מחירי העברה: מלזיה- ספטמבר 2012
13 ספטמבר 2012
LAST DEVELOPMENTS ON TRANSFER PRICING AND ADVANCE PRICING ARRANGEMENTS
There have been some recent developments on transfer pricing (TP) as well as Advance Pricing Arrangements (APA) in Malaysia. Income Tax (Transfer Pricing) Rules 2012 Further to the Transfer Pricing Guidelines (TP Guidelines) issued by the Malaysian Inland Revenue Board (MIRB) on 2 July 2003 and the specific TP legislation, namely Section 140A of the Income Tax Act 1967 (ITA), which was effective from 1 January 2009, the Income Tax (Transfer Pricing) Rules 2012 (TP Rules) have now been issued. In essence, the TP Rules provide various clarifications on the application of Section 140A. The salient points of the TP Rules are as follows:
- Effective retrospectively from 1 January 2009.
- A person who enters into a controlled transaction is required to prepare contemporaneous TP documentation.The TP documentation has to be put in place when developing or implementing any controlled transaction. Where there are material changes, the documentation should be updated prior to the due date for furnishing a return for that year of assessment. This emphasises the need for TP documentation to be up-to-date.
- Consistent with the TP Guidelines issued on 2 July 2003, the traditional transactional methods (i.e. Comparable Uncontrolled Price Method, Resale Price Method or Cost Plus Method) is preferred over the transactional profit methods (i.e. Profit Split Method or Transactional Net Margin Method) in determining the arm’s length price of a controlled transaction.
- The Director General (DG) is empowered to disregard and re-characterise/make adjustments to the structure of the controlled transaction under the following circumstances:
- the economic substance differs from its form; or
- where the arrangements made, viewed in totality, differ from those which would have been adopted by independent persons.
- The application of the arm’s length price methodology in the following transactions is also explained in the TP Rules:
- intra-group services;
- cost contribution arrangement between a person and its associated person;
- sale or licensing of intangible property; and
- interest on financial assistance.
- An arm’s length interest rate must be determined for financial assistance provided by a person in a controlled transaction. “Financial assistance” includes a loan, interest bearing trade credit, advance or debt and the provision of any security or guarantee.
- Where the DG has reason to believe that the controlled transaction is not at arm’s length, the DG may make an adjustment to reflect the arm’s length price or interest rate for that transaction. The issue of the TP Rules and Section 140A of the ITA with effect from 1 January 2009 highlights the MIRB’s increased focus/scrutiny on TP issues in related party transactions. It is therefore vital for taxpayers to understand the implications of TP related rules and legislation. Taxpayers must now ensure that they have proper pricing and TP documentation in place for all related party transactions prior to the tax filing due date.
Income Tax (Advance Pricing Arrangement) Rules 2012
Further to the introduction of Section 138C of the ITA concerning APA which was effective from 1 January 2009, the Income Tax (Advance Pricing Arrangement) Rules 2012 (APA Rules) have now been issued. Similar to the TP Rules, the APA Rules provide clarification on the application of Section 138C of the ITA. An APA represents an agreement made in advance between the tax authority and a taxpayer on the arm’s length price of their international dealings with related parties for a particular period of time (generally 3
to 5 years). It avoids disputes arising from TP audits which are both time-consuming and costly. The salient points of the APA Rules are as follows:
- Taxpayers who carry on cross-border transactions may apply for an APA in relation to a covered transaction for specified terms and conditions.
- The APA Rules deal with unilateral, bilateral and multilateral APAs.
- The arm’s length TP will be ascertained in accordance with the relevant TP Rules and legislation.
- The covered period under an APA will be a minimum of 3 years of assessment and a maximum of 5 years of assessment.
- The taxpayer must furnish the DG with a compliance report for each year of assessment of the covered period, within 7 months from the date following the close of the accounting period which constitutes the basis period for that year of assessment.
- A rollback may be requested by the taxpayer if the proposed TP methodology is relevant to the prior years’ assessment and the facts and circumstances of the prior years are substantially the same.
- All information obtained by the DG or the Competent Authority in respect of the APA process is subject to the confidentiality provisions of the ITA and the articles on Exchange of Information of the arrangement made under Section 132 of the ITA.
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