Taxpayers who are involved in controlled transactions are generally required to maintain a contemporaneous transfer pricing documentation. This includes taxpayers involved in domestic controlled transactions where at least one party enjoys tax incentives or suffers from continual losses, or is taxed at a different rate, such that the effect of that transaction would result in adjustments that alter the total tax payable.
For a person that is assessable but not chargeable to tax in Malaysia due to tax incentive, or losses; or is transacting with a related party that is assessable but not chargeable to tax in Malaysia due to the same factors, that person is encouraged to prepare Transfer Pricing Documentation if the criteria in paragraph 1.3.1 is fulfilled.
The types of controlled transactions may involve:
As long as the operational conditions remain unchanged, the comparable searches in databases supporting part of the Transfer Pricing Documentation should be updated every three years rather than annually. However, financial data and suitability of the existing comparable should be reviewed and updated every year in order to apply the arm's length principle reliably.
The Transfer Pricing Documentation is not required to be submitted with the annual Return Forms. However, the documentation should be made available within 30 days upon request by the IRBM.
With the introduction of Section 113B of the ITA1967 which comes into operation on 1 January 2021, the Transfer Pricing Documentation should be made available within 14 days upon request by the IRBM. This requirement will apply to transfer pricing audit cases which have commenced on or after 1 January 2021.
A transfer pricing documentation may consist of the following: (Documentations for specific transactions are listed in Appendix A.)
Details of pricing policy for each type of controlled transaction shall include:
Taxpayers that are obliged under the Income Tax (Country-by-Country Reporting) Rules 2016 to prepare the Country-by-Country Report shall prepare the Master File and submit it together with the Transfer Pricing Documentation when requested.
In cases where the parent of the MNE Group prepares a Master File for the Group, a copy of the Master File should be submitted together with the Transfer Pricing Documentation by the subsidiary company. To the extent this functional analysis duplicates information in the Master File submitted, a cross-reference to the Master File is sufficient.
The following information should be included in the master file:
Chart illustrating the MNE Group's legal and ownership structure and geographical location of operating entities.
General written description of the MNE's business including:
MNE's intercompany financial activities
In complying with subsection 140A(2) of the Act, taxpayers should take into account the size and complexity of their business and transactions in determining the nature and extent of documentation appropriate to their particular circumstances. In view that the nature and amount of documentation depends on facts and circumstances of a particular transaction, every taxpayer should evaluate the significance of its transactions in reference to their own business and the additional administrative costs of preparing such documentation.
In general, it is advantageous for a taxpayer to maintain proper documentations on controlled transactions that are applicable to his circumstances and be prepared to provide additional information or documentation not listed in the Guidelines, but may be relevant for the determination of arm's length price.
To ensure the acceptability of the contemporaneous transfer pricing documentation, reasonable efforts should be given to:
Taxpayers are permitted to file their transfer pricing documentation in Bahasa Malaysia or English. Where supporting documents are in a language other than Bahasa Malaysia or English, a translation should be provided upon submission of the transfer pricing documentation.