Transfer Pricing in Malaysia

Transfer Pricing in Malaysia: Regulations, Compliance & Reporting

Introduction

Transfer pricing refers to pricing arrangements for transactions involving the transfer of goods, services, or intangible assets between associated (related) entities. In principle, these prices should align with those set by unrelated parties in a free market (the arm’s length principle). However, such transactions between related entities may not always follow normal market dynamics. Hence, Inland Revenue Board of Malaysia (IRBM) has established formal rules to govern these transactions.
 

Malaysia's Transfer Pricing Guidelines

On 20 July 2012, the IRBM issued Transfer Pricing Guidelines to help taxpayers comply with the Income Tax (Transfer Pricing) Rules 2012. These guidelines outline acceptable methods to determine arm’s length prices, documentation requirements, and administrative procedures.

The primary goal is to ensure that tax authorities receive accurate income allocation among related parties, both locally and across borders.
 

Country-by-Country Reporting (CbCR)

Malaysia introduced CbCR Rules effective 1 January 2017, under the Income Tax (Country-by-Country Reporting) Rules 2016. These rules apply to Multinational Corporation (MNC) groups that meet all of the following conditions:

• Engaged in cross-border controlled transactions.

• Have total consolidated group revenue of MYR 3 billion or more in the preceding financial year.

• The ultimate holding company is a Malaysian tax resident.

CbCR Requirements:

• The ultimate holding company must file the CbCR with the IRBM.

• The report must align with the CbCR Rules and be submitted within 12 months of the financial year-end.

• If the ultimate holding company is not a Malaysian resident or its jurisdiction does not support CbCR exchange, a surrogate holding company must file the report.

Notifications Required:

• Constituent entities in Malaysia must notify the IRBM whether they are the reporting entity (ultimate/surrogate holding company) or not, by the last day of the financial year.
   

Transfer Pricing Methods

Transaction-Based Methods

1. Comparable Uncontrolled Price (CUP) Method

2. Resale Price Method (RPM)

3. Cost Plus Method (CPM)

Profit-Based Methods

1. Profit Split Method

2. Transactional Net Margin Method (TNMM)

Each method is chosen based on the nature of the transaction, availability of comparable data, and degree of reliability in result outcomes.
 

Our Expertise: What We Can Do for You

We are licensed Tax Agents under Section 153(3) of the Income Tax Act 1967, and GST agents registered with Royal Malaysian Customs. Our transfer pricing services include:

• Conducting transfer pricing analysis and preparing documentation.

• Performing benchmarking studies to support your pricing policies.

• Assisting with CbCR notification and submission.

• Managing IRBM inquiries and audits related to transfer pricing.

• Advising on intercompany agreements and compliance strategies.