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Malaysia – Transfer Pricing (2025)

Malaysia’s domestic transfer pricing framework is anchored on the arm’s length principle as set out primarily in subsection 140A(2) of the Income Tax Act (ITA) 1967. That provision requires a person who, in the basis period for a year of assessment, enters into a transaction with an associated person for the acquisition or supply of property or services to determine and apply the arm’s length price for such acquisition or supply for all purposes of the Act. Complementing this main provision are subsidiary rules: the Income Tax (Transfer Pricing) Rules 2023 apply to controlled transactions entered into from year of assessment (YA) 2023, while the Income Tax (Transfer Pricing) Rules 2012 apply to transactions prior to YA 2023. For transfer pricing purposes, the reference to acquisition or supply expressly includes financial assistance received or provided.

Arm’s length principle and the role of the OECD Guidelines

Malaysia acknowledges the OECD Transfer Pricing Guidelines as the basis for its domestic guidance. The Malaysia Transfer Pricing Guidelines (MTPGL) 2012 and 2024 were prepared largely on the basis of the OECD Guidelines. Importantly, from 1 January 2024 any tax treatment guideline issued by the Director General of Inland Revenue (DG) under Section 134A of the ITA 1967 is legally binding on both taxpayers and Inland Revenue Board of Malaysia (IRBM) officers, increasing clarity and consistency in application.

Malaysia equates related parties to “associated persons” under the ITA 1967 and refers to Companies Act provisions for corporate relationships. Section 139(1) of the ITA 1967 sets out detailed control tests, including ownership of the greater part of share capital or voting power and attribution rules that account for nominees, trusts and inter-company relationships. Subsection 140A(5) frames transactions as between associated persons where one controls the other, among relatives, or where both are controlled by a third person. Subsection 140A(5A) introduces a 20% shareholding threshold to determine “control” relevant for association purposes and identifies additional economic indicators of control such as dependence on proprietary rights (patents, non-patented know-how, trademarks, copyrights), influence over business activities and the appointment of directors by another person or a third person. Group definitions for tax purposes are reflected in Section 2(4) of the ITA 1967 and Companies Act 2016 Section 7 regarding holding/subsidiary relationships.

Methods and application criterion

Under Rule 6 of the Income Tax (Transfer Pricing) Rules 2023 and chapters 3.9–3.67 of the Malaysia Transfer Pricing Guidelines 2024, taxpayers may select from traditional and transactional transfer pricing methods to determine arm’s length prices: Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM), Profit Split and other methods where those others can be demonstrated to provide a higher degree of comparability. The domestic approach follows the “most appropriate method” criterion rather than a strict hierarchy. The DG may substitute the taxpayer’s chosen method if it is judged not to be the most appropriate, and must provide justification for any substitution (Income Tax (Transfer Pricing) Rules 2023, Rule 6).

Comparability and ranges

Malaysia follows the OECD guidance on comparability analysis (Chapter III of the OECD TPG), reflected in Chapter 4 of the Malaysia Transfer Pricing Guidelines 2024. The IRBM prefers Malaysian (local) comparables to better reflect local economic and commercial conditions. Foreign comparables are acceptable provided the taxpayer can furnish the necessary verifiable information and provide reasonable justification in the contemporaneous transfer pricing documentation. The use of secret comparables is prohibited. Effective YA 2023, Malaysia uses an arm’s length range defined as values between the 37.5th percentile and the 62.5th percentile of the data set; a controlled price that lies within that range may be accepted as arm’s length. If the controlled price falls outside this range, the arm’s length price is the midpoint of the range. The DG may nevertheless adjust controlled prices within the range where there are unquantified comparability defects or comparables of lesser comparability (Income Tax (Transfer Pricing) Rules 2023, Rule 13; Malaysia Transfer Pricing Guidelines 2024, Chapter 2).

Documentation and reporting

Malaysia requires contemporaneous transfer pricing documentation. Under Income Tax (Transfer Pricing) Rules 2023, Rule 14 and Chapter 11 of the Malaysia Transfer Pricing Guidelines 2024, a person entering into a controlled transaction must prepare contemporaneous documentation prior to the due date for furnishing the tax return for the basis period in which the controlled transaction was entered into. Documentation must be prepared in Bahasa Malaysia or English; supporting documents in other languages must be accompanied by translations upon submission. Records and documentation must be retained for up to seven (7) years and stored in Malaysia. The tax return for companies requires declaration of controlled transaction details (Return Form for companies, Item F9). Malaysia mandates Master File, Local File and Country-by-Country Report consistent with Annexes I, II and III to Chapter V of the OECD Guidelines and requires disclosure of controlled transactions in the annual tax return (Income Tax (Transfer Pricing) Rules 2023, Rule 14; Malaysia Transfer Pricing Guidelines 2024, Chapter 11).

Safe harbours, exemptions and materiality

Malaysia currently does not provide broad safe harbours by industry, except for the simplification measures for low value-adding intra-group services set out in Chapter 6 of the Malaysia Transfer Pricing Guidelines 2024 (paragraph 6.19). There are exemptions from the obligation to prepare contemporaneous transfer pricing documentation for: individuals not carrying on a business; individuals carrying on a business (including partnerships) who only engage in domestic controlled transactions; persons whose total controlled transactions do not exceed RM1 million; and persons who solely engage in domestic controlled transactions with another person where both parties do not enjoy tax incentives, are taxed at the same headline tax rate, and have not suffered losses for two consecutive years prior to the controlled transactions. Even if exempt from formal documentation obligations, such persons must still comply with the arm’s length principle and retain relevant supporting documents (Malaysia Transfer Pricing Guidelines 2024, Chapter 1).

APAs and MAP: procedures and timing

Taxpayers in Malaysia may request unilateral, bilateral and multilateral Advance Pricing Agreements (APAs) and may use Mutual Agreement Procedures (MAP) under relevant treaties. Malaysia also provides rulings and cooperative compliance programmes and operates an administrative dispute resolution process via the Dispute Resolution Department and State Director’s Offices to seek out-of-court settlements without referral to Special Commissioners of Income Tax. The country profile does not provide detailed procedural timelines or granular operational guidance for APA or MAP processing; therefore, No se proporciona guía doméstica específica en el perfil regarding specific processing times, and taxpayers should consult IRBM practice or OECD guidance for operational details.

Penalties and other considerations

Specific penalties relate to failure to furnish contemporaneous documentation. Section 113B of the ITA 1967, effective for YA 2023 onward, makes failure to furnish documentation within fourteen (14) days of a written IRBM notice a criminal offence punishable on conviction by a fine of not less than RM20,000 and not more than RM100,000, or imprisonment for up to six months, or both, for each failure year of assessment. If prosecution is not instituted, the DG may impose administrative monetary penalties ranging from RM20,000 to RM100,000 for each year of failure. Year-end adjustments are permitted when benchmarking is revisited using current-year financial data; upward adjustments should be voluntarily disclosed and may attract a surcharge of up to 5%, with possible reduction in the case of voluntary disclosure. Downward year-end adjustments by the taxpayer are not provided for by law. Secondary adjustments are not permitted in Malaysia. Downward corresponding adjustments in the absence of MAP are allowed only as a consequence of transfer pricing audits initiated by the other party in writing; such corresponding adjustments are not automatic and will be subject to audit checks (Malaysia Transfer Pricing Guidelines 2024, Chapter 4; Transfer Pricing Tax Audit Framework).

Other legislative aspects relevant to financial transactions

Beyond the transfer pricing rules, Malaysia has other tax provisions relevant to financial transactions: Income Tax Act 1967 Sections 15 (Derivation of Interest and Royalty Income in Certain Cases), 109 (Deduction of Tax from Interest or Royalty in Certain Cases), 109C (Deduction of Tax from Interest Paid to a Resident), 140B (Special Provision Applicable to Loan or Advance to Director) and 140C (Restriction on Deductibility of Interest). Specific rules limiting interest deductibility are set out in the Income Tax (Restriction on Deductibility of Interest) Rules 2019 and the 2022 amendment, and further guidance is provided in the Restriction on Deductibility of Interest Guidelines 2022. Chapter 9 of the Malaysia Transfer Pricing Guidelines 2024 discusses intra-group financing and the IRBM is preparing more specific guidance largely based on Chapter X of the OECD Guidelines.

Cost contribution arrangements

Malaysia permits cost contribution arrangements (CCAs) and follows guidance consistent with Chapter VIII of the OECD Guidelines. Rule 10 of the Income Tax (Transfer Pricing) Rules 2023 and Chapter 7 of the Malaysia Transfer Pricing Guidelines 2024 set out the applicable domestic guidance and expectations for CCAs.

Conclusion

Malaysia’s transfer pricing regime is comprehensive and OECD-aligned, anchored in ITA 1967 subsection 140A(2) and supported by transfer pricing rules and guidelines that have been made administratively binding from January 2024. The framework emphasises the most appropriate method, a local preference for comparables, an explicitly defined arm’s length percentile range (37.5–62.5), mandatory contemporaneous documentation with clear language, retention and localisation rules, and administrative and criminal penalties for non-compliance. APAs, MAP and other dispute resolution mechanisms are available, while certain simplifications exist for low value-adding intra-group services. The country profile does not provide specific domestic guidance on the attribution of profits to permanent establishments; No se proporciona guía doméstica específica en el perfil and practitioners should consult the OECD guidance on profit attribution where necessary.

References

For further information and access to country profiles on the OECD website see: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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