Malaysia Transfer Pricing Guidelines Explained (2023/2024 Updates)
With the Inland Revenue Board of Malaysia (IRBM) placing increasing emphasis on transparency and compliance, it’s essential for business owners, tax professionals, and financial controllers to stay informed of the latest changes in Malaysia’s Transfer Pricing Guidelines.
In this article, we’ll walk you through what transfer pricing is, why it matters, and what updates have been introduced in 2023/2024 that every business should know about.
What Is Transfer Pricing?
Transfer pricing affects:
- Profit allocation across jurisdictions
- Tax liabilities
- Regulatory compliance
In Malaysia, transfer pricing is governed by Section 140A of the Income Tax Act 1967 and the Transfer Pricing Rules 2012, supplemented by the Transfer Pricing Guidelines issued by the IRBM.
Why Transfer Pricing Matters in Malaysia
The IRBM has tightened its enforcement on transfer pricing to prevent profit shifting and tax base erosion. Failure to comply with local regulations can lead to significant penalties, tax adjustments, and reputational risk.
Key implications include:
- Tax adjustments for non-arm’s length pricing
- Surcharges of up to 5% on transfer pricing adjustments (even without tax underpayment)
- Heavy penalties for non-compliance with documentation requirements
- Mandatory disclosures through Form C and the annual TP Disclosure Form
If your company is part of a group with international or local related-party transactions, transfer pricing documentation is not optional — it’s a critical compliance requirement.
Who Must Comply with Transfer Pricing Rules in Malaysia?
- Multinational corporations (MNCs)
- Local groups of companies with intercompany transactions
- Businesses engaging in cross-border sales or services with related parties
There is no minimum threshold for applicability — even small and medium enterprises (SMEs) are subject to the rules if they transact with related entities.
What’s New in the 2023/2024 Updates?
The most recent updates to Malaysia’s Transfer Pricing Guidelines were issued by the IRBM in June 2023, aligning more closely with the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plans and global best practices.
Key highlights of the 2023/2024 updates:
1. Expanded Definition of "Controlled Transactions"
2. Emphasis on Contemporaneous Documentation
All taxpayers engaged in controlled transactions must prepare contemporaneous transfer pricing documentation at the point of filing their annual tax return (Form C). No more waiting until audit notification.
3. Materiality Thresholds for Documentation
- Gross income exceeding RM 25 million and
- Total related-party transactions exceeding RM 15 million are required to prepare full documentation.
Companies below this threshold may prepare limited documentation, but they are still expected to comply with arm’s length principles.
4. Surcharge Mechanism Maintained
A 5% surcharge applies to transfer pricing adjustments, regardless of whether additional tax is payable. This is meant to deter non-compliance and late reporting.
5. Clarified Approach to Comparability and Benchmarking
6. Recharacterization of Transactions
If the IRBM finds that the substance of a transaction does not match its legal form, it has the authority to recharacterize the transaction, especially in business restructurings or royalty payments to offshore affiliates.
Types of Transfer Pricing Documentation in Malaysia
- Master File – group-wide info (only for multinational groups)
- Local File – Malaysian entity’s transactions and justification of pricing
- Transfer Pricing Disclosure Form – submitted with Form C
Transfer Pricing Methods Accepted in Malaysia
- Comparable Uncontrolled Price (CUP) Method
- Resale Price Method (RPM)
- Cost Plus Method
- Transactional Net Margin Method (TNMM)
- Profit Split Method
The most appropriate method must be selected based on the nature of the transaction and availability of reliable data.
Common Transfer Pricing Risks to Avoid
- Using inappropriate comparables or out-of-date benchmarks
- Incomplete or non-existent documentation
- Lack of internal consistency across related-party pricing
- No justification for intercompany service fees or royalty rates
- Failing to update documentation annually
A proactive transfer pricing policy can help businesses mitigate these risks — especially when supported by professional accounting services in Malaysia experienced in tax advisory.
How Professional Accounting Firms Help with Transfer Pricing
Professional firms like ShineWing TY TEOH can help with:
- Transfer pricing documentation preparation (Master File, Local File)
- Benchmarking and economic analysis
- Functional and comparability assessments
- Audit support and dispute resolution
- TP policy design and ongoing compliance monitoring
Final Thoughts
Understanding the Transfer Pricing Guidelines, preparing proper documentation, and consulting with expert advisors are no longer optional — they are essential to protect your business from costly penalties and reputational damage.
If you’re unsure about your current transfer pricing practices, now is the time to act. Contact ShineWing TY TEOH’s expert team for tailored advice and audit-proof solutions.
