transaction will be required to be supported by the most appropriate method to ensure that the related party transaction comply with the arm’s length principle.

In general, the transfer pricing documentation requirements contained in the TP Guidelines are applicable to all related party transactions regardless of their cross-border nature. However, local related party transactions can be excluded for documentation purposes in certain circumstances, such as: when both local related parties are chargeable to tax at the same rate or when the effect of the related party transaction would not result in transfer pricing adjustments that will alter the total tax payable. In other words, in an event of a transfer pricing adjustments by the IRBM, one related party company will end up paying additional tax while the other will received tax credit and the overall tax payable position will result in a tax-neutral position (i.e. no loss of tax revenue for the Government).