Financial Crime World

Regulatory Requirements for Cross-Border Transactions in Malaysia: A Guide to Transfer Pricing

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In today’s global economy, cross-border transactions are increasingly common among multinational companies operating in Malaysia. However, these transactions must comply with strict regulatory requirements set by the Inland Revenue Board of Malaysia (IRBM) to ensure that they adhere to the arm’s length principle.

Can a Malaysian Subsidiary Use Transfer Pricing Documentation Prepared Overseas?

While documentation prepared overseas can be used as a reference or supporting material, it often fails to meet Malaysia’s specific requirements. The Malaysian Transfer Pricing Guidelines require taxpayers to prepare contemporaneous transfer pricing documentation in English or Malay languages and submit it to the IRBM within 14 days of a request.

Using Foreign Comparables for Transfer Pricing in Malaysia

While local comparables are preferred by the Malaysian tax authority due to their close economic conditions with tested parties, foreign comparables may be used in certain cases where suitable local comparables are not available. The selection of foreign comparables must meet specific conditions and requirements, such as:

  • Similarity with the tested party in terms of industry, product or service
  • Functions performed
  • Risks assumed
  • Economic conditions

Unlike some other countries, Malaysia does not have safe harbour provisions or indicative price/margins that can be relied upon to avoid transfer pricing adjustments. All related party transactions must meet the arm’s length principle through the most appropriate method.

While transfer pricing documentation requirements apply to all related party transactions, regardless of their cross-border nature, there are exceptions for local related party transactions where both parties are chargeable to tax at the same rate or where the effect of the transaction would not result in transfer pricing adjustments that alter the total tax payable.