Worldwide transfer pricing reference guide 2014

Malaysia (continued)
Frequency of tax audit and transfer pricing scrutiny by the tax authority (continued)
• Information on cross border intercompany transactions such as:
• Sales/purchases of stock-in-trade/raw materials/other tangible assets
• Royalties/license fees and other payments on use of intangible assets
• Management fees including fees/charges for financial, administrative, marketing and training services
• Research and development
• Rent/lease of assets
• Interest
• Guarantee fees
• Other services not falling under any of the above categories
• Particulars of financial assistance (showing balances during the year and the ending balance) with related companies outside Malaysia
such as:
• Interest bearing loans
• Interest bearing trade credit
• Interest free loans
• Description of the taxpayer’s business activity:
• Manufacturing [Toll/Contract/Full Fledged]
• Distributor [Commissionaire/Limited Risk/Full Fledged]
• Service provider
• Others (taxpayer to specify)
• The taxpayers are required to specify the industry in which they operate and the associated industry code
• The taxpayers are also required to confirm if they have prepared transfer pricing documentation for the relevant year
The issuance of the Form MNE 2012 is an indication of the IRB’s increasing attention to transfer pricing. The purpose of the form is to
assess taxpayers’ risk profiles, as well as their level of compliance with the transfer pricing provisions. The form will initially be issued
to selected corporate taxpayers to gather information for the basis period for the year of assessment 2009 and taxpayers will be given
30 days to complete and return the Form to the IRB. In future, it is expected that the form will be issued to selected corporate taxpayers
subsequent to the filing of their annual income tax returns.
Frequency of tax audit and transfer pricing scrutiny by the tax authority
Tax audits, including transfer pricing audits, are normally conducted to cover a period of three to six years. As such, the likelihood of a
taxpayer being subjected to an annual audit could be characterized as medium.
For companies with related party transactions, the likelihood that transfer pricing will be reviewed is characterized as high; every
multinational corporation that was audited over the last 12 months had its transfer pricing policy scrutinized.
As mentioned above, the IRB has indicated via the transfer pricing rules and guidelines 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. Accordingly, if a profits-based method is applied without substantiation, the risk of the methodology being
challenged is high.
APA opportunity
The introduction of §138C ITA effectively formalizes the availability of unilateral and bilateral APAs in Malaysia. Additionally, formal APA
rules and guidelines in relation to APAs have been issued and a specific unit in the IRB to oversee the APA applications and negotiations
has been established.
Expected reaction to OECD Report on BEPS
There has not been any reaction from the tax authorities up until January 2014.
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