Latest Transfer Pricing Updates That Cannot Be Ignored!
Income Tax (Transfer Pricing) Rules 2023
The highly anticipated Income Tax (Transfer Pricing) Rules 2023 (“TP Rules 2023”) have finally been gazetted on 29 May 2023. The TP Rules 2023 have effect for the Year of Assessment (“YA”) 2023 and subsequent YAs. The TP Rules 2023 will significantly enhance and strengthen the Malaysia Inland Revenue Board (“MIRB”)’s position on transfer pricing (“TP”) enforcement. The salient features of the TP Rules 2023 are outlined below:
- The arm’s length range is now defined as a range of figures or a single figure falling between the value of 37.5 percentile to 62.5 percentile of the benchmarking data set, where acceptable by the MIRB. If the price of the controlled transaction is:
- within the arm’s length range, such price may be regarded to be the arm’s length price. However, the MIRB may still adjust the price of the controlled transaction to the median or any other point above median (within the arm’s length range) where:
a) the comparable data is the kind which has a lesser degree of comparability; or
b) there are comparability defects which cannot be quantified, identified, or adjusted.
- outside the arm’s length range, the arm’s length price shall be taken to be the median.
- To be contemporaneous, the TP documentation (“TPD”) has to be completed prior to the due date for furnishing a tax return for that YA. Therefore, the TPD needs to be dated to indicate the completion date in order to meet the contemporaneous requirement. A good quality contemporaneous TPD is important where the taxpayer wishes to appeal for a lower surcharge in the event of a TP adjustment made during a tax audit.
- In addition, the TP Rules 2023 has also expanded on the list of information that needs to be included in the contemporaneous TPD. This includes extensive information on the multinational enterprise group where this information is typically part of the group’s Master File. For full details, please refer to the attached TP Rules 2023. The contemporaneous TPD needs to be submitted within 14 days upon request by the MIRB.
- For intangible property (“IP”), the TP Rules 2023 make it clear that the owner of the IP who does not perform the functions nor control the functions or risks related to the development, enhancement, maintenance, protection and exploitation (“DEMPE”) of the IP, shall not be entitled to any income attributable to the IP. The MIRB requires taxpayers to include in its contemporaneous TPD details of the IP used, the group’s strategy for the development, ownership and exploitation of the IP, locations of the research and development facilities and more.
- It is also noted that the provision to allow taxpayer to request for offsetting adjustments has been removed in the TP Rules 2023.
The TP Rules 2023 is a reminder to taxpayers that the MIRB places great emphasis on TP compliance. It is very important for taxpayers to continue to enhance the quality of their documentation and maintain relevant records for tax audit purposes. Coming soon, we are expecting the MIRB to release the 2023 TP Guidelines.
Income Tax (Advance Pricing Arrangement) Rules 2023
The Income Tax (Advance Pricing Arrangement) Rules 2023 (“APA Rules 2023”) also have been gazetted on the same day. The salient points of the APA Rules 2023 are as follows:
A taxpayer who carries on a cross-border transaction may apply for an advance pricing arrangement (“APA”) in relation to a covered transaction for specific terms and conditions:
- from a country having a double tax arrangement (“DTA”) - may only apply for a bilateral APA (“BAPA”) or multilateral APA (“MAPA”); or
- from a country that does not have a DTA - may only apply for a unilateral APA; or
- A permanent establishment (“PE”) may only apply for a BAPA or MAPA where such application shall be made by its head office on behalf of the PE.
Submission of application for arrangement and fee:
- The application for an APA shall be submitted within 6 months (previously 2 months) after receipt of the notification to proceed with the application after the pre-filling meeting.
- The application for APA will incur a non-refundable fee of: (a) RM5,000 if the application is made within 2 months; or (b) RM10,000 if the application is made after 2 months but within 6 months after receipt of the notification, and any other expenses as the MIRB may determine.
Request for rollback:
- A taxpayer may request for a rollback of BAPA and MAPA, subject to certain conditions.
- A rollback, if allowed, shall not be more than 3 years of assessment immediately preceding the covered period.
Minimum Transfer Pricing Documentation
To ease the burden of certain taxpayers, the MIRB had earlier released the minimum TPD template. They have now updated the template to remove the need to characterize the business activity and the disclosure requirement for dividend. In addition, they also attached explanatory notes as a guide for taxpayer to complete the minimum TPD template.
As a reminder, this template is for taxpayers who do not need to comply with the full requirements of the TP Guidelines, where:
- for a person carrying on a business, with gross income not exceeding RM25 million; or the total amount of related party transactions not exceeding RM15 million.
- for a person who provides financial assistance, the financial assistance does not exceed RM50 million.
Finance Act 2023
The Finance Act 2023 (“the Act”) has been gazetted on 31 May 2023 with no material difference from the Finance Bill 2023. The Act comes into operation on 1 June 2023.
The Act and KPMG’s highlights on the Finance Bill 2023 can be accessed via the above links. Our highlights are intended to provide a general overview of the key proposed tax changes and should not be used or relied upon as a substitute for detailed advice or as a basis for formulating business decisions.
Special Voluntary Disclosure Programme 2.0 (“SVDP 2.0”)
The SVDP 2.0 which was supposed to commence on 1 June 2023 has been postponed to a date that will be notified later.
Petaling Jaya Office
Soh Lian Seng
Head of Tax and Head of Tax Dispute Resolution
+ 603 7721 7019
Ng Sue Lynn
Head of Indirect Tax
+ 603 7721 7271
+603 7721 2399
Crystal Chuah Yoke Chin
Associate Director -
+603 7721 2714
Kuching & Miri
Kuching & Miri Tax
+603 7721 2188
Executive Director -
Kota Kinabalu Tax
+603 7721 2822
Ng Fie Lih
+603 7721 2514