A 2023 Guide to Prepare Transfer Pricing Documents
Malaysia appeals to multinational enterprises because of its reliable taxation structure, ease of doing business, and a big pool of multilingual talent. The country’s tax system has played an integral role in attracting businesses from all over the world.
Malaysia has a variety of tax jurisdictions inside its borders, resulting in both international and local transfer pricing legislation. When it comes to transfer pricing in Malaysia, the Malaysian Inland Revenue Board (IRB) has no special priority areas.
Instead, the authorities usually focus on a single sector for a certain period of time since it is simpler to concentrate on businesses with comparable problems.
Nevertheless, tax audit activity in Malaysia has grown significantly due to the growing number of businesses, especially large-scale organizations. Therefore, it is important to be familiar with the process of preparing a transfer pricing document to deal with transfer pricing policies.
Requirements of Transfer Pricing Documents
Generally, an accounting firm in Malaysia can evaluate your business and prepare a transfer pricing document. You have to prepare a full version of the transfer pricing document if you meet the following criteria:
- The company conducts overseas controller transactions.
- The company has a turnover of more than RM25 million or more.
- The organization offers financial assistance to a related company of more than RM50.
- However, if an organization does not meet these criteria, it can easily prepare simplified transfer pricing documentation to comply with the requirement.
Documents & Information Needed for the Transfer Pricing Document
You need ample information to create a comprehensive transfer pricing document:
- Information about the company structure includes a thorough chart that lists all people engaged in a regulated transaction.
- Market circumstances and the nature of the company or industry.
- The transaction that is being monitored.
- Strategies, assumptions, and knowledge on the elements that drove the price policies that were established.
- Analysis of comparability, functionality, and risk
- The chosen transfer pricing technique and approach. It is better to rely on professional accounting services in Malaysia to choose a suitable transfer pricing technique and approach.
- Documents that were utilized to create the transfer price document.
- Any additional information, data, or document that the individual considers important in determining an arm’s-length price.
Simplified Transfer Pricing Documentation
The widespread misperception about preparing a simplified transfer pricing document is that taxpayers only need to reveal the following information in the documentation:
- organizational structure
- restricted transactions
- pricing rules
However, this is not the reality because simplified transfer pricing documentation still needs some effort and research to demonstrate that the transfer pricing price is a market price and respects the arm’s length principle.
It’s worth mentioning that taxpayers still need to test their regulated transactions using a suitable technique, but they don’t have to go through the selection process of the five approved transfer pricing methods that are necessarily incomplete transfer pricing paperwork. Depending on the facts and circumstances, taxpayers may still be obliged to do a benchmarking study.
Hence, even if you are preparing a simplified transfer pricing document, you will need the professional services of an accounting firm in Malaysia to get through the process with maximum efficiency.
You have to evaluate your company or get it evaluated by professional accounting services in Malaysia to determine whether you have to prepare a simplified or full transfer pricing documentation.
Companies should also consider the cost of preparing the transfer pricing documentation and the potential penalties they can face for non-compliance. Nonetheless, there are some advantages to generating and keeping current transfer price documentation:
- Minimize the chances of an audit and a disagreement with the tax authorities like IBM.
- Ensure maximum compliance with the law.
- Reduce fines in the case of an audit adjustment.
- Authorities in Malaysia recognize creating the full transfer pricing document as an excellent business practice. Accounting firms in Malaysia follow a checkbox in the corporation tax return to indicate if transfer pricing paperwork has been generated to assure compliance.
All In All
Creating and providing transfer pricing documents is important for large-scale companies and multinational enterprises to avoid penalties for non-compliance. If a company chooses not to implement effective transfer pricing policies, it is at the risk of transfer pricing scrutiny from the authorities.
You can easily avoid such issues by hiring professional accounting services of an accounting firm in Malaysia to prepare simplified or full transfer pricing documents, ensure compliance with the law and avoid any penalties related to transfer pricing.