A Simple Guide to the Transfer Pricing Malaysia Guidelines

The transfer pricing guidelines in Malaysia explain how businesses should price transactions between related parties so that the terms reflect what independent businesses would reasonably agree to under similar circumstances.

Transfer pricing may sound like something only large multinational companies need to consider. In practice, it can also affect Malaysian groups with domestic subsidiaries, shared management services, intercompany loans or cross-border purchases.

The main questions are whether the parties are related or controlled and whether the transaction has been priced according to the arm’s length principle.

Malaysia’s current framework is mainly supported by:

• Section 140A of the Income Tax Act 1967
• The Income Tax (Transfer Pricing) Rules 2023
• The Malaysia Transfer Pricing Guidelines 2024
• The Transfer Pricing Tax Audit Framework 2025

This guide breaks down the rules without turning the discussion into a tax-law endurance test.

What Are the Transfer Pricing Guidelines in Malaysia?

Transfer pricing refers to the pricing of transactions between related or controlled parties.

These transactions may involve goods, services, loans, royalties, rentals, business restructuring, cost-sharing arrangements and asset transfers.

A related-party transaction is not automatically a problem. The concern arises when the price or commercial terms do not reflect an arm’s length outcome.

Simple Example

Company A manufactures products in Malaysia and sells them to a related distributor overseas. The business must consider whether the selling price is comparable to what it would have charged an independent distributor under similar circumstances.

The Inland Revenue Board of Malaysia, or IRBM, may adjust taxable income if it determines that the controlled price does not reflect an arm’s length result.

Why Are Transfer Pricing Guidelines Important?

Transfer prices affect where profits are reported and where tax is paid.

Fair Taxation

Related companies should not artificially shift profits through unsupported prices or commercial terms.

Reliable Financial Reporting

Intercompany charges can affect revenue, expenses, profit margins and taxable income.

Audit Readiness

Businesses may need to explain how a price was determined and why it was commercially reasonable.

An invoice labelled “management fee” is not, by itself, a transfer pricing policy. IRBM may still ask what service was provided, who benefited and how the fee was calculated.

Who Do the Transfer Pricing Rules Apply To?

The rules generally apply to a person carrying on a business that enters into controlled transactions.

Common examples include:

• Parent companies and subsidiaries
• Sister companies under common control
• Companies with significant ownership or influence
• Certain family-controlled entities
• Permanent establishments and head offices
• Malaysian entities dealing with overseas group companies

Control is not always determined solely by majority share ownership. Influence over pricing, supplies, proprietary rights or board appointments may also be relevant.

Are Domestic Transactions Included?

Yes. Transfer pricing in Malaysia is not limited to international transactions.

Certain taxpayers dealing solely in domestic controlled transactions may be exempt from preparing contemporaneous transfer pricing documentation.

For companies and other persons, the exemption may apply where both parties do not enjoy tax incentives, are taxed at the same headline tax rate, or have not suffered losses for the two consecutive years before the transactions.

Individuals carrying on a business, including through a partnership, who enter only into domestic controlled transactions may also qualify.

However, an exemption from formal documentation does not remove the arm’s length requirement. Businesses should still retain enough commercial and financial evidence to support their related-party prices.

How Does the Arm’s Length Principle Work?

The arm’s length principle means related parties should price a transaction as independent parties would under comparable circumstances.

Factor	Questions to Consider
Functions	What work does each party perform?
Assets	Which party uses equipment, intellectual property or capital?
Risks	Who bears inventory, credit, market or operational risks?
Contractual terms	What do the agreements say each party must do?
Economic conditions	Are the parties operating in comparable markets?
Business strategy	Is pricing affected by expansion, restructuring or another commercial objective?

This review is often called a functional analysis, covering the functions performed, assets used and risks assumed.

How Are Related-Party Transactions Tested?

1. Identify the Transaction

Determine which related parties are involved and what was supplied, financed, licensed or transferred.

2. Review the Arrangement

Examine agreements, invoices, correspondence and actual business conduct.

3. Perform a Functional Analysis

Identify the functions, assets and risks of each party.

4. Choose a Pricing Method

Select the method that is most appropriate for the transaction and available evidence.

5. Review Comparable Information

Compare the outcome against independent market evidence where required.

6. Document the Conclusion

Record how the price was calculated and why it is considered arm’s length.

The written contract and actual business conduct should match. A service agreement is not persuasive if there is no evidence that any service was delivered.

Which Transfer Pricing Methods Can Businesses Use?

Transfer Pricing Method	General Use
Comparable Uncontrolled Price Method	Compares the controlled price with a comparable independent transaction
Resale Price Method	Starts with the resale price and deducts an appropriate gross margin
Cost Plus Method	Adds an arm’s length mark-up to relevant costs
Transactional Net Margin Method	Compares a net profit indicator with comparable independent transactions
Profit Split Method	Divides combined profits according to the parties’ economic contributions

The chosen method should be the most appropriate for the transaction and available evidence. Businesses should not simply select the method that produces the lowest Malaysian taxable profit.

Read More: How Capital Allowance Works in Malaysia: A Practical Guide

What Is Contemporaneous Transfer Pricing Documentation?

Contemporaneous transfer pricing documentation, or CTPD, records how a business prices its controlled transactions for a particular year of assessment.

It generally covers:

• The group and ownership structure
• The taxpayer’s business operations
• Details of controlled transactions
• The transfer pricing policy
• The functions, assets and risks of the parties
• The selected transfer pricing Malaysia method
• Comparable information where applicable
• Supporting agreements and financial records

CTPD is generally not submitted with the tax return. However, it must be available and furnished within 14 days when IRBM issues a written request.

Does Every Business Need Full Transfer Pricing Documentation?

Business Situation	General Documentation Position
No controlled transactions	CTPD is generally not required
Total controlled transactions of RM1 million or less	May qualify for exemption
Certain qualifying domestic controlled transactions	May qualify for exemption
Transactions above the exemption level but below the full CTPD thresholds	May prepare minimum or full CTPD
Gross business income of more than RM30 million and annual cross-border controlled transactions of RM10 million or more	Full CTPD is generally required
Controlled financial assistance received or provided of more than RM50 million annually	Full CTPD is generally required
Permanent establishment with controlled transactions	Full CTPD is required regardless of the thresholds

These conditions should be considered together. Businesses should not determine their obligations from one figure alone.

For financial assistance, annual amounts received and provided may need to be aggregated rather than netted. A year-end loan balance below RM50 million does not necessarily mean the threshold was not exceeded.

What Is Minimum CTPD?

Minimum CTPD has reduced requirements and focuses on the taxpayer, its pricing policy and its key controlled transactions.

Key controlled transactions include:

• Transactions connected to the taxpayer’s principal business activity
• Other controlled transactions representing 20% or more of operating revenue for the relevant year of assessment

All controlled transactions must still be listed.

Read More: Should You Hire a Freelance Accountant in Malaysia?

When Must Transfer Pricing Documentation Be Prepared?

Completion

CTPD must be brought into existence before the due date for furnishing the relevant tax return. IRBM’s Guidelines also state that taxpayers should complete and date it before submitting that return.

IRBM Request

The documentation must generally be furnished within 14 days from the date a written notice is served.

Annual Review

Documentation should be prepared for every year of assessment in which controlled transactions are entered into.

Benchmarking Update

A comparable-company search may generally be refreshed every three years where operating conditions remain unchanged. The financial data and continued suitability of the comparables should still be reviewed annually.

Record Retention

Relevant records and CTPD should generally be kept for seven years from the end of the year to which the business income relates.

Fourteen days is enough time to retrieve a finished report. It is rarely enough time to reconstruct years of undocumented pricing decisions.

What Records Should Businesses Keep?

Businesses should retain:

• Intercompany agreements, loan documents and licensing arrangements
• Invoices, payment records, purchase orders and credit notes
• Timesheets, emails, reports and proof of deliverables
• Cost allocations, mark-up calculations and interest-rate support
• Reconciliations between the transfer pricing Malaysia analysis, accounts and tax computation
• Evidence supporting restructurings, unusual losses or commercial changes

Businesses should document what actually happened, not only what the agreement says should have happened.

What Are Common Transfer Pricing Risks in Malaysia?

Unsupported Management Fees

The recipient cannot show what services were received or how the business benefited.

Intercompany Loans

Financing is provided without examining whether the interest rate and terms are commercially reasonable.

Year-End Adjustments

Large charges are posted near year-end without a clear policy, calculation or supporting evidence.

Persistent Losses

A Malaysian entity repeatedly reports losses despite appearing to perform commercially valuable functions.

Royalty Payments

The business cannot demonstrate the value received from the intellectual property or how the royalty rate was determined.

Inconsistent Records

The report, agreements, invoices and accounting service entries describe the same transaction differently.

Domestic Blind Spot

The business assumes the rules do not apply because both companies are located in Malaysia.

What Happens If a Business Does Not Comply?

IRBM may:

• Adjust the price of a controlled transaction
• Increase taxable income or reduce a deduction or tax loss
• Impose a surcharge of up to 5% on the transfer pricing adjustment
• Request records and supporting evidence during an audit
• Take enforcement action where complete CTPD is not furnished on time

Failure to furnish CTPD within 14 days after service of a written notice is an offence.

If the taxpayer is prosecuted and convicted, the consequences may include a fine of RM20,000 to RM100,000, imprisonment for up to six months, or both, for each affected year of assessment.

Where no prosecution is instituted, the Director General may instead impose an administrative penalty of RM20,000 to RM100,000 for each affected year.

Under the current audit framework, the penalty may increase according to the length of the delay and is calculated until complete documentation is furnished.

The goal is not to prepare the biggest possible report. It is to maintain documentation that accurately explains the arrangement and supports the price used.

How Can Businesses Improve Transfer Pricing Malaysia Compliance?

Map Related Parties and Transactions

Prepare a complete list of intercompany dealings.

Review Agreements Early

Ensure contracts reflect the actual responsibilities and conduct of each party.

Set Pricing Policies Before Year-End

Decide how goods, services, loans and royalties will be priced before adjustments become urgent.

Reconcile the Documentation

Check that the transfer pricing figures agree with the financial accounts and tax computation.

Review Changes Annually

Reassess the policy after restructurings, acquisitions or significant operational changes.

Transfer pricing compliance works better when finance, tax, legal and operational teams collect supporting records throughout the year.

Getting Transfer Pricing Right

The transfer pricing Malaysia guidelines are built around a straightforward idea: transactions between related parties should reflect commercially reasonable terms that independent parties might have agreed to under comparable circumstances.

Compliance becomes easier when businesses identify controlled transactions early, apply a consistent pricing policy and keep supporting evidence as transactions occur.

Businesses that need help reconciling related-party transactions, financial records and tax documentation can explore the professional support available through Accounting.my. Its accounting and audit support can help strengthen records, identify inconsistencies and improve readiness for compliance reviews.

Disclaimer: This article provides general information only and does not constitute tax or legal advice. Transfer pricing obligations depend on the taxpayer’s circumstances, transactions and year of assessment. Professional advice should be obtained where necessary.

Sources

• Inland Revenue Board of Malaysia, Malaysia Transfer Pricing Guidelines 2024
• Inland Revenue Board of Malaysia, Transfer Pricing Tax Audit Framework 2025
• Inland Revenue Board of Malaysia, Transfer Pricing Documentation Flowchart for Year of Assessment 2023 Onwards
• Income Tax Act 1967, particularly sections 82, 113B, 119A, 139 and 140A
• Income Tax (Transfer Pricing) Rules 2023
• Inland Revenue Board of Malaysia, FAQs on the Malaysia Transfer Pricing Guidelines 2024
• OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations