Two years on from the implementation of the Malaysia Transfer Pricing Guidelines 2024 (MTPG 2024) and the Income Tax (Transfer Pricing) Rules 2023, it is clear that LHDN’s approach to related-party transactions has shifted decisively from principle-based guidance to rules-driven enforcement.
Transfer pricing is no longer treated as a “best practices” exercise aligned loosely with OECD standards. It is now a statutory compliance requirement with defined thresholds, strict documentation timelines, and explicit criminal and financial consequences for non-compliance. These rules have applied from Year of Assessment 2023 onwards, and enforcement activity has since become more structured, more technical, and less forgiving.
As audits increasingly focus on contemporaneous documentation quality rather than post-fact explanations, many businesses are discovering — often too late — that legacy transfer pricing practices no longer meet current expectations.
For Malaysian companies, particularly those with cross-border transactions or group financing arrangements, this article serves as a timely reminder of what the MTPG 2024 requires today, where common gaps continue to arise, and what immediate steps should be taken to manage exposure.
1. Legal Basis: The Shift to Statutory Compliance
The requirement to prepare Transfer Pricing Documentation (TPD) is now anchored in:
- Section 140A of the Income Tax Act 1967
- Income Tax (Transfer Pricing) Rules 2023
- Malaysia Transfer Pricing Guidelines 2024 (released Dec 2024)
Crucially, the burden of proof lies entirely with the taxpayer. If a taxpayer cannot demonstrate that pricing is at arm’s length, the Director General of Inland Revenue (DGIR) is empowered to make transfer pricing adjustments, re-characterise or disregard arrangements lacking commercial rationality, and impose surcharges regardless of whether additional tax is payable.
2. The New Thresholds: Do You Need Full Documentation?
The 2024 Guidelines have revised the thresholds, shifting the focus significantly toward cross-border risk. You must prepare Full Contemporaneous Transfer Pricing Documentation (CTPD) if you meet the following criteria:
- Gross Business Income exceeds RM30 million; AND
- Total Cross-Border Controlled Transactions exceed RM10 million annually. (Note: This is a deviation from the previous “Total Related Party Transactions” test, potentially relieving companies with only domestic transactions from full documentation duties.)
Financial Assistance Threshold: If you provide or receive financial assistance (loans, guarantees) exceeding RM50 million annually, Full CTPD is mandatory for those transactions.
Who is Exempt?
You are generally exempt from preparing CTPD if you are:
- An individual not carrying on a business.
- Engaged solely in domestic controlled transactions where neither party enjoys tax incentives, both parties are taxed at the same headline rate, and neither party has suffered huge losses (assessed as losses for two consecutive prior years).
Warning: “Exempt” means you are not required to prepare Full CTPD. It does not exempt you from the Arm’s Length Principle. LHDN can still audit your pricing, and you may still need “Minimum Documentation” to defend your position.
3. The “14-Day Rule” and Definition of Contemporaneous
Under the new 2023 Rules and 2024 Guidelines, “contemporaneous” is no longer a vague concept — it is a strict timeline that separates compliant companies from penalized ones.
Step 1: The Deadline to Create (The “Date-Stamp” Rule)
To be considered “contemporaneous,” your Transfer Pricing Documentation (CTPD) must be completed and explicitly dated prior to the due date for filing your tax return for that Year of Assessment.
Example: If your tax return is due 31 July 2024, your Transfer Pricing report must be finalized and dated on or before 31 July 2024.
Step 2: Retention vs. Submission
Unlike your tax return, you do not submit the CTPD to LHDN immediately. You are required to retain it in your records, ready for inspection.
Step 3: The Audit Trap (The 14-Day Limit)
The “trap” occurs during an audit. LHDN will issue a written request for your documentation, and you are legally required to furnish it within 14 days.
The Strategic Implication: You cannot wait for an audit letter to start preparing your documentation.
- 14 days is insufficient to conduct a functional analysis, perform benchmarking, and draft a compliant report.
- If you attempt to create it after the fact, the “completion date” will be late, meaning the documentation is not contemporaneous by law, triggering automatic penalties even if the pricing itself is correct.
4. Required Contents: What Goes Into the Report?
The 2024 Guidelines align closer with the OECD Base Erosion and Profit Shifting (BEPS) Action 13. A robust CTPD must include:
A. Group-Level Data
- Global value chain analysis.
- MNE group structure and ownership.
- (A Master File is accepted if it meets Schedule 1 requirements).
B. Transaction-Level Data
- Functional Analysis: Detailed mapping of functions performed, assets employed, and risks assumed (FAR analysis).
- Comparability Analysis: Selection of the Transfer Pricing Method (e.g., TNMM, CUP).
- Benchmarking: Current data supporting the pricing.
New Technical Standard: Where statistical tools are applied, the Guidelines introduce a narrower arm’s length range — generally defined between the 37.5th and 62.5th percentiles — subject to the facts and reliability of the comparables used. Where results fall outside the acceptable range, LHDN may adjust outcomes toward the median, with penalties applied accordingly.
5. Benchmarking: The 3-Year Rule
Taxpayers may conduct a fresh benchmarking search once every three years, provided:
- Operational conditions remain unchanged.
- Financial data of the comparables is updated annually.
Tip: During an audit, if you update your benchmarking with newer data and it results in a tax adjustment, a surcharge will still apply. Get it right the first time.
6. The Cost of Non-Compliance
The penalty regime is no longer administrative; it is punitive.
- The Surcharge: Up to 5% on any transfer pricing adjustment. This applies even if the company has carry-forward losses and no tax is payable.
- Failure to Furnish (14 Days): Fine of RM20,000 to RM100,000 per Year of Assessment, with potential imprisonment up to 6 months.
- Record Keeping: Failure to retain documentation for 7 years is an offence under Section 119A.
Conclusion: From Compliance to Strategy
The Malaysia Transfer Pricing Guidelines 2024 have raised the bar. With the threshold focused on cross-border transactions and the “Arm’s Length Range” narrowed, LHDN is signaling a targeted approach to profit shifting.
For Malaysian companies, the cost of late or inadequate documentation is now quantifiable and severe. The message is clear: contemporaneous documentation is no longer optional — it is the primary line of defence.