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The Malaysian Inland Revenue Board (“MIRB”) has issued Transfer Pricing (“TP”) Audit Framework 2019 which replaces the TP Audit Framework dated 1 April 2013. The TP Audit Framework 2019 is effective from 15 December 2019.

We wish to highlight below the notable changes / new areas in the TP Audit Framework 2019:-

TP documentation is crucial to substantiate the arm’s length nature of controlled transactions. Therefore, TP documentation has to be prepared accurately and in compliance with the relevant provisions of Income Tax Act, 1967 (“ITA, 1967”), TP Rules 2012 and TP Guidelines 2012.

The years of assessment to be covered will be restricted up to seven years of assessment. However, this does not extend to cover audit cases that involve fraud, willful default and negligence.

Taxpayers are given 14 calendar days to respond to the MIRB’s request for documents and information. For TP documentation, taxpayers are given 30 calendar days to submit to the MIRB.

Taxpayer s are required to prepare presentation slides in relation to, amongst others, business operations and functional analysis. The slide has to be submitted to the MIRB at least 7 calendar days before the audit visit.

 

Shorter time frame for taxpayer to respond to the audit findings issued by the MIRB (i.e. 18 calendar days instead of 21 days).

 
Settled audit cases will not be selected for audit again for the same issues and years of assessment.  

 

Further clarification on voluntary disclosure (“VD”) and new penalty rates are introduced .

 

 

 

New penalty rates under the TP Audit Framework 2019:

No

Condition

Penalty rate (TP issues)

Audit case

Voluntary disclosure

1

Taxpayer* did not prepare TP documentation

50%

Not relevant

2

Taxpayer prepared TP documentation and submitted under VD but did not fully comply with the requirements under the TP Guidelines; or

Taxpayer prepared a comprehensive and good quality TP documentation but failed to submit it within 30 days from the date of request from MIRB.

30%

20%

3

Taxpayer prepared a comprehensive and good quality TP documentation in accordance with TP Guidelines 2012 and submitted within 30 days from the date of request from MIRB. (For VD case, it will be submitted upon the VD is made)

0%

0%

* For category of taxpayers that are required to prepare TP documentation under TP Guidelines 2012 .

 

If taxpayers successfully requested for an extension of time to submit their TP documentation, it will be deemed as late submission as taxpayers failed to submit their TP documentation within the stipulated time frame (i.e. 30 calendar days).

 

Notwithstanding the above, the Director General may use his power under subsection 124(3) of the ITA, 1967 to abate or remit the penalty imposed.


In view of the above amendments, it is important for taxpayers to continue to enhance the quality of their documentation and relevant records as well as effectively evaluate their readiness to be selected for an audit at any time. This is critical to avoid being imposed hefty penalties.

Taxpayers may choose to manage this by undertaking a TP health check to have a better understanding of their TP position. 

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Contact KPMG

Should you have any questions or require further clarification on the TP Audit Framework 2019, please do not hesitate to contact me at +603 7721 7029, Ms Chang Mei Seen at +603 7721 7028 or Mr Ivan Goh at +603 7721 7012.