A new item has been included in the Income Tax Return for the Year of Assessment 2014 which requires the taxpayer to indicate whether transfer pricing documentation has been prepared by the taxpayer for the relevant year of assessment. A person who enters into controlled transactions is required to prepare contemporaneous Transfer Pricing documentation for the year in which a controlled transaction exists. Nevertheless, to ease the compliance burden, the Transfer Pricing Guidelines issued by the Inland Revenue Board in Malaysia on 20 July 2012 would only apply wholly to the following persons or transactions:
- Persons with annual gross business income exceeding RM25 million and with related party transactions exceeding RM15 million per annum
- Provision of financial assistance exceeding RM50 million for non-financial institutions
Other taxpayers not falling into one of the above categories are given the option of not observing the Transfer Pricing Guidelines in full and are allowed to prepare limited transfer pricing documentation covering only the following information:
- Organisational structure
- Details of the controlled transactions
- Pricing policies
'Contemporaneous transfer pricing documentation' means transfer pricing documentation which is brought into existence:
- When a person is developing or implementing any controlled transaction
- Where in a basis period for a year of assessment the controlled transaction is reviewed and there are material changes, the documentation shall be updated prior to the due date for furnishing a return for that basis period for that year of assessment
The Transfer pricing document is not required to be submitted to the Inland Revenue Board Malaysia together with the Income Tax Return. However, the documentation should be made available to the Malaysia Inland Revenue Board within 30 days of the Inland Revenue Board Malaysia’s request.
With the introduction of the new requirement in the Income Tax Return effective from the Year of Assessment 2014, taxpayers with controlled transactions, regardless of whether they reach the above threshold, are required to make a declaration that contemporaneous Transfer Pricing documentation has been prepared and readily available before submission of Income Tax Return by the due date. Moving forward, it appears that Transfer Pricing will be one of the main areas of focus by the Malaysian Inland Revenue Board during tax audit where controlled transactions will be closely scrutinized for compliance with the arm’s length principle.