Malaysia: Transfer pricing measures included in Finance Bill 2020

Malaysia: Transfer pricing measures

The Finance Bill 2020 includes the following transfer pricing-related proposed amendments to the Income Tax Act, 1967.

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The following measures are proposed to be effective 1 January 2021.

  • Penalties for failure to furnish transfer pricing documentation (new section 113B): Currently, there is no specific provision in the tax law that penalises a taxpayer that fails to furnish contemporaneous transfer pricing documentation in a timely manner (typically within 30 days of a written notice of request from the Inland Revenue Board). The proposed measure would impose penalties for failure to timely furnish transfer pricing documentation.
  • Authority to disregard structures in a controlled transaction (section 140A): Rule 8 of the Income Tax (Transfer Pricing) Rules 2012 would be inserted into the tax law, under new subsections that would grant authority to the Director General of Inland Revenue to disregard and recharacterise any structure adopted by a person in a controlled transaction.
  • Surcharge for transfer pricing adjustment (section 140A): Currently, a penalty is imposed when a transfer pricing adjustment made during a tax audit results in additional tax payable. The penalty is to be applied on the amount of additional tax payable. However, in cases when a transfer pricing adjustment does not result in additional tax payable, penalties cannot be imposed. It is now proposed that new subsections be inserted in the tax law to allow the Inland Revenue Board to impose a surcharge of not more than 5% on any transfer pricing adjustment made during all tax audit and investigation cases, whether the adjustment is taxable or not.

Read more about the budget and Finance Bill 2020 on a webpage of the KPMG member firm in Malaysia.

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