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Transfer pricing generally refers to inter-company pricing arrangements for the transfer of goods, services and intangibles between ‘associated persons’. Transfer pricing laws and guidelines ensure fairness of the transactions by enforcing the arm’s length rule. Simply put, taxpayers are required to demonstrate that the related party transactions are carried out in an arms-length manner i.e. comparable to third party transactions.
Transfer pricing is an area that is a major concern for Multinational Enterprises (MNEs) due to the different approaches, ambiguity and practical difficulties in applying the transfer pricing methodologies. A significant volume of global trade consists of international transfer of goods and services e.g. capital (such as money) and intangible (such as intellectual property) within an MNE Group. Transactions involving intangibles and multitiered services constitute a rapidly growing proportion of an MNE’s commercial transactions and have greatly increased the complexities in analyzing and understanding such transactions.
Any person that who enters into a controlled transaction is required to prepare contemporaneous TP documentation which is to be submitted to the tax authorities within 14 days upon request by the Malaysian Inland revenue Board (MIRB). Effective from 1 January 2021, taxpayers that fail to submit the contemporaneous TP documentation within 14 days upon request by the MIRB can be fined between RM20,000 and RM100,000 and / or to imprisonment for a term not exceeding 6 months. Practically all tax payers that have related party transactions need to take heed of this new penalty.
Based on the existing transfer pricing guidelines, taxpayers with gross income exceeding RM25 million where their related party transactions exceed RM15 million are required to prepare complete and detailed transfer pricing documentation. It however does not mean that taxpayers that do not reach the above threshold are not required to prepare the TP documentation as the guidelines require the preparation of a simplified version. It therefore affects all taxpayers that have related party transactions.
The practical issues and a detailed discussion on the TP Documentation requirements will be carried out by the speaker during the seminar.