TPcases

On 29 May 2002, Malaysia updated its existing TP rules. The new rules are largely in line with the OECD Transfer Pricing Guidelines, but there are minor differences.

For example, the new rules state that the arm’s length range is defined as the range between the 37.5th and 62.5th percentiles of a data set. Furthermore, according to the new rules, the tax authorities may make adjustments to the median or any point above the median, even if a taxpayer’s price is already within the arm’s length range where there is a lower degree of comparability or comparability defects in the dataset.

“13. Adjustment by Director General

(1) Notwithstanding any other provision under these Rules, where the Director General has reason to believe that any price including the rate of interest imposed or would have been imposed in a controlled transaction is not at arm’s length, the Director General may make an adjustment to reflect the arm’s length price or arm’s length interest rate for that transaction by substituting or imputing the price or interest, as the case may be.

(2) Where the price at which a controlled transaction entered by a person is—

(a) within the arm’s length range, such price may be regarded to be the arm’s length price; or

(b) outside the arm’s length range, the arm’s length price shall be taken to be the median.

(3) For the purposes of paragraph (2)(a), the Director General may adjust the price of the controlled transaction to the median or any other point above median within the arm’s length range—

(a) where the uncontrolled transaction is the kind which has a lesser degree of comparability; or

(b) where any of the comparability defects cannot be quantified, identified, or adjusted.

(4) For the purposes of adjustment made under subrule (1), the Director General may impose surcharge in accordance with subsection 140A(3C) of the Act.

(5) For the purposes of this rule—

“arm’s length range” means a range of figures or a single figure falling between the value of 37.5 percentile to 62.5 percentile of the data set and acceptable by the Director General in determining whether the arm’s length price has been applied in a controlled transaction and such range, upon compliance with rule 7, is derived from—

(a) applying the same transfer pricing methodology to multiple comparable data; or

(b) applying different method as determined under rule 6;

“median” means the value at the mid-point of the arm’s length range”

The new rules will have effect for the year of assessment 2023 and subsequent years.

(English version on page 29 and forward)