Transfer pricing documentation is not a year-end formality. Two features of the Malaysian regime make it a matter of preparation rather than response: the time allowed to produce documentation once it is requested is short, and the surcharge applies to the adjustment itself rather than to any tax underpaid. A company in a loss position, or one whose income is exempt, is not outside its reach.
The framework that governs a transfer pricing audit
HASiL issued a dedicated Rangka Kerja Audit Cukai Harga Pindahan which took effect on 31 July 2025 and revoked the previous transfer pricing audit framework dated 24 December 2024. Transfer pricing audit is administered as a distinct discipline with its own procedures, not as a sub-topic of general tax audit.
The framework identifies the provisions that apply specifically to a transfer pricing audit: section 113B (failure to furnish contemporaneous transfer pricing documentation), section 132 (double taxation agreements), section 139 (controlled companies) and section 140A (power to substitute the price, disregard structures and impose a surcharge) of the Income Tax Act 1967.
Which rules apply depends on the year of assessment. The Income Tax (Transfer Pricing) Rules 2012 [P.U.(A) 132/2012] apply up to year of assessment 2022. The Income Tax (Transfer Pricing) Rules 2023 [P.U.(A) 165/2023], gazetted on 29 May 2023, apply from year of assessment 2023 onwards, together with the Malaysian Transfer Pricing Guidelines in force. Documentation prepared to satisfy the earlier rules does not automatically satisfy the later ones.
A comprehensive review may cover up to six years of assessment, and the years covered may be extended to seven years back depending on audit findings. Where fraud, wilful default or negligence is involved, subsection 91(3) removes that limit.
The request arrives in two stages, and the second starts the penalty clock
The sequence matters: the two stages carry different consequences and are frequently described as though they were one.
- Letter requesting documents and information. HASiL first issues a Surat Memohon Dokumen dan Maklumat seeking documents and information, including the documentation itself. The taxpayer is required to respond within fourteen calendar days of the date of that letter.
- Written notice under section 113B. If the documentation is not produced within that period, a written notice is then issued under section 113B and subparagraph 5(3) of P.U.(A) 165/2023. A further fourteen calendar days runs from the date that notice is served, and it is the expiry of this second period that starts the penalty.
Calendar days, not working days. Across a festive or public holiday period the practical window is shorter still. Documentation that has to be assembled, benchmarked or drafted after the first letter arrives will not be ready, which is the point of the contemporaneous requirement: the analysis is expected to have existed when the pricing was set, not to be constructed when it is questioned.
Where documentation is submitted but found to be incomplete, the audit officer is required to say so in writing within fourteen days of its submission.
What contemporaneous documentation has to contain
Contemporaneous documentation exists to demonstrate that controlled transactions were priced consistently with the arm’s length principle, using analysis available when the pricing was set. In practice it needs to identify the related parties and the controlled transactions, the functions performed, assets used and risks assumed by each party, the method selected and the reason for selecting it, the comparables and the basis for accepting them, and the financial results the analysis supports. P.U.(A) 165/2023 and the guidelines in force prescribe the required contents, and the documentation is expected to be completed and dated before the return for the relevant year is filed.
Completeness is not a lesser issue than timeliness. The framework applies the same penalty to documentation that arrives within time but is not prepared in accordance with P.U.(A) 165/2023 and the current guidelines as it does to documentation that arrives late.
The most common weakness is not the absence of a document but a document that no longer describes the business. Where functions, risks, financing or supply arrangements have changed, documentation prepared for an earlier year describes an arrangement that no longer exists.
The section 113B penalty is set by a table, not by negotiation
Where no prosecution is instituted, subsection 113B(4) allows a penalty to be imposed by written notice or notice of assessment. The framework sets the amount by reference to how late the documentation is, measured from the expiry of the fourteen days following service of the written notice until complete documentation is submitted:
- up to 7 days late — RM20,000
- more than 7 and up to 14 days — RM40,000
- more than 14 and up to 21 days — RM60,000
- more than 21 and up to 28 days — RM80,000
- more than 28 days — RM100,000
Where the matter is prosecuted instead, conviction under section 113B carries a fine of not less than RM20,000 and not more than RM100,000, or imprisonment not exceeding six months, or both.
Two consequences follow. The penalty is applied separately for each year of assessment involved, so a review covering several years multiplies the amount rather than aggregating it. And because the scale is fixed by elapsed days rather than by argument, the cost of delay is known in advance, which is a reason to submit what genuinely exists rather than hold back while refining it.
Relief from the subsection 113B(4) penalty is provided where the accounting period began before P.U.(A) 165/2023 was gazetted on 29 May 2023.
The surcharge attaches to the adjustment, not to the tax
For basis periods beginning on or after 1 January 2021, where a transfer pricing audit results in an adjustment that increases income or reduces a deduction or a loss, a surcharge may be imposed under subsection 140A(3C) at a rate of up to 5% of the amount of the adjustment.
The framework states directly that the surcharge may still be imposed even where no assessment or additional assessment is raised, because the rate is applied to the amount of the transfer pricing adjustment. This is the feature most often misunderstood. A company in a loss position, or one whose income is exempt, may have no additional tax to pay and still face a surcharge, because the charge does not depend on tax arising.
The consequence is that exposure should be measured against the size of a potential adjustment, not against the tax payable position. An entity concluding it has no exposure because it pays no tax has answered a different question.
Basis periods beginning before 1 January 2021 — still within the years a review can reach — follow a different structure: a subsection 113(2) penalty applied at 15%, 30% and 45% for a first, second, and third or subsequent offence.
A domestic adjustment is not automatically mirrored
Where a transfer pricing review involves only related companies in Malaysia and an adjustment is made to one of them, a corresponding adjustment of the same amount is not given automatically to the other related party. The other party must apply for it, and a review is then carried out to establish whether the application can be considered under the Act.
This matters for group planning. An adjustment a group expects to be neutral across two Malaysian entities may not be neutral unless the second entity applies and the application succeeds. Where the adjustment is cross-border and involves a treaty partner, the Mutual Agreement Procedure is the route to consider rather than a domestic corresponding adjustment.
Appeal routes differ too: an assessment, or a written notice imposing a section 113B penalty, is appealed on the prescribed form to the Special Commissioners of Income Tax within thirty days of service, whereas a subsection 140A(3C) surcharge notice is appealed by written application for reduction or remission to the HASiL office that issued it.
Voluntary disclosure carries a lower surcharge range
A taxpayer may make a voluntary disclosure after the filing deadline for the return but before audit action begins. Under the framework, the surcharge rate for such a disclosure is 0% to 4%, against up to 5% where the adjustment follows an audit finding.
The disclosure is made on the prescribed form for transfer pricing cases and is expected to be accompanied by the documentation and organisation chart for the relevant years, the audited accounts, tax computation and return copy, the comparability analysis with the comparables’ audited accounts, and details of any omitted income or reporting error. An acknowledgement is issued within five working days, and a disclosure unsupported by those documents, without reasonable cause, may not be accepted.
The margin between the two ranges should not be oversold. Whether to disclose depends on whether an adjustment is genuinely expected, its likely size, and the entity’s own assessment of its position — not on the surcharge differential alone.
Where support helps, and where it may not be needed
Not every business with a related party needs external transfer pricing support, and it is worth saying so plainly. Where controlled transactions are few, stable, modest in value and already documented in a form matching the current rules, maintaining that documentation internally may be entirely reasonable. Where a group’s arrangements have not changed and the existing analysis remains accurate, the annual exercise may be a limited refresh rather than a new project. Some businesses have no controlled transactions at all, in which case no documentation obligation arises under these rules.
The position is different where functions, financing or supply arrangements have changed, where intangibles or intra-group services are involved, where comparables have to be searched and defended, or where a notice has already been served. Those are the circumstances in which the fourteen-day window and a penalty scale fixed by elapsed days make preparation difficult to retrofit.
Practical preparation:
- Identify every controlled transaction, including services, financing, guarantees and intangibles — not only goods.
- Confirm whether documentation obligations have changed following any restructuring, acquisition or new intra-group arrangement.
- Keep documentation contemporaneous, complete it before the return is filed, and record the date the analysis was performed.
- Check the contents against what P.U.(A) 165/2023 and the guidelines in force require, since incomplete documentation is penalised on the same basis as late documentation.
- Assess exposure by reference to the size of any potential adjustment, not to the tax payable position.
- Plan on the basis that response windows are measured in calendar days.
- Confirm current requirements against HASiL’s own transfer pricing material, which has been revised in recent years.
Limitations and next steps
This article is general information, not tax advice for a particular organisation, and it does not determine any entity’s transfer pricing obligations, documentation requirements or exposure. Requirements are fact-specific and are periodically revised. Confirm the current position against HASiL’s own published material and the applicable rules, and obtain fact-specific advice where the amounts are material.
To discuss your circumstances, contact Saifudin & Co.