MALAYSIA – NEW TP AND APA RULES INTRODUCED
Malaysia has replaced its existing Transfer Pricing rules with the New TP Rules, and this would be effective for the YA 2023 onwards. Additionally, a minimum TP documentation (TPD) template has been published for persons who do not meet the thresholds prescribed for detailed TPD. The Income Tax (APA) Rules 2023 have also been issued which replace the 2012 Rules. In the attached alert we have summarized the key aspects in relation to the new TP & APA Rules.
- Arm’s length range (ALR) – The ALR has been defined as the 37.5th percentile to 62.5th percentile of the comparable dataset, with median being the mid-point of the ALR.
- Usage of data points – Use of multiple year data is permitted only to assist in the selection of comparables and not for the purpose of ALR computation.
- Adjustments by Director General (DG) – If the controlled transaction’s price is not within the ALR, the DG may adjust the price to the median. Even if the controlled transaction’s price is within the ALR, the DG can adjust the price to the median or a higher point within the ALR under specific circumstances.
- TP documentation – The TPD is quite extensive and must be prepared on a contemporaneous basis prior to the due date of filing tax return along with the date of completion, and furnished within 14 days of request. Contents from the existing TP guidelines along with additional information have been incorporated into the Rules.
- Intangibles – In line with the OECD guidelines, it has been emphasized that the owner of IP is not entitled to any income arising from the IP if he neither performs the functions nor controls the functions or risks related to DEMPE of the IP.
- Offsetting adjustment provision removed – The provision relating to offsetting adjustments on request has been removed and this could affect domestic related party transactions.
- Bilateral/Multilateral APA – Taxpayers can opt only for a Bilateral or Multilateral APA if the covered transaction is with a country where a DTAA exists, even in case of a PE. In other cases, only a Unilateral APA is possible.
Considering the emphasis on contemporaneous documentation in the Rules, it is essential taxpayers are well prepared to maintain TPD within the prescribed timeline. The APA rules have been streamlined and taxpayers can consider this option to achieve tax certainty.