• Transfer Pricing
Article:

Transfer Pricing Audit Framework 2019

23 December 2019

Bernice Tan , Executive Director, Tax |

On 15 December 2019, the Malaysian Inland Revenue Board (“MIRB”) issued the following updated Tax Audit Frameworks:

  • Tax Audit Framework 2019;
  • Petroleum Tax Audit Framework 2019; and
  • Transfer Pricing Audit Framework 2019.

This is one of the tax reforms proposed by the Tax Reform Committee of Malaysia to identify and propose improvements and additional measures to create a more progressive and effective taxation system.

For taxpayers who are engaged in significant related party transactions, the Transfer Pricing Audit Framework 2019 (“2019 TP Framework”) is effective from 15 December 2019 and replaces the Transfer Pricing Audit Framework 2013 which was issued on 1 April 2013.

The 2019 TP Framework (which is only available in the Bahasa Malaysia version to-date) introduced a number of key updates which are briefly discussed below:

  • Years of Assessment Covered 
    The 2019 TP Framework clarifies that transfer pricing audits may cover up to 7 years in line with Section 91(5) of the Income Tax Act 1967, that gives the Director General a 7-year time bar period to raise an assessment or additional assessment in respect of transfer pricing adjustments.
     
  • Documents to be Submitted prior to Commencement of a Field Audit
    Previously, taxpayers were required to present PowerPoint slides with details of the business during the audit opening meeting. The 2019 TP Framework states that the PowerPoint slides must now be provided to the MIRB at least 7 calendar days prior to the audit visit.
     
  • Tighter Timeline to Furnish Documents and Information
    In a typical transfer pricing audit, taxpayers are granted 21 days to respond to the IRB’s request for documentation and information.  This timeline has been reduced to 14 days.  If the taxpayer does not respond by the deadline, the MIRB may proceed with the audit using a method or approach that is deemed appropriate.
     
  • Tighter Deadline to Respond to MIRB’s Proposed Transfer Pricing Adjustments
    Previously, taxpayers are given 21 days to object to the MIRB’s proposed transfer pricing adjustments. The 2019 TP Framework reduces the period to 18 days.
     
  • Voluntary Disclosure
    Detailed guidance is provided to taxpayers on the procedures for voluntary disclosure for transfer pricing non-compliance.
     
  • Offences and Penalties
    The concessionary penalty rates have been revised as follows:
 

 

Penalty rates (Transfer Pricing)

   No

   Condition

Audit case

Voluntary disclosure case

  1.  

Taxpayer1 has not prepared transfer pricing documentation (“TPD”).

     50%

Not applicable

  1.  

Taxpayer has prepared TPD (in the case of a voluntary disclosure, the TPD has been submitted together with the voluntary disclosure form) but the TPD does not comply fully with the requirements of the Transfer Pricing Guidelines; or

Taxpayer has prepared comprehensive and good quality TPD but fails to submit this within 30 days from the audit notification.

30%

20%

  1.  

Taxpayer has prepared TPD and this is comprehensive and of good quality in accordance with the Transfer Pricing Guidelines and submitted within 30 days from the date of the MIRB’s request for Documentation.

0%

0%

 1 This refers to taxpayers who are required to prepare transfer pricing documentation in accordance with the Transfer Pricing Guidelines 2012.

Key Takeaways

The 2019 TP Framework introduces tighter deadlines for taxpayers to submit documents and information to the MIRB.  In view of this, taxpayers are encouraged to ensure that documents and information that are typically required by the MIRB during a transfer pricing audit are kept readily available on file.