The Inland Revenue Board of Malaysia (IRBM) released the updated Malaysian Transfer Pricing Guidelines 2024 (MTPG 2024) on 24 December 2024, requiring businesses to adapt to new rules, thresholds, and compliance expectations which apply retrospectively from the Year of Assessment 2023. This makes transfer pricing an increasingly critical area of concern for businesses in Malaysia, particularly as the Inland Revenue Board of Malaysia (IRBM) tightens regulations and imposes penalties for non-compliance to ensure tax fairness in related-party transactions.
Whether you’re a multinational enterprise (MNE), a small and medium enterprise (SME) or a digital business, understanding Malaysia’s transfer pricing landscape is essential to stay compliant and minimise audit risks.
In this article, we will look at who is affected by transfer pricing regulations in Malaysia, revisit the latest key provisions of Section 140A of the Income Tax Act 1967, look at the updates introduced by MTPG 2024, understand the penalties for non-compliance and outline several actionable tips for businesses to thrive with compliance.
What Is Transfer Pricing and Why Does It Matter in Malaysia?
Transfer pricing refers to the pricing of goods, services, intangibles, or financial transactions between related entities within related companies. In Malaysia, the IRBM enforces transfer pricing rules to ensure these transactions adhere to the arm’s-length principle as the price should be what two independent parties would agree upon under similar circumstances.
The Malaysian economy – being heavily reliant on exports and foreign direct investment – makes transfer pricing a key tax compliance area. The IRBM aligns its rules with the Organisation for Economic Co-operation and Development (OECD) guidelines, particularly through the adoption of the Base Erosion and Profit Shifting (BEPS) framework to ensure that profits are taxed where economic activities occur, so as to prevent tax evasion by MNEs attempting to shifting profits to low-tax jurisdictions.
Failure to comply with Malaysia’s transfer pricing regulations can lead to audits, adjustments, significant penalties, and reputational damage. Non-compliance can lead to significant financial consequences, making it imperative to stay updated on the latest regulations and navigate the rules confidently to ensure compliance always. Furthermore, with the MTPG 2024 introducing stricter thresholds and documentation requirements, it is increasingly pivotal to get your transfer pricing implementation right.
Who does it apply to?
Before diving deeper into the regulations, it’s crucial to determine whether Malaysia’s transfer pricing rules apply to your business. The IRBM’s guidelines target transactions between associated persons, and specific thresholds and exemptions dictate the extent of your compliance obligations. Here’s how to assess if transfer pricing rules apply to you in 2025:
Are You Dealing with Associated Persons?
Transfer pricing rules apply to transactions between associated persons, as defined under Section 140A(5A) of the ITA 1967.
You are considered an associated person if:
a. You hold 20% or more of the shareholding in another company (or vice versa); and
b. You have influence over the other entity through:
- Provision of proprietary rights (e.g., its patents or trademarks);
- Control over business activities (e.g., its pricing or supply decisions); or
- The power to appoint one or more of its directors.
This definition captures not only MNEs but also domestic businesses with related-party transactions. Transfer pricing rules will apply if your business engages in transactions with related entities, either internationally or domestic.
DO YOU NEED TO PREPARE FULL DOCUMENTATION?
MTPG 2024 requires you to prepare full Contemporaneous Transfer Pricing Documentation (CTPD):
- Your annual gross business income exceeds RM30 million and your total cross-border controlled transactions exceed RM10 million annually; or
- You provide controlled financial assistance (e.g., loans, guarantees) exceeding RM50 million annually.
If your business meets or exceeds any of the above, you must prepare full CTPD to demonstrate compliance with the arm’s-length principle.
Should your business operate below these levels, you are still obligated to comply with the arm’s-length principle and maintain basic documentation to substantiate your pricing decisions during audits.
DO YOU QUALIFY FOR EXEMPTIOn?
The MTPG 2024 expands exemptions to certain business from preparing full CTPD:
- If your gross income is below RM30 million and cross-border transactions are under RM10 million, you will need to prepare Minimum Transfer Pricing Documentation instead of a full CTPD.
- Transactions between related entities within Malaysia may be exempt from full documentation if the tax rates applicable to both entities are the same (e.g., both are subject to the standard 24% corporate tax rate), unless the IRBM identifies a tax avoidance motive.
Note that even if you qualify for exemption, the IRBM can audit your transactions if they suspect non-compliance with the arm’s-length principle.
For example, the IRBM may initiate investigations on your group of companies if your Malaysian company consistently reports losses while a related foreign entity enjoys high profits.
Who Should Pay Attention?
- MNEs with Cross-Border Operations
If you are part of a multinational group with subsidiaries or affiliates abroad, transfer pricing rules are highly relevant especially with the new Capital Gains Tax (CGT) provisions affecting cross-border asset disposals. - Domestic Companies with Related-Party Transactions
All domestically-based companies with related entities (e.g. a parent company or sister firm) must ensure that pricing aligns with market standards. - Businesses Undergoing Restructuring
If you are restructuring operations (e.g. reallocating functions or assets), the MTPG 2024 applies to you.
If any of the above scenarios apply to your business, it’s time to navigate Malaysia’s transfer pricing regulations strategically to ensure compliance and success.
Key Provisions of Section 140A of Income Tax Act 1967
Section 140A of the Income Tax Act 1967 (ITA) is the cornerstone of transfer pricing regulation in Malaysia. It empowers the Director General of Inland Revenue (DGIR) to enforce the arm’s-length principle and make adjustments to related-party transactions. Following are the key subsections of the ITA:
Section 140A(2)
Mandates that where a person in the basis period for a Year of Assessment enters into a transaction with an associated person for that year for the acquisition or supply of property or services, then that person shall determine and apply the arm’s length price for such acquisition or supply.
Section 140A(3A) and 140A(3B)
Allows for the DGIR to disregard any structure adopted by a person in entering into a transaction if:
- The economic substance of that transaction differs from its form; or
- The form and substance of that transaction are the same but the arrangement made in relation to the transaction, viewed in totality, differs from those which would have been adopted by independent persons behaving in a commercially rational manner.
Section 140A(3C) and 140A(3D)
Implements a surcharge of up to 5% on any increase of any income or reduction of any deduction or loss resulting by any transfer pricing adjustments decided by the DGIR. This surcharge shall be collected as tax under Sections 103 to 106 of the ITA.
SECTION 140A (5A)
Provides a definition – effective from 1 November 2023 – that clarifies when entities are considered associated or related parties for transfer pricing purposes. It refers “control” to persons who own shares of the other person, or a third person who owns shares of both persons, where the percentage of the share capital held in either situation is 20% or more and:
- The business operations of that person depends on the proprietary rights (i.e. patents, non-patented technological know-how, trademarks, or copyrights) provided by the other person or a third person;
- The business activities, such as purchases, sales, receipt of services, provision of services, of that person are specified by the other person, and the prices and other conditions relating to the supply are influenced by such other person or a third person; or
- Where one or more of the directors or members of the board of directors of a person are appointed by the other person or a third person.
The above provisions highlight IRBM’s authority to scrutinise transactions and ensure compliance. As compliance is increasing in complexity with the addition of CGT and e-invoicing requirements in the 2023 revision of ITA, it is imperative for businesses to navigate strategically for success through compliance.
What’s New in MTPG 2024?
The MTPG 2024, which was released on 24 December 2024, supersedes the 2012 guidelines and aligns with the Income Tax (Transfer Pricing) Rules 2023 (TPR 2023). These updates, effective retrospectively from the Year of Assessment 2023, introduce several changes that businesses must address in 2025. Here’s a breakdown:
Revised Documentation Thresholds
The MTPG 2024 updates the thresholds for preparing full Contemporaneous Transfer Pricing Documentation (CTPD):
- Annual gross business income exceeding RM30 million and total cross-border controlled transactions exceeding RM10 million annually; or
- Controlled financial assistance (e.g., loans, guarantees) exceeds RM50 million annually.
Expanded Exemption Criteria
The type of companies that are granted exemptions from preparing full CTPD is expanded. That said, even exempt taxpayers must comply with the arm’s-length principle and retain supporting documents.
This offers relief for smaller businesses but emphasises the need for maintaining proper documentation that prove compliance to the arms-length principal to ensure long-term compliance.
Simplified Approach for Low Value-Adding Intra-Group Services (LVAS)
A 5% mark-up on LVAS without requiring a benchmarking study is allowed, provided that the services do not involve unique intangibles, create such intangibles, or involve significant risk.
This simplifies compliance for non-core routine services such as accounting, human resources, legal and administrative support.
DETAILED EXPLANATION OF Business Restructuring
Companies are required to document and explain rationale behind restructuring decisions, particularly on the functional, asset and risk changes. Further explanation is required if the restructuring has a negative impact on its Malaysia business.
Financing Assistance Transactions
In addition to loan documentation and analyses, companies need to provide evidence loan agreements are reviewed periodically.
A separate guideline will be issued by IRBM to address intra-group financial transactions.
Retrospective Application of MTPG 2024
The MTPG 2024 applies retrospectively from Year of Assessment 2023, hence requiring businesses to review and update their 2023 and 2024 documentation to align with the new standards.
Penalties for Non-Compliance
Failure to Submit Transfer Pricing Documentation (TPD) on Time
As mandated by Section 113B of ITA, taxpayers must furnish contemporaneous TPD within 14 days upon request by the IRBM.
Failure to comply with the above attracts a fine ranging from RM20,000 to RM100,000 per Year of Assessment:
Upon conviction, the offender will be subjected the above fine, imprisonment of up to 6 months or both.
Since IRBM’s comprehensive audit examination of transfer pricing cases can cover up to 7 Years of Assessment, the financial impact of the above penalty on an offender that has no contemporaneous TPD on file can reach RM700,000.
Surcharge on Transfer Pricing Adjustments
Under Sections 140A(3C) and 140A(3D) of the ITA, IRBM can impose a surcharge of up to 5% on any increase in income or reduction in tax deduction resulting from transfer pricing adjustments.
Taxpayers who report or disclose to the IRBM voluntarily may face a reduced surcharge rate of up to 4%.
PRACTICAL TIPS IN NAVIGATING TRANSFER PRICING IN MALAYSIA
Here are several actionable tips to navigate evolving transfer pricing landscape in Malaysia strategically and succeed through compliance:
- Establish Transfer Pricing Documentation, Regardless of Size
Develop and maintain Minimum Transfer Pricing Documentation for each Year of Assessment if you are operating below the stipulated levels. This helps maintain compliance over time and acts as your basic transfer pricing infrastructure that can be upgraded as your business grows. - Adopt Digital Record-Keeping
As ITA revision mandates e-invoicing, digital records of related-party transactions need to be maintained to streamline audit submissions and ensure compliance with the 14-day window. This also supports long-term documentation retention. - Conduct Internal Reviews
Regularly review related-party transactions to ensure they align with the arm’s-length principle. Use industry benchmarks to justify pricing, particularly cross-border asset disposals, to succeed through compliance. - Document Contemporaneously
Prepare documentation in real-time is much better than during an audit as the 14-day window . Ensure that it includes functional analyses, economic analyses, and industry benchmarks to build a robust compliance foundation. - Utilise the Safe Harbour for LVAS
Apply the 5% mark-up safe harbour rule for low value-adding intra-group services to simplify documentation and reduce compliance cost as well as effort. - Seek Support and Assistance
Consult a reliable transfer pricing advisor to secure long-term success through compliance.
KEY TAKEAWAYS
The 2023 revision of ITA 1967 – combined with MTPG 2024 – introduces several complexities for transfer pricing compliance. Firstly, the introduction of CGT on cross-border asset disposals under Section 15C increases scrutiny on related-party transactions, requiring businesses to ensure that pricing tightly aligns with market value. Secondly, e-invoicing requirements under Section 82(2B) necessitate investment into and attention on robust digital record-keepingfor long-term compliance. Thirdly, MTPG 2024’s retrospective application to YA 2023 may catch businesses off-guard, particularly those who are unprepared for the stricter rules. Finally, businesses need to be highly mindful of the 14-day submission window during audits and with the penalties in place for non-compliance.
On the other hand, the lower transaction threshold (RM10 million for cross-border dealings) increases the compliance burden for MNEs, while the higher income threshold (RM30 million) offers some relief to smaller firms. Additionally, the simplified LVAS approach is a welcome relief, and the forthcoming guideline on financing assistance will provide much-needed clarity.
