BDO Transfer Pricing News

Between May 2023 and December 2024, the Inland Revenue Board of Malaysia (IRBM) issued three interlocking instruments that now govern transfer pricing):

• The Income Tax (Transfer Pricing) Rules 2023
• The Malaysian Transfer Pricing Guidelines 2024 (MTPG 2024)
• The Transfer Pricing Tax Audit Framework 2024 (TPAF 2024)

Together, these documents tighten documentation standards, introduce safe harbours, and impose new penalties -- most notably the Section 113B administrative penalty for late, incomplete, or absent transfer pricing documentation. TPAF 2024 grants a transitional concession that ends with financial years ending on 31 May 2024; from that point onward, the administrative penalties are applied on a tiered basis according to the number of days’ delay in furnishing complete transfer pricing documentation.

In particular, the largest wave of affected taxpayers was companies with a 31 December 2024 year-end, because most Malaysian groups close their books in December. For those taxpayers:

▶           The corporate income tax return (Form C) for YA 2024 was due 31 July 2025
▶           Taking into account IRBM’s customary one-month grace period, the practical filing deadline was 31 August 2025
▶           Contemporaneous transfer pricing documentation—full or minimum -- must therefore be brought into existence, dated and outcome-tested before 31 August 2025.

The discussion that follows highlights three measures that ease compliance, then examines four areas where obligations have intensified, and finally outlines five unresolved issues taxpayers should keep in mind as they complete their documentation.

Three Positive Developments
 

1.	Higher threshold for comprehensive transfer pricing documentation (CTPD) – Full documentation is required only if a taxpayer (i) earns gross business income greater than  MYR 30 million and has cross-border controlled transactions of MYR 10 million or more; or (ii) provides/receives controlled financial assistance of more than MYR 50 million annually.	Many mid-market groups may now adopt the lighter minimum CTPD format, reducing compliance costs.
2.	Statutory exemptions from documentation – No transfer pricing report is required when total controlled transactions do not exceed MYR 1 million, or when all transactions are domestic, both parties share the same headline rate, neither enjoys tax incentives, and neither incurred losses in the two preceding years.	Micro-transactions and purely domestic dealings are relieved of documentation, although the arm’s length principle still applies.
3.	Safe harbour for low-value-adding services (LVAS) – Qualifying support functions rendered from Malaysia (such as accounting, HR, or IT help desk) may apply a fixed 5% cost-plus mark-up without a benchmarking study.	Routine intragroup services can be priced on a simplified basis, saving time and resources.

Four Heightened Compliance Obligations
 

1.	Mandatory ex-post outcome testing & date-stamp – Transfer pricing documentation must be brought into existence and dated before filing the corporate tax return.	A year-end compliance checklist is essential; an omitted date constitutes noncompliance.
2.	Expanded content for Full CTPD – Schedule 1 (MNE information), pass-through-cost analyses, business-restructuring compensation studies, and explicit loss justification write-ups are now required.	Additional data gathering and cross-functional input are necessary.
3.	Stringent arm’s-length range with possible median adjustment – The acceptable range is narrowed to the 37.5th–62.5th percentiles; IRBM may adjust results to (or above) the median, even when the tested result falls within the range.	Greater emphasis on precise comparability; upward adjustments are more likely.
4.	Section 113B penalty and Section 140A(3C) surcharge – Failure to furnish compliant documentation within 14 days of notice attracts a fine of MYR 20,000–MYR 100,000, scaled by delay; any transfer pricing adjustment may also carry a surcharge of up to 5%.	Timeliness and report quality are critical; surcharges can materially increase the cost of a transfer pricing adjustment.

Five Unresolved Issues to Monitor
 

	Issue	Why it matters
1.	Comparability analysis for minimum TP reports – MTPG 2024 does not mandate a benchmarking analysis for minimum TP reports, but audit practice is untested.	Minimum CTPD may, in practice, still need benchmarking support.
2.	Timing gap of comparable data – Single-year testing approach in Malaysia may force reliance on prior-year comparable data; future audits could challenge the arm’s-length conclusion drawn in the transfer pricing reports.	Risk of retrospective challenges to files prepared soon after year-end.
3.	Detailed benchmarking parameters – New rules on deductive vs. additive searches, 10% revenue filters and six-back,-six-forward financial year-end tolerances could prove either helpful or burdensome.	2025 audit experience will reveal the effects and how strictly these parameters are applied.
4.	Guidance on intragroup financial transactions – Detailed guidance has not yet been issued by IRBM.	Financial transactions may face either simplified safe harbours or more rigorous credit-rating work once guidelines appear.
5.	Application of transfer pricing surcharges – TPAF 2024 authorises a surcharge of up to 5% on any transfer pricing adjustment. A limited-time voluntary disclosure window with reduced rates of 1-2% was offered by the IRBM, but it closed on 31 July 2025; after that, the standard 5% rate is expected to apply in most cases and discretionary waivers remain uncertain.	Financial exposure could increase materially once the voluntary disclosure window closes.

 

Recommended Actions for 2025 and Beyond

• Leverage reliefs – Confirm eligibility for higher thresholds, statutory exemptions, and the low-value-adding services 5% mark-up.
• Strengthen processes – Enforce strict timelines, include date stamps, perform outcome testing and benchmark toward the median of the tighter range.
• Stay informed – Track forthcoming guidance on intragroup financial transactions and observe early IRBM audit practice on the Section 113B penalty, minimum CTPD and surcharge application.

Tan Chin Teck
BDO in Malaysia