In recent years, we have seen major changes in Malaysia’s transfer pricing (“TP”) landscape that are affecting businesses in this increasingly challenging business environment, especially those with local and overseas related party transactions.

Transfer pricing is not something new, in fact, TP concept was first introduced into the Malaysian tax legislation on 1 January 2009. Over the years, the Malaysian TP landscape has evolved rapidly with the Inland Revenue Board (IRB) becoming increasingly aggressive and vigilant in scrutinising both local and cross border related party transactions. On 15 July 2017, TP Guidelines 2012 were updated to reinforce the existing standards in line with the latest international taxation and TP requirements. Subsequently in the Finance Bill 2018, the parameters of the “control test” were widened to include associated companies with 20% shareholding or more. The amendments and updated guidelines signal a reinforced focus by the IRB on TP and it is expected that there will be a significant increase in TP audits going forward. With these changes, it is important that businesses review their operational structures and intercompany arrangements to ensure full compliance with the existing tax law in Malaysia in order to avoid punitive actions by the IRB.

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