Update on Transfer Pricing Documentation Requirements

INTRODUCTION

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. Another amendment to the TP rules that is effective from 1 January 2021 allows the MIRB to impose a surcharge of 5% on companies that are loss making or enjoying tax incentives if it is found that the related party transactions are not conducted at arms-length. This means that even if the transfer pricing adjustment does not result in additional tax payable, the surcharge of up to 5% may still be imposed on the amount of increase of any income or reduction of any deduction or loss arising from the TP adjustment. The practical issues and a detailed discussion on the TP Documentation requirements will be carried out by the speaker during the seminar.

COURSE OUTLINE

• To highlight the Malaysian TP Rules and Guidelines
• The concept of arm’s length
• The transfer pricing methodologies
• Malaysian TP Documentation requirements
• A detailed discussion of the Functional Analysis
• Comparability analysis, factors affecting comparability and the elimination matrix
• Managing the TP Function in a MNE
• Transfer Pricing audits and practical issues to consider
• Base Erosion and Profit Shifting developments
• Case Studies

PROFILE(s)

Harvindar Singh is a Fellow of Chartered Association of Certified Accountants and is a member of the Malaysian Institute of Accountants (MIA) as well as the Chartered Tax Institute of Malaysia (CTIM). Harvindar was attached to the firms of PWC and E&Y as a tax consultant and is currently the Managing Partner of Harvey & Associates, a boutique firm that specialises in taxation consulting services as well as the Tax Partner in SCS Global Consulting (M) Sdn Bhd. Harvindar has more than 28 years of extensive experience in taxation advisory, transfer pricing documentation preparation, tax planning as well as tax audits and investigations and he serves as a Tax Specialist to numerous corporate entities such as SK International (M) Sdn Bhd and other MNEs and organisations. He is currently serving as the Chairman of the Editorial Board of the
Budget Commentary and Tax Information Booklet which is produced jointly by MIA, CTIM and MICPA. Mr Harvindar is a Council Member of CTIM.