With increasing globalization, multinational companies (MNCs) and related-party businesses must comply with transfer pricing regulations to ensure fair tax practices. Transfer Pricing (TP) documentation is a critical requirement in Malaysia, helping businesses justify intercompany transactions, prevent tax audits, and avoid hefty penalties.
At Amaze Advisory, we assist businesses in preparing and maintaining TP documentation that meets compliance standards set by the Inland Revenue Board of Malaysia (LHDN).
1. What is Transfer Pricing?
Examples of Related-Party Transactions Subject to TP Regulations
- Sale of goods or services – A Malaysian subsidiary sells products to its foreign parent company.
- Intercompany loans – A Malaysia-based HQ provides financing to its overseas branch.
- Royalty and licensing fees – A local subsidiary pays for trademarks or patents owned by a foreign parent company.
- Shared service agreements – IT, HR, or management services provided between related companies.
2. Why is Transfer Pricing Documentation Important?
(i) Compliance with Malaysian Tax Laws
Malaysia’s Income Tax (Transfer Pricing) Rules 2012 and TP Guidelines issued by LHDN require businesses to maintain proper documentation to justify intercompany pricing.
- Mandatory for companies with controlled transactions exceeding RM25 million or intercompany service transactions exceeding RM1 million.
- Failure to comply results in penalties and increased tax risks.
(ii) Avoidance of Tax Audits & Adjustments
Without proper documentation, LHDN may challenge the pricing of related-party transactions and impose tax adjustments.
Example:
- A Malaysian subsidiary charges below-market prices to its foreign parent company, reducing taxable profits in Malaysia.
- LHDN reassesses the transaction and imposes additional tax, interest, and penalties.
Want to minimize tax audit risks? Amaze Advisory helps businesses prepare accurate TP documentation!
(iii) Prevention of Penalties & Interest Charges
- Non-compliance penalties: Up to 50% penalty on tax underpayment.
- Failure to submit TP documentation: 35% penalty on tax adjustments.
- Late submission: Additional interest charges apply.
Proper TP documentation safeguards your business from financial penalties!
(iv) Consistency in Global Operations
MNCs operating in multiple jurisdictions must align their pricing strategies to meet international TP regulations. Failure to do so can result in double taxation and legal disputes.
- Consistent TP policies strengthen corporate governance and financial transparency.
Amaze Advisory ensures global compliance with Malaysia’s TP laws!
3. Key Components of Transfer Pricing Documentation
A Complete TP Documentation Includes:
- Organizational Structure – Details of related-party relationships.
- Nature of Intercompany Transactions – Descriptions of goods, services, or financial arrangements.
- Functional Analysis – Roles, risks, and assets used by each entity.
- Economic & Benchmarking Analysis – Comparison with independent market prices.
- Transfer Pricing Methodology – Justification of pricing mechanisms.
Proper documentation strengthens your case during tax audits!
4. How to Prepare Transfer Pricing Documentation?
Step 1: Identify Related-Party Transactions
- Determine all intercompany transactions involving goods, services, and financing.
Step 2: Select the Appropriate TP Method
Choose a pricing method based on LHDN’s guidelines:
- Comparable Uncontrolled Price (CUP) – Comparing with independent third-party prices.
- Resale Price Method (RPM) – Based on reselling price minus gross margin.
- Cost Plus Method (CPM) – Applying a markup on costs incurred.
- Transactional Net Margin Method (TNMM) – Comparing net profit margins.
- Profit Split Method (PSM) – Splitting profits based on contributions.
Step 3: Conduct Benchmarking Analysis
- Compare related-party transaction prices with market data to justify compliance.
Step 4: Prepare & Maintain TP Documentation
- Ensure all documentation is updated annually and readily available for submission upon request.
Need assistance in preparing TP documentation? Amaze Advisory provides end-to-end Transfer Pricing solutions!
5. Consequences of Non-Compliance
| Non-Compliance Issue | Penalty |
|---|---|
| Failure to prepare TP documentation | 35% tax penalty |
| Under-declared income due to TP issues | 50% additional tax |
| Failure to submit documents within 30 days | Tax reassessment & additional fines |
| Failure to comply with arm’s length principle | TP adjustments & double taxation |
Avoid unnecessary tax burdens with proper TP documentation!
Conclusion: Ensure Transfer Pricing Compliance for Your Business
Proper Transfer Pricing documentation is essential for tax compliance, audit readiness, and risk mitigation. Ensuring that intercompany transactions are priced fairly protects businesses from tax penalties and disputes.
At Amaze Advisory, we provide:
- Transfer Pricing documentation preparation & review.
- Benchmarking analysis & compliance audits.
- Expert guidance on TP strategy & tax risk management.
Get Started with Amaze Advisory Today!
Phone: +6013-284 7678 / +6013-323 7678
Website: www.amazeadvisory.com
