2022 TP Briefing

INTRODUCTION TO
TRANSFER PRICING
1
Copyright © 2020 YYC All rights reserved. Web: www.yycadvisors.com YYC Advisors1974
INTRODUCTION TO MALAYSIAN
C TAX SCENE
2022 IRB's tax collection target - RM132 billion
“IRB’s revenue collection target

for 2022 has been revised to RM
132 billion”
C TAX SCENE
Direct Tax Collection Trend (2017 to 2022)
C TAX SCENE
Taxman training guns on transfer pricing regime

“ MULTINATIONAL
corporations (MNCs) and larger
companies are seeing a flurry of
tax audit queries concerning
transfer pricing, a grey area of
business tax law that has come
under sharper focus lately.
The increase in tempo is

evidenced by what is believed to
be more than usual queries sent
out by the Inland Revenue Board
(IRB) and the proposed
amendments announced in the
federal government’s budget for
2021 that places greater
emphasis on transfer pricing.”
TP & THE CONCEPT OF COMPARABILITY
RELATED THIRD
PARTY PARTY
 No material differences
 Reasonably accurate adjustments to eliminate
material differences
RELATED
PARTY
WHO SHOULD PREPARE ?
Threshold Types of Report

Gross income > RM 25 million & Full TP Report
Total related party transactions > RM 15 million
Financial > RM 50 million Full TP Report
Gross income < RM 25 million & Limited TP Report
Total related party transactions < RM 15 million
Financial < RM 50 million Limited TP Report
INFO REQUIRED IN A TP DOC?
 Organizational & ownership structure

 Nature of business / Industry Analysis
 Details of related party transactions
 Pricing policies
 Function & risk analysis
 Application of TP methodology
 Benchmarking analysis
 Any other info, data relevant to determine arm’s length price
BENCHMARKING ANALYSIS
Method Usually used under following What to benchmark

circumstances
Comparable Product comparability: physical features, Price against price
Uncontrolled sales volume, etc
Price (CUP)
Resale Price Distribution function Gross margin
Cost Plus Contract manufacturer, service functions Cost plus mark-up
Profit Split When both parties own intangibles, Allocation of profits to
when transactions are highly integrated. each party in the value
Detailed info on foreign entity must be chain
available
Transactional Manufacturing, sales functions, when Net operating margins

Net Margin there is limited publicly reliable gross
Method margin info on 3rd parties
(TNMM)
INTERQUARTILE RANGE (IQR)
Within the range

Out of the range Out of the range
-3% 2% 3% 5% 8%
 To justify the company’s profitability level

 To substantiate the pricing basis
 To ensure over-charge / under-charge do not result – out of the range
WHY PREPARE TP DOCS?
 Statutory requirement
 Ensure taxpayers give appropriate consideration for establishing the transfer

prices and reporting the correct income
 To document the process to justify the arm’s length pricing
 To provide the tax authorities with information to conduct the risk

assessment
 To provide the necessary information to the tax authorities to conduct an

audit of the transfer prices
10
IRB MAIN FOCUS
 Deployment of TP experts in IRB’s key sections

•special units i.e. aggressive tax planning, large taxpayer office & etc .
 Tax audits are no longer confined to cross-border transactions

• focus is now on domestic companies
 Request for TP docs is becoming part of the audit norms
 TP issues are now becoming part of the regular audit & investigation
 Focus of tax audits – to look for possible tax arbitrage issues
 Loss making companies
11
WHAT IS TRANSFER PRICING?
Transactions between Associated Person
• Buy/ sells good or • Buy/ sells services

• Business transaction  Management
property
 Exclude dividend services
 Finished / semi
finished goods  Administrative
• Applies to both cross- services
 Raw materials
border and domestic  Technical & support
 Property, plant &
related party transactions services
equipment
 Intangible (i.e.  Marketing &
• Do not include individuals distribution services
trademark &
not carrying on a business
knowhow)
• Intragroup financing
12
THE LATEST CHANGES TO THE
MALAYSIAN TRANSFER PRICING
GUIDELINES
13
PENALTIES
W.E.F
W.E.F11JAN
JAN2021
2021
Current Proposed - New Section
Failure to furnish TP No specific provision On conviction:
documentation - Fine RM20,000 – RM100,000 or
(includes late prison term up to 6 months
submission) or both; &
- Furnish TP Documentation within 14
days or period decided by
Court
 If no prosecution:
- Penalty RM20,000 – RM100,000
Surcharge on TP Nil Not more than 5% of total TP adjustment,

adjustments applicable whether adjustment result in
additional tax payable
Power to disregard and Principal Act does not New subsections be included into the
re-characterize explicitly give Director principal Act to empower the Director
controlled transaction General the power to re- General to disregard any structure
characterize / disregard a adopted in a transaction and make
structure relating to adjustments to structure as he think fit
controlled transactions
14
14
TAX AUDIT LETTERS (3 YEARS)
Transfer pricing documentation
15
TAX AUDIT LETTERS (5 YEARS)
Transfer pricing documentation
16
POTENTIAL EXPOSURES
17
POTENTIAL EXPOSURES
 Lack of documentation i.e. no transfer pricing documentations : unable to defend

the pricing basis to RP during tax audit
 Intra group services not charged : under-declare of income
 Charging basis undefendable : IRB can challenge the charging basis
 Potential 5% surcharge on total TP adjustments : 5% x RM 50 mil (if total TP

adjustment) : RM 2.5 mil
 Penalty up to RM 100K per company : RM 100k x 4 companies : RM 400k
 Penalty on the omission of income : 300% on the tax undercharged
18
THANK YOU
YYC Holdings Sdn Bhd For more information please contact
YYC Group
www.yycadvisors.com For more information
03-9078 2868
please
contact
019-368 6868
YYC Advisors 1974
www.yycadvisors.com [email protected] 2868
YYC Advisors 1974 019-368 6868 19
[email protected]

2022 TP Briefing

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INTRODUCTION TO

2022 IRB's tax collection target - RM132 billion

“IRB’s revenue collection target

Direct Tax Collection Trend (2017 to 2022)

Taxman training guns on transfer pricing regime

The increase in tempo is

Threshold Types of Report

 Organizational & ownership structure

Method Usually used under following What to benchmark

Transactional Manufacturing, sales functions, when Net operating margins

Within the range

 To justify the company’s profitability level

 Ensure taxpayers give appropriate consideration for establishing the transfer

 To document the process to justify the arm’s length pricing

 To provide the tax authorities with information to conduct the risk

 To provide the necessary information to the tax authorities to conduct an

 Deployment of TP experts in IRB’s key sections

 Tax audits are no longer confined to cross-border transactions

 Request for TP docs is becoming part of the audit norms

 Focus of tax audits – to look for possible tax arbitrage issues

 Loss making companies

Transactions between Associated Person

• Buy/ sells good or • Buy/ sells services

Surcharge on TP Nil Not more than 5% of total TP adjustment,

Transfer pricing documentation

Transfer pricing documentation

 Lack of documentation i.e. no transfer pricing documentations : unable to defend

 Intra group services not charged : under-declare of income

 Charging basis undefendable : IRB can challenge the charging basis

 Potential 5% surcharge on total TP adjustments : 5% x RM 50 mil (if total TP

 Penalty on the omission of income : 300% on the tax undercharged

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