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Income Tax (Transfer Pricing) Rules 2023 [P.U.(A) 165/2023]

Updated: Jun 24, 2023

We would like to inform you that the Minister, in the exercise of the powers conferred by paragraph 154(1)(ed) read together with section 140A of the Income Tax Act 1967 [Act 53], has established the Income Tax (Transfer Pricing) Rules 2023 [P.U.(A) 165/2023], which will come into effect from the year of assessment 2023 and subsequent years of assessment.

These rules, cited as the Income Tax (Transfer Pricing) Rules 2023, apply to controlled transactions mentioned under subsection 140A(2) of the Act.

The rules provide guidance on the determination and application of the arm's length price for the acquisition or supply of property or services.

Taxpayers must apply independent pricing in transactions with related parties to ensure compliance with the arm's length principle.

The arm's length principle states that transfer prices between related parties should be equivalent to prices that unrelated parties would have charged under the same or comparable circumstances.

Taxpayers must conduct a comparability analysis, identify the most appropriate transfer pricing method and tested party, and determine the arm's length results.

It is important for taxpayers engaged in related party transactions to prepare and maintain contemporaneous transfer pricing documentation, demonstrating that their transactions are conducted at arm's length.

The revised Income Tax (Transfer Pricing) Rules 2023 clarify that transfer pricing documentation should exist before the due date for furnishing a return in the basis period for a year of assessment.

The documentation should include additional contents, such as information about the Multinational Enterprise Group (similar to the content of the Master File) and details of the person's business and cost contribution arrangements, as outlined in the respective schedules.

These rules aim to ensure that profits are taxed, where the actual economic activities generating the profits are performed and where value is created.

In cases where related party transactions do not meet the arm's length standard, the Inland Revenue Board of Malaysia (IRBM) may make transfer pricing adjustments under Section 140A(3C) of the Income Tax Act 1967.

The Income Tax (Transfer Pricing) Rules 2023, specifically in paragraph 4(2)(e), states that the date of completion of the transfer pricing (TP) must be indicated. This could be a statutory requirement that involves legal interpretation, and the date must be accompanied by an authorised person, which in this case is the director.

For any further information or clarification regarding the Income Tax (Transfer Pricing) Rules 2023, taxpayers are encouraged to read the full context, which can be downloaded by clicking the attachment below:-

139.1 Income Tax (Transfer Pricing) Rules 2023 (PUA165_2023)
Download PDF • 726KB


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