On 30 July 2026, the Inland Revenue Board of Malaysia (Lembaga Hasil Dalam Negeri Malaysia, HASiL) published the Malaysia Transfer Pricing Guidelines, Controlled Financial Transactions: Intra-Group Loans, reference LHDN.AN.600-1/10/3. HASiL calls it the MFTIL.
It was issued under section 134A of the Income Tax Act 1967 as a guideline of the Director General of Inland Revenue, and it arrived with no media release and no entry on HASiL’s announcements index. It sits on the transfer pricing page of the HASiL portal and on the guidelines index, marked “New”.
If your group has money moving between companies as a loan or an advance, this is the document HASiL will now test that loan against. It does two things that matter to a finance lead.
First, it puts a substance test in front of the interest rate. Before HASiL asks whether your interest rate is right, it asks whether the loan is a loan at all. A loan that fails that test can be treated as equity, and the interest deduction goes with it.
Second, it introduces a simplified method. If you meet a short list of conditions, you can apply one of two rates that Bank Negara Malaysia already publishes every month, and skip the comparability analysis altogether.
Both are things you can check against your own intercompany loan schedule this week.
Where this comes from
The Malaysia Transfer Pricing Guidelines 2024 (MTPG 2024), published on 24 December 2024, gave intra-group financing a chapter of its own, Chapter 9. Paragraph 9.14 of that chapter said that, given the complexity of the analysis, separate guidelines would be issued for intra-group financial transactions.
The MFTIL is that separate guideline, nineteen months later. Its stated objective is to be comprehensive guidance on whether an intra-group loan is consistent with the arm’s length principle, as required by the Act, the Income Tax (Transfer Pricing) Rules 2023 and the MTPG 2024. Any term it does not define takes its meaning from the MTPG 2024.
One boundary is drawn on the first page of Chapter 3. A loan or advance from a company to one of its directors is not a transfer pricing matter at all: section 140A does not apply, and section 140B computes the deemed interest instead, whatever the director’s shareholding. A loan the other way, from a director to the company, stays inside section 140A.
Is it a loan? The test HASiL applies first
Paragraph 1.9 states the order of operations. It is not enough to ask whether the interest rate in the agreement is at arm’s length. HASiL will also ask whether a loan that looks like a loan on its face should be classified as one, or regarded as something else, “particularly as a contribution to equity capital”.
The guideline lists nine criteria at paragraph 1.14 and compares debt against equity on each of them in Table 1. In summary:
| # | Criterion | Debt looks like | Equity looks like |
|---|---|---|---|
| a | Legal obligation to repay | Fixed and enforceable obligation to repay principal and interest | No obligation to repay; repayment depends on profits or management discretion |
| b | Fixed maturity date | Repayment scheduled on a specific date or on demand | No fixed maturity; perpetual or redeemable at the issuer’s discretion |
| c | Expectation of return | Interest predetermined, independent of the borrower’s profitability | Return depends on profits or dividends; not fixed |
| d | Ranking on liquidation | Ranks as a creditor, before equity holders | Ranks as equity, after debt |
| e | Participation in management | None | Usually voting rights or influence |
| f | Right to enforce repayment | Enforceable in court as a debt contract | Limited; depends on the residual claim |
| g | Accounting treatment | Classified as a liability | Classified as equity |
| h | Tax treatment | Treated as an interest-bearing loan | Treated as a capital contribution |
| i | Intent of the parties | Debtor and creditor relationship | Ownership interest |
Two paragraphs follow the table.
Paragraph 1.16: no single criterion is enough. The combination is weighed together with the other facts.
Paragraph 1.17: a fixed repayment schedule, a stated interest rate and a formal loan agreement do not, on their own, make the transaction a loan for transfer pricing purposes. The guideline says the presence of those features “is insufficient” and the transaction must be delineated by its economic substance.
That sentence describes a familiar arrangement: a properly drafted agreement, a stated rate, and a repayment date that has been rolled forward at every year end because nobody expected the subsidiary to repay.
What happens if it fails
Paragraph 1.19 states the consequence. Where the DGIR has reason to believe a purported loan does not have the characteristics of a genuine loan, it may be recharacterised as an equity contribution. That can mean the interest deduction is disallowed, additional tax, and surcharges.
Example 1 in the guideline shows the mechanism. A Malaysian company borrows from an associated company with no security, no covenants and no restriction on the use of the money, and pays a high rate to reflect that. The DGIR’s position in the example is that no independent lender would have lent to that borrower on those terms at all. The structure is then disregarded under subsection 140A(3A) of the Act, on either of two grounds: the economic substance differs from the form, or the substance and form match but the arrangement, viewed as a whole, is not one that commercially rational independent persons would have adopted and it prevents the DGIR from determining an arm’s length rate.
The example ends with the two outcomes. If the DGIR rejects the structure, the loan may be recharacterised as equity and the interest disallowed. If the DGIR accepts the structure but not the rate, the rate is substituted with an arm’s length rate.
Chapter 2 makes a point that cuts the other way. Paragraph 2.27 recognises that a subsidiary borrows more cheaply simply because it belongs to a group, and that this implicit support improves its credit standing without any guarantee being given. The guideline says this benefit “does not require any additional payments or transfer pricing adjustments”. Example 2 works it through: a subsidiary that would rate BBB alone is lent to at AAA-equivalent rates because of the parent, and a sister company lending at that same rate is at arm’s length. Where the group is clearly not going to support the entity, it is assessed on a stand-alone basis.
Pricing the loan the long way
If the loan is a loan, the rate has to be supported. The guideline sets out three routes.
Comparable uncontrolled price. Paragraphs 3.6 to 3.12. The borrower’s credit rating, the terms of the instrument and the market data for borrowers of that rating. Internal comparables count, including loans the group has taken from independent lenders. Paragraph 3.12 rules out one shortcut: an MNE group’s average external borrowing rate “is generally unsuitable as an internal CUP”, because it does not meet the comparability requirements.
Cost of funds. Paragraphs 3.14 to 3.20, where no comparables exist. The lender’s own cost of raising the money, plus arrangement and servicing costs, a risk premium and a margin. Paragraph 3.19 is the one that catches internally funded loans: where the lender is using retained earnings rather than borrowed money, the opportunity cost still counts, and the guideline gives a fixed deposit as the example of the return foregone.
Loan fees. Paragraph 3.13. Arrangement fees and commitment fees on an undrawn facility are treated like any other intra-group transaction.
Two administrative points sit at the end of Chapter 3. Paragraph 3.27: where the DGIR believes the rate is not arm’s length, it may substitute or impute a rate, and any adjustment can carry a surcharge. Paragraph 3.28: a rate established by one of the methods above, other than the simplified method, may be reviewed once every three years, provided the facts and circumstances have not changed.
Pricing the loan the short way
Paragraph 3.21 introduces the simplified method. Eligible taxpayers may elect designated rates and apply them “without the need to perform a detailed comparability analysis”.
The two rates, at paragraph 3.24, are the Deposit Rate and the Average Lending Rate (ALR). The glossary defines the Deposit Rate as the average fixed deposit rate of commercial banks published by BNM at the end of the calendar month, and the ALR as the average lending rate of commercial banks published by BNM at the end of the calendar month. Both are on BNM’s website. The guideline quotes no figures, and neither does this article, because they move monthly.
These are the conditions, reproduced from paragraph 3.24, with a question to ask against each.
Deposit Rate. All six conditions.
| # | Condition | The question to ask |
|---|---|---|
| a | The taxpayer is not in the business of borrowing and lending | Is lending money part of what this company does, or a one-off between group companies? |
| b | The interest income from the intra-group loan is taxed under paragraph 4(c) of the Act | Is the interest being returned as interest income, or is it sitting somewhere else in the computation? |
| c | The source of the loan is the taxpayer’s internal funds | Did the cash come from capital, retained earnings or reserves, or was it borrowed? |
| d | The loan is denominated in Ringgit Malaysia | What currency is the agreement in? |
| e | The aggregate amount of intra-group loan in the year of assessment does not exceed RM50 million | Adding every intra-group loan for the year together, are we under RM50 million? |
| f | The taxpayer only engages in intra-group loan with an associated person who is resident in Malaysia | Is every intra-group loan counterparty a Malaysian tax resident, with no exceptions? |
Average Lending Rate. All four conditions.
| # | Condition | The question to ask |
|---|---|---|
| a | The taxpayer is not in the business of borrowing and lending | As above |
| b | The interest income from the intra-group loan is taxed under paragraph 4(c) of the Act | As above |
| c | The loan is denominated in Ringgit Malaysia | As above |
| d | The aggregate amount of cross border intra-group loan in the year of assessment does not exceed RM50 million | Adding every cross-border intra-group loan for the year together, are we under RM50 million? |
The guideline defines internal funds as “surplus funds that may arise from the injection of capital, retained earnings and company reserves”.
Three further limits apply to both rates.
On-lent money is excluded. Paragraph 3.22: the simplified method cannot be used where the capital of the loan is borrowed from one entity and passed from the original borrower to the ultimate borrower. Borrow from the bank at the holding company and push it down to the subsidiary, and you are back to the full analysis.
It lasts only while every condition holds. Paragraph 3.25: taxpayers may continue to apply the simplified method as long as they meet all the conditions. Fail any one, in any year, and a comparability analysis is required to identify the most appropriate method.
HASiL can still override it. Paragraph 3.26: where the DGIR has reason to believe the taxpayer’s pricing approach is not the most appropriate method, the DGIR may replace it.
Paragraph 3.29 says who the method is for: taxpayers who are not required to prepare contemporaneous transfer pricing documentation (CTPD) under paragraph 1.5 of the MTPG 2024, or who are eligible to prepare a minimum CTPD. For reference, paragraph 1.7(b) of the MTPG 2024 requires a full CTPD from a person who receives or provides controlled financial assistance of more than RM50 million annually, which is the same number as the cap on the simplified method.
Both condition sets are written by reference to interest income taxed under paragraph 4(c). That is the lender’s side of the transaction. The guideline does not say in terms whether a borrower can rely on the simplified method to support its interest deduction where the lender is not the one electing. If your group’s loans run in one direction and only the borrower is a Malaysian taxpayer, that is a question to put to your tax agent or to HASiL before you rely on it.
What you have to keep, whichever route you take
Chapter 4 sets the paperwork. Paragraph 4.1 makes the general point: a taxpayer who is not required to prepare a CTPD must still comply with the arm’s length principle on every controlled transaction, including intra-group loans, and must keep the documents that support the rate.
Paragraph 4.3 lists what the loan agreement itself must contain: the identities of lender and borrower, the date of the financing, the amount, the interest rate applied, and the policy on interest charges.
For taxpayers electing the simplified method, paragraph 4.4 lists the evidence of eligibility to keep:
- a copy of the agreement;
- confirmation that the source of the loan is the company’s internal funds;
- confirmation of currency, amount and loan terms;
- confirmation that the company is not in the business of borrowing and lending;
- proof that the loan is denominated in Ringgit and, where applicable, that the amount does not exceed the threshold; and
- proof that the rate applied, Deposit Rate or ALR, is based on the official publication of BNM or the IRBM (HASiL) website.
The guideline sets out no election form and no procedure for notifying HASiL that the simplified method has been chosen. On its terms, eligibility is demonstrated by the records above, on request.
Paragraph 4.5 puts a deadline on that request. A CTPD is not submitted with the tax return, but must be made available within fourteen days of the DGIR serving a written notice, and failure to do so may be an offence under section 113B. Records must be kept for seven years from the end of the year to which the income relates, in Malaysia, and paragraph 4.9 puts the penalty for failing to do so at a fine of RM300 to RM10,000, imprisonment of up to one year, or both, under section 119A.
Three provisions outside transfer pricing are restated in the closing paragraphs, and each one bites independently of the rate.
- Deductibility timing. Paragraph 4.11: under paragraphs 33(1)(a), 33(2) and 33(4), interest on borrowed money is deductible only when it is due to be paid.
- Interest restriction. Paragraph 4.12: the total interest deductible remains subject to section 140C, even where the rate is at arm’s length. An arm’s length rate does not lift the cap.
- Deemed receipt. Paragraph 4.13: under subsection 29(3), a lender in a related-party loan is treated as having received the interest on the date it falls due, whether or not it has actually been paid.
What the guideline does not say
It states no effective date and no year of assessment from which it applies. Its objective section refers to the Act, the Rules and the MTPG 2024 “which are currently in force”.
It quotes no rate figures. It gives no election procedure for the simplified method. It does not say how the RM50 million aggregate is measured within a year, whether by drawn balance, facility limit or peak outstanding.
It does not address interest-free loans as a category. Paragraph 3.27’s power to impute a rate is the closest it comes.
What to do this week
Pull the intercompany loan schedule and run Table 1 against every balance. Paragraph 1.17 says a repayment schedule, a stated rate and a formal agreement are not enough on their own. A loan with no maturity date, no repayment history and interest accrued but never paid does not even have those. Fix the terms, or understand that the deduction is exposed.
Then test the simplified method. The six Deposit Rate conditions are a short check against the loan schedule. Look first at (c), whether the lending company borrowed the money it lent, and (f), whether any counterparty is outside Malaysia.
Then check the direction of the loan. If the interest income sits with a Malaysian lender, the conditions read cleanly. If it does not, ask before relying on the method.
Then look at section 140C separately. Paragraph 4.12 is explicit that the interest restriction applies regardless. Getting the rate right does not get you past it.
If you would like a second pair of eyes on how your intercompany loans sit against the debt-equity criteria and the simplified method conditions, we are happy to look at the schedule with you.
Source: Inland Revenue Board of Malaysia (HASiL), Malaysia Transfer Pricing Guidelines, Controlled Financial Transactions: Intra-Group Loans (MFTIL), reference LHDN.AN.600-1/10/3, published 30 July 2026; Malaysia Transfer Pricing Guidelines 2024, published 24 December 2024, paragraphs 1.5, 1.7 and 9.14. This article is general information current as at 8 September 2026 and is not tax or legal advice. The guideline states that HASiL reserves the right to vary its position should there be any changes to existing laws and practices, so confirm the live position on hasil.gov.my before acting.