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Deloitte TP Lens is a podcast series designed specifically for transfer pricing professionals across Southeast Asia. In each episode, we cut through the complexity to bring you focused insights on the most pressing transfer pricing hot topics, with a special spotlight on specific jurisdictions.
Whether you are a tax executive, finance professional, or compliance officer, Deloitte TP Lens is your go-to resource. From legislative changes and tax authority rulings to practical tips for businesses, we delve into relevant and timely issues that are necessary to stay ahead in this dynamic landscape.
For more information, visit:
https://www.deloitte.com/southeast-asia/en/services/tax/perspectives/deloitte-tp-lens.html
Gagan:
Welcome to Deloitte TP Lens, your go-to source for topical transfer pricing updates. So this month we are focusing on Malaysia and this episode is a part of our Southeast Asia webcast series for this year. I'm Gagan, Transfer Pricing Partner in Deloitte, Malaysia and I'll be your host and moderator for today's episode.
Today we'll be discussing about evolving transfer pricing regime and transfer pricing audit landscape of Malaysia. So just setting the context here first, so Malaysia transfer pricing regime, I would say is relatively mature in the region, have been formally established in 2009. However, over the past two years, there have been a significant overhaul through revised transfer pricing rules, guidelines, audit framework.
So these revisions were introduced to better align the Malaysia transfer pricing regime with the global standards, particularly the OECD developments. And I would also say to incorporate the learning from past audit proceedings and court litigation which happened in Malaysia. Alongside these developments, we are observing new type of transfer pricing disputes cropping up.
Therefore, all in all, I would say staying updated and remaining compliant is more important than ever for taxpayers. So to help us navigate these developments, I'm also joined by Anil, my fellow transfer pricing partner from Kuala Lumpur practise and Ashish from our TP director based in Penang. So Anil and Ashish, welcome both of you to TP Lens podcast.
Let us start the discussion, maybe a small introduction. Anil, maybe you start first.
Anil:
Thank you, Gagan, for having me on this podcast.
Hi, everyone. I'm Anil, a transfer pricing partner with Deloitte Southeast Asia based in Kuala Lumpur. Mainly, I focus on transfer pricing controversies and large-scale TP compliance work with a specific focus on automobile and telecommunication clients.
Ashish:
Hi. Thanks, Anil. Hi, Gagan. Excited to be part of this podcast with you and Anil.
A quick introduction. I'm Ashish, a transfer pricing director with Deloitte Southeast Asia.
As Gagan, you mentioned, I'm based in Penang. A large portion of my portfolio comprises of electronics and electricals, which is under the technology, media and telecom sector, apart from domestic and other foreign-owned businesses in the consumer goods space. Over to you, Gagan.
Gagan:
Okay. Thanks, Anil and Ashish, for the introduction. Maybe to start with, our listeners may need a quick overview of the transfer pricing regime of Malaysia.
And Ashish, I'll go with you first. Could you help us to summarise the current TP requirements in Malaysia, more specifically on compliance, because there are significant developments in the past two years, right, in this practise? Ashish?
Ashish:
Yeah, thanks. Sure, Gagan.
So, if you see the Malaysia landscape over the past two to three years, we have the introduction of the new transfer pricing rules in 2023, which was supported by the release of the guidelines in 2024. And if we look into the major thrust of these new changes and developments, they're more towards refining the annual TP documentation and compliance requirements. Malaysia has introduced a new dating requirement.
And what it means that the taxpayers are required to prepare and date the report before the due date of tax return. And in addition to that, taxpayers need to keep few local nuances in consideration during the preparation of TP documentation. To name a few, use of local Malaysian comparables.
When you do the benchmarking, you need to take care of the local Malaysian comparables, a narrower range as compared to the interquartile range. Use of latest single-year data instead of the generally accepted weighted average results to form the interquartile range. But having said that, the policy makers have also provided relaxations for small and medium enterprises and those entities who have only, you know, domestic control transactions.
But at the same time, they need to fulfil certain conditions of no tax arbitrage and need to maintain sufficient documentation for arm's length justification. And if you look into the cross-border transactions, the thresholds have been amended for the preparation of a full report in Malaysia. So while on the other hand, we have certain relaxations being introduced.
In parallel, there is an expected increased documentation requirements for specific transactions. Includes the financial assistance, loans, corporate guarantees, intangibles related transactions, intragroup services, business restructuring, and etc. So this shows that IRB would like to conduct audits on specific focus-led issues.
Another point to highlight is a welcome move. I believe Malaysia was waiting for it, is the introduction of the OECD-aligned scheme for low-value adding services to simplify the intragroup servicing charging. This will immensely benefit the burden of shared services entities in Malaysia, who were otherwise subject to significant documentation requirements.
So all in all, Gagan, I would say it's a well-balanced approach from a risk assessment perspective, which will also help the authorities to focus on specific issues. It is also worthwhile to note that the TP audit framework has also been updated as of July 2025 this year, which explains the application of the range of penalties for delay in preparation of TP documentation. So I guess, Gagan, this summarises the major developments which Malaysia has over the past few years.
Gagan:
Okay, thanks Ashish for providing the brief overview of the recent changes and I would stress the word brief because devil is in the details. So it seems no surprise why audits are also becoming quite focused now in Malaysia and with that probably I'll move to Anil. Anil, what are the top two or three trends you see in the current TP audit landscape and how has been your experience dealing with these kind of issues?
Anil:
Thanks Gagan and Ashish for summarising the current compliance landscape in Malaysia.
For the benefit of listeners, I just want to split the controversy landscape in Malaysia and in two parts. One is those traditional issues which were always remained focused for the IRB, such as TP method selection, comparable companies, choice of comparable companies, economic adjustment, and justifying the losses if you are making a lot of losses. Having said that, now the focus is moved on a very complex or unique transaction, which also ties back with the intention of the IRB to revise the Malaysia TP guidelines as well as the recent update happening at OECD level.
First, I will talk about the IRB focus area on a financial transaction. So what we have seen in the market that IRB is currently focussing on a domestic loan transaction. These kind of transactions are low hanging fruit for the Malaysian IRB, wherein if loan is interest-free or the computed rate is not supported with any benchmarking. We have seen a lot of million-dollar MY adjustment happening in the past.
Moving to the cross-border, we have seen that if the interest loan is not supported with a proper benchmarking analysis, and especially if the rate is lower as compared to the market rate, we have seen in a cross-border situation, IRB is imposing the surcharge. There are certain clarifications to be obtained from the IRB, but we have seen that a lot of things happening into this space.
The one defensive strategy we have seen is a quasi-equity argument, which is also based on the concept of delineation of the transaction. To be very honest, Gagan, this is a very interesting area to keep a watch as we understand the IRB is also drafting new detailed guidelines on the financial transaction.
Moving on to the second issue, which is on the high end of the IRB at this moment is business restructuring. Considering the economic environment since COVID, there is an increase in business restructuring activity, and it's bound to happen due to alignment of the supply chain expectation. But at the same time, the profit allocation based on the relevant function and risk play an important role. Hence, we are experiencing intensive scrutiny on the deals where the taxpayer has converted them from a full-fledged manufacturer, maybe to a lower margin-toll manufacturer, or a full-fledged distributor to a LRD without a real change into the day-to-day function.
The IRB is demanding extensive documentation and evidence to prove that it's commercially rational, and the test is there's an actual transfer of function and risk. This is a major point of focus, especially those companies coming out of the tax-intensive periods. To defend these kinds of complex transactions, documentation plays a very key role, Gagan. So, we always suggest the client to have robust documentation to defend all these controversies.
Gagan:
Yeah, indeed. I agree, Anil.
Yeah. So, thanks for sharing your audit experience. And indeed, I think the documentation is an important part of transfer pricing in any scenario.
Right. So, Ashish, since you are in Penang, right, and there are a large number of foreign-owned electronic and electric businesses, and many of them are also enjoying tax holidays. So, is TP an important consideration for them as well? Since at least theoretically, these developments don't have any reason to shift profit overseas, right? So, what is the trend you are seeing in that space?
Ashish:
Yeah, thanks, Gagan.
So, yeah, TP is indeed very important, Gagan. So, if you observe the incentives regime which Malaysia government has to offer, it has, you know, binary status, which is mostly towards the entities. And we have principal hub, which are mostly towards the regional hub presence.
And the recent, what is being common among the taxpayers is the green investments tax allowances. So, if you look into these incentives, they would have both businesses, like operations-related conditions and certain tax-related conditions to comply with in order for the taxpayers to benefit of these incentives. And one of the common conditions in all of these categories of incentives is that the company should comply with the applicable TP rules and guidelines, right? So, if you see binary status or principal hub, even from green investments, a separate certification from a local tax agent is required to certify that the taxpayer has complied with the transfer pricing rules and guidelines.
So, I would say the implicit expectation is not to look at TP as mere compliance obligations, but it should be infused in the business controls and an adequate entity-level framework should be in place. We have experienced during tax audits, if the transactions are related party transactions are not an arm's length, the authorities may deny the incentive claims in totality, depending upon the facts and circumstances. So, you know, moving with the trend, the company should focus on operationalising the TP policies across the organisations.
This will help ensure alignment with the departments and I would say will, you know, kind of have a governance mechanism in place to avoid disputes with authorities in the event of an audit. Yeah, over to you Gagan.
Gagan:
Thanks Ashish. And probably we'll stay on that point regarding the corporate governance, which I think you just alluded to.
So, Inland Revenue Board of Malaysia has also introduced tax corporate governance framework, so called as TCGF, right? So, it was introduced in 2022 and transfer pricing is an important component of that framework. So, with the increasing complexity of intragroup transactions and significant compliance burden, which is on the taxpayer, I would say that this programme is a good addition by the Malaysia tax authorities, by the IRB, to aid the corporate compliance and also to uphold the trusted relationship with the taxpayers, right, from a transfer pricing perspective as well.
So, Anil, Ashish, any thoughts on this before we kind of conclude the session? So, Anil, maybe you go first to comment upon that part.
Anil:
I completely agree with you. You see that TCGF right now in Malaysia is on a voluntary basis.
And this programme looks very promising to me as it offers a lot of benefit, if you talk about such as a quick processing of refund, priority treatment, as you have a dedicated officer to entertain you if, let's say, you have an enquiry and clarification. And the most important one is fewer audit. So, basically, it will increase the certainty for the TP.
And the most importantly, what we are saying that TP is an important pillar of this programme. And companies should explore this programme instead of going for those traditional way of managing their TP risk. To me, it's very promising.
Everyone should opt for it if, let's say, they are qualified. Yeah, Gagan?
Ashish:
Yeah, I think, yeah. Thanks, Anil.
So, to add on, Gagan, to Anil's suggestions, I would say this framework is increasingly essential for Malaysian businesses to manage reputational risk and provide a defensive shield against tax audits, and which will help to optimise resources for both taxpayers and authorities. So, apart from the transfer pricing updates, which we spoke in the past two to three years, if you observe the direction in which the Malaysian government is heading, there have been introductions of invoicing in Malaysia, and the recently introduced MDT assessments, you know, starting beginning of next year, I would say a full-fledged governance framework adoption in taxes anyway looks like an inevitable future in Malaysia. So, for taxpayers, the maturity path for implementing robust tax governance is any company can be effectively and efficiently managed and facilitated by technology and automation tools.
And one good point to add on for this framework that the MNEs that already have a framework at a group level in other advanced jurisdictions, mostly in the European sector, they would find it easier to replicate the framework in the Malaysian context. Yeah.
Gagan:
Thanks, Anil and Ashish, for sharing your valuable insights. And with that, probably we can wrap up our discussion here.
So, listeners, if you found this episode helpful, be sure to subscribe, comment, and share, and stay tuned for more discussions on other transfer pricing topics in the region. So, this is Gagan signing off from Deloitte TP Lens, and see you all in our next episode.
Thank you.
Ashish:
Thank you, everyone. See you next time. Bye-bye.