Executive summary
Transfer pricing documentation for 2025 should align with current Malaysian requirements, covering the master file, local file and appropriate benchmarking. Areas drawing attention include service fee mark‑ups, financing arrangements, and intangible‑related returns. Companies should ensure clear functional analyses, robust comparables, and consistent narratives between statutory accounts, e‑invoicing data and TP positions. This article highlights documentation structure, timing, and quality checks that help demonstrate that outcomes are consistent with arm’s length principles.
Transfer Pricing Guidelines 2024: What Changed
The Inland Revenue Board released the Malaysia Transfer Pricing Guidelines 2024 effective from Year of Assessment 2023, superseding previous 2017 guidelines. Key changes include expanded exemption criteria for preparing transfer pricing documentation, redefined thresholds distinguishing full versus minimum documentation requirements, simplified approach for low value-adding services at 5% markup, and enhanced guidance on business restructuring. The guidelines align with OECD standards while incorporating Malaysia-specific requirements under Income Tax Act 1967 Section 140A and Transfer Pricing Rules 2023.
Who Must Prepare Transfer Pricing Documentation
Companies must prepare contemporaneous documentation when engaged in controlled transactions with related parties. Full documentation applies when gross business income exceeds RM30 million and cross-border related party transactions exceed RM10 million annually, or when financial assistance received or provided exceeds RM50 million annually. Minimum documentation applies for companies below these thresholds but still engaged in controlled transactions. Exemptions include individuals with only domestic transactions, persons with controlled transactions totaling RM1 million or less annually, and domestic transactions where both parties report consistent Malaysian tax treatment. Documentation must be completed before Form C filing deadline.
Documentation Requirements and Structure
Full documentation comprises three schedules under Transfer Pricing Rules 2023. Schedule 1 covers multinational enterprise information including organizational structure, business description, intangibles, intercompany financing, and financial data. Schedule 2 addresses Malaysian entity specifics including management structure, business strategy, key competitors, financial data, and related party transactions. Schedule 3 applies to cost contribution arrangements. Documentation must include functional analysis identifying functions performed, assets employed, and risks assumed by each party, comparability analysis demonstrating arm\'s length pricing, transfer pricing methodology selection and application, and conclusions supporting pricing determination.
Transfer Pricing Methodologies
Five recognized methodologies apply under the guidelines. Comparable Uncontrolled Price Method compares prices in controlled transactions with comparable uncontrolled transactions. Resale Price Method examines gross margin achieved by distributor purchasing from related party. Cost Plus Method applies markup to costs incurred by supplier. Transactional Net Margin Method examines net profit margin relative to appropriate base. Profit Split Method allocates combined profits based on relative value contributions. Method selection depends on transaction nature, data availability, and reliability.
Low Value-Adding Services Simplification
The guidelines introduce simplified approach for low value-adding services including accounting, HR, IT support, legal, and administrative services. Service providers may apply 5% markup on relevant costs without detailed comparability analysis. This applies when services meet criteria, both parties adopted the simplified approach, and adequate documentation supports service provision and cost allocation.
Penalty Structure for Non-Compliance
Section 113B imposes monetary penalties for failure to furnish documentation within 14 days of LHDN request. Penalties range from RM20,000 for delays under 30 days to RM100,000 for delays exceeding 90 days per year of assessment. Prison terms up to six months may apply. Surcharges up to 5% apply on transfer pricing adjustments when documentation is inadequate. Companies making voluntary disclosures may receive reduced surcharges between 0% to 4% subject to meeting disclosure criteria. Transfer Pricing Tax Audit Framework 2025 provides comprehensive audits may cover six to seven years of assessment, extending further for fraud or negligence cases. Insufficient record-keeping results in fines between RM300 and RM10,000 plus imprisonment up to one year under Section 119A.
Audit Selection and Risk Management
LHDN broadened parameters for selecting taxpayers for audits. Selection criteria include risk assessment of controlled transactions, significant related party transactions, losses or low profitability despite comparable profits, industry benchmarking, information from exchange programs, and documentation non-compliance. Comprehensive audits may be conducted at taxpayer premises, LHDN offices, or mutually agreed locations. Companies should maintain detailed documentation supporting all controlled transactions and demonstrate arm\'s length pricing upon audit commencement. Early engagement with transfer pricing advisors helps companies assess exposure, prepare robust documentation, and implement compliant processes before audits commence.
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Last updated: 13 Oct 2025