top of page
  • CCS

Form C YA 2022: Cash Pooling Arrangements and Transfer Pricing

Updated: Nov 8, 2022

Recent changes to the Form C

Recent changes were made to Form C by the Inland Revenue Board in preparation for the YA 2022. One of the most critical changes is for those businesses participating in transfer pricing arrangements. As a result, the disclosure items have been significantly expanded to cover new areas.



These new areas include stating the characterisation of your company by reference to its functional profile, the business restructuring undertaken by the group during the year, and whether or not your company engages in cash pooling activities, performs any research and development activities or owns any intellectual properties.


Transfer Pricing Guidance on Financial Transactions


Transfer Pricing Guidance on Financial Transactions ("Guidance") was released by the Organization for Economic Cooperation and Development ("OECD") in February 2020.




The Guidance is essential because it is the first time the OECD's Transfer Pricing Guidelines have been updated to include guidance on on the transfer pricing aspects of financial transactions, which should contribute to consistency in the application of transfer pricing and help avoid transfer pricing disputes and double taxation.


It also guided on specific issues relating to the pricing of Treasury Functions (Intra-Group Loans, cash pooling, Hedging), Financial Guarantees and Captive Insurance.


Cash Management

As we saw a few years ago, at the start of the Covid-19 crisis, liquidity and cash management are becoming increasingly important.

Benefits of Cash Management

  • Making sure that each company's liquidity needs, as well as its surpluses, are managed more effectively

  • lowering the total amount of debt that is due in the short term

  • Increasing capacity for self-financing and decreasing reliance on external funding

  • Obtaining more favourable interest rates from the bank as a result of increased volume

  • Providing enhanced visibility of the cash flow position at each entity and a consolidated group perspective to facilitate the making of choices regarding financing and investments.

  • Ensuring better liquidity risk management

Cash Pooling is a cash management technique that allows a business group of different companies to manage their cash.


So, what is "pooling cash"?


This article tells you everything you need to know.

What is Cash Pooling?

Even if the group is financially healthy, some parts may have cash flow problems and need to use expensive short-term cash flow financing options like high-interest loans, overdrafts with fees or bank commissions, etc.


At the same time, some of the group's entities may have extra cash that just sits in their accounts and doesn't do much.


The idea behind cash pooling is to manage cash flow through the holding company and ensure all of the subsidiaries' bank accounts are in a healthy balance.


Cash Pooling solves this problem:

If there is a cash deficit, cash pooling lets the group help those subsidiaries in difficulty and limit banking charges


If there is a cash surplus, the group is able to capitalise on all of the profits from each subsidiary thanks to cash pooling, which allows for better investments to be made and an increase in interest.


Cash Pooling Structures

The use of a cash pool is popular among multinational enterprises as a way of achieving more efficient cash management; there are different ways to pool cash, such as:

  • "physical cash pooling",; and

  • "notional cash pooling."


In a typical Physical Cash Pooling arrangement, the bank account balances of all the pool members are transferred daily to a single central bank account owned by the cash pool leader.


In the case of a Notional Cash Pool, some of the advantages that come with combining the credit and debit balances of many accounts can be realised, even though there is no actual transfer of amounts taking place between the accounts of the participating members.


Example of Notional Cash Pooling

The bank calculates the lending and borrowing interest that would have been received for the notional offset position: this corresponds to the sum of (RM15-RM20-RM10) for RM5.

Transfer Pricing of Cash Pooling Arrangements

Generally speaking, cash pooling is implemented mostly by large corporate groups because it requires a certain level of structuring and in-house resources; however, it can be used by any group of several companies.


The holding company or parent company acts as a cash pool leader (or "Central Strategic Unit") that distributes liquidity to serve the interests of each subsidiary better.


Hence, cash pooling arrangements are complex contracts that may involve controlled and uncontrolled transactions.



Form C Requires Additional Disclosures

According to the information provided in Section A of the Appendix of Form C for YA 2022, taxpayers who carry out controlled transactions under sections 139 and 140A must disclose: Are they involved in any cash pooling activities?

If the answer to the above question is affirmative, further disclose their Role in the cash pooling activities.


Role in the Cash Pooling Activity

Cash Pool Leader (The Holding Company)

A cash pool leader performs no more than a coordination or agency function, with the master account being a centralised point for a series of book entries to meet the pre-determined target balances for the pool members.


Given such a low level of functionality, the cash pool leader’s remuneration as a service provider will generally be similarly limited.


Cash Pool Member

A cash pool member is likely to be participating in providing liquidity as part of a broader group strategy, an arrangement in which the member can have a credit or debit position, which may include among its aims a range of benefits that can only be achieved as part of a collective strategy involving the pool members, done for the benefit of all of the pool participants, and the membership of which is limited to entities within the MNE group.


Pool participants deposit cash to the pool (or withdraw cash from the pool), not to (or from) a particular cash pool member.


Transfer Pricing if the Positions of Debt or Receivable become Long-Term

If cash is deposited or borrowed, and this intra-group transaction subsequently becomes a long-term position, special attention should be paid to the conditions.


When looking at this situation from the point of view of transfer pricing, the question that needs to be answered is whether or not the transaction is genuinely something other than efficient short-term liquidity management.


If it is determined that there was, in fact, a long-term loan (or receivable), then the subsequent review of the price based on arm's-length transactions needs to be based on that decision.

  • Check out the OECD's Guidance on Transfer Pricing for Financial Transactions if you