TRANSFER PRICING – LATEST UPDATES

New surcharge on TP adjustments

 Current:

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.

Proposed:

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

Current:

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

Proposed:

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

Effective from 1 January 2021

Current:

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.

Proposed:

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

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