Worldwide transfer pricing reference guide 2014

Malaysia
Taxing authority and tax law
Taxing authority: Inland Revenue Board (IRB).
Tax laws: Income Tax Act, 1967 (ITA).
Relevant regulations and rulings
Transfer Pricing Provision
• Section 140A ITA: Power to substitute the price and disallowance of interest on certain transactions
• Section 138C ITA: Advance Pricing Arrangement
• Income Tax (Transfer Pricing) Rules 2012 (P.U. [A] 132)
• Income Tax (Advanced Pricing Arrangement) Rules 2012 (P.U. [A] 133)
General Anti-Avoidance Provision
• Section 140 ITA: Power to disregard certain transactions if not deemed arm’s length
Transactions by Non-residents
• Section 141 ITA: Powers regarding certain transactions by non-residents
The transfer pricing and APA rules were issued in May 2012, but have a retroactive effective date of 1 January 2009. The transfer
pricing rules make it mandatory for taxpayers to prepare contemporaneous transfer pricing documentation for their related party
transactions.
The APA rules set out the legal provisions pertaining to the application for unilateral and bilateral APAs in Malaysia.
The IRB released the 2012 Malaysian transfer pricing guidelines in July 2012 superseding the original Malaysian transfer pricing
guidelines issued in 2003.The transfer pricing guidelines set out further guidance in relation to the application of the transfer pricing
legislation in Malaysia (i.e., Section 140A and the transfer pricing rules).
In addition, the IRB issued the Malaysian APA guidelines in July 2012 to provide guidance on the application for APAs in Malaysia.
OECD guidelines treatment
The 2012 Malaysian transfer pricing guidelines are largely based on the governing standard for transfer pricing, which is the arm’s length
principle as established in the OECD Guidelines. The IRB respects the general principles of the OECD Guidelines.
Priorities/pricing methods
The IRB accepts CUP, Resale Price, Cost Plus, Profit Split and TNMM. However, the Malaysian transfer pricing rules state that the
traditional methods are preferred over the profit methods and advise that the profit methods should only be used when the traditional
methods cannot be reliably applied or cannot be applied at all.
Transfer pricing penalties
There are no specific penalties for transfer pricing. However, the existing legislation and penalty structure under Section 113(2) Penalty
for incorrect return, incorrect information of the ITA is applied under which penalties can range from 100% to 300% of the
undercharged tax.
There are no specific transfer pricing documentation penalties in the legislation. However, the guidelines stipulate penalties of 35% on
the balance of tax undercharged where no transfer pricing documentation is prepared, 25% where documentation is not prepared in
accordance with the guidelines and no penalties apply where a contemporaneous transfer pricing documentation is prepared.
Penalty relief
An appeal for reduction in penalties can be made based on quality of the contemporaneous transfer pricing documentation.
Worldwide transfer pricing reference guide
185