Malaysia Announces Transfer Pricing Awareness Survey

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By Sowmya Varadharajan

In a recent effort to collect more data on related party transactions and transfer pricing compliance, the Inland Revenue Board (IRB) has announced that it will start issuing transfer pricing awareness surveys before the commencement of a transfer pricing audit. The objective of these surveys is to assess the level of awareness that exists among Malaysian taxpayers to facilitate the smooth progress of transfer pricing audits.

Interestingly, this new development was neither expected nor stipulated in the transfer pricing audit framework introduced by the IRB last year.

The transfer pricing awareness survey asks taxpayers to select a response between 1 (strongly disagree) and 5 (strongly agree) on a range of questions related to the following:

  • Knowledge of Transfer Pricing Taxation – These questions address the taxpayer’s understanding of Malaysian transfer pricing guidelines and legislation, as well as their responsibility to prepare and maintain relevant transfer pricing analyses. The survey also inquires if the Malaysian taxpayer is aware of transfer pricing requirements in the foreign countries where its transacting parties are based. Based on these questions, it is clear that the IRB wants to assess the taxpayer’s awareness of transfer pricing requirements in Malaysia.
  • Involvement of Top Management – These questions inquire if senior management (defined as a Head of Finance / Accounts or similar position) is involved in matters and policies relating to transfer pricing.  These questions will provide the IRB with insight as to whether the Malaysian taxpayer is involved in the transfer pricing process that has been adopted during the course of the year.
  • Establishment of Global Transfer Pricing Policy – These questions require the taxpayer to state if they follow / review and update the global transfer pricing policies established by their overseas parent.
  • Determination of Transaction Price – These questions check if the taxpayer has due processes in place to ensure that related party transactions are being conducted in line with the arm’s length principle.

The last two topics cover communication with the IRB on transfer pricing matters, and awareness of the mutual agreement procedure (“MAP”) process that can be triggered in the event of a transfer pricing audit / dispute, respectively.

RELATED: Transfer Pricing in Malaysia: Past, Present and Future

Although, at the outset of the survey, the IRB notes that all data and answers provided will be used for the purpose of this survey alone, one expects that providing “incorrect” answers to the survey questions would result in headaches for the taxpayer during a transfer pricing audit. For example, the IRB is not likely to accept a taxpayer’s ignorance of the transfer pricing regime in Malaysia, although it is unclear what the repercussions of making such a declaration would be.

In light of the IRB’s increased attention on transfer pricing and related party transactions, we would strongly advise taxpayers in Malaysia to ensure that their related party transactions can be defended through adequate transfer pricing analyses and documentation.

Sowmya Varadharajan, is a founding director of IC Advisors Pte Ltd, a transfer pricing consulting firm.  Sowmya has more than 12 years of experience assisting clients in designing, supporting and defending various related party transaction structures.  Having been trained in the U.S., Sowmya currently focuses her attention on helping clients in the Asia Pacific region address their transfer pricing issues.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email malaysia@dezshira.com or visit www.dezshira.com.

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