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We are writing to highlight to you the following proposed amendments under the Finance Bill 2020 relating to Transfer Pricing (TP) matters:


New surcharge on TP adjustments


Currently, the taxpayer is only subject to a penalty if the TP adjustments made by the Director General of Inland Revenue (DGIR) result in additional tax payable.  Where the TP adjustment does not result in any additional tax payable (i.e. loss making companies or with tax incentives), then, there will be no penalty imposed.


A surcharge of up to 5% will be imposed on the total TP adjustments regardless whether the TP adjustments result in additional tax payable.   For example, if the adjusted income is increased by RM10 million as a result of a TP adjustment, a surcharge of up to RM500,000 may be imposed, even if the taxpayer remains in a non-taxable position.

Effective from 1 January 2021

Penalty for failure to furnish contemporaneous TP documentation


There is no specific penalty imposed for failure to furnish contemporaneous TP documentation within 30 days upon request by the DGIR.


It is proposed that failure to furnish contemporaneous TP documentation within 30 days upon request by the DGIR  is subject to penalty as follows:

Income Tax Act 1967 (ITA)


Section 113B(1)

On conviction:

  • Fine RM20,000 – RM100,000; or
  • prison term up to 6 months; or
  • Both

Section 113B(4)

If no prosecution:

  • Penalty RM20,000 – RM100,000

Effective from 1 January 2021

Power to disregard structure in a controlled transaction


Pursuant to Rule 8 of the Income Tax (Transfer Pricing) Rules 2012 (TP Rules), the DGIR is empowered to disregard and make adjustment to any structure adopted by a person for TP purposes.


A new Section 140A(3A) under the ITA 1967 is proposed to be introduced to empower the DGIR to disregard any structure of a transaction where:

  • the economic substance of that transaction differs from its form; or
  • notwithstanding that the form and substance of that transaction are the same but the arrangements made in relation to the transaction when viewed in totality differ from those which would have been adopted by independent persons behaving in a commercially rational manner, and the structure impedes the DG from determining the appropriate transfer price

The proposed new Section 140A(3A) is to tighten the legislative provisions to ensure that the principal legislation (i.e. the ITA) and the supplementary legislation (i.e. the TP Rules) are on the same footing.

Effective from 1 January 2021

In view of the above new tax offences and penalties, it is crucial to ensure that a TP Documentation be prepared to defend the transfer price on transactions between the related parties and to avoid the tax penalties.


You may contact our TP team if you need any assistance on the preparation of TP Documentation:


Tel no. Email address
Mr Loo Choo Hong 03-2303 0300 (ext 1009)
Mr Lee Yang Seng 03-2303 0300 (ext 1008)
Ms Teoh Siew Hoon 07- 562 9388
Ms Ng Suat Yan 03-2303 0300 (ext 1012)