On December 24, 2024, the Inland Revenue Board of Malaysia (IRBM) introduced the updated Malaysia Transfer Pricing Guidelines 2024 (MTPG 2024), effective for the year of assessment 2023 onwards. These guidelines mark a significant improvement over their 2012 predecessor, aligning Malaysia’s practices with international standards and addressing complexities in modern business operations.
Here’s a breakdown of the new documentation requirements and thresholds introduced by the IRBM:
1. Revised Documentation Thresholds
The new guidelines stated that Full Contemporaneous Transfer Pricing Documentation (CTPD) is required for:
• Businesses with annual gross income exceeding RM30 million and cross-border transactions over RM10 million; or
• Controlled financial assistance exceeding RM50 million annually.
Businesses below these thresholds may opt for "Minimum CTPD".
With this changes, businesses will need to review their RPTs thresholds according to the latest requirements to ensure correct reporting.
2. Exemptions from Documentation
The new guidelines exempted following categories taxpayers from preparing any CTPD;
• Individuals not conducting business;
• Individuals carrying on a business (including partnerships) who only engage in domestic controlled transactions;
• Person who entered into controlled transactions with a total amounting to not more than RM1 million per year; or
• Person engaging solely in domestic controlled transactions that meet specific criteria:
Individuals or entities that are exempted must still adhere to the arm’s length principle for all controlled transactions they undertake. They are also required to maintain all relevant documentation related to these transactions, including records supporting and substantiating the determination of the arm’s length price.
3. Arm’s Length Range (ALR)
MTPG 2024 introduces a refined ALR of 37.5th to 62.5th percentiles, stricter than the traditional interquartile range (25th to 75th). This narrower range was first introduced in the Income Tax Rules (Transfer Pricing) 2023 (TP Rules 2023). Further, this new guidelines also explained that results outside this range will be adjusted to the median and priority is given to local comparable data over global benchmarks.
The introduction of a refined ALR of the 37.5th to 62.5th percentiles in the MTPG 2024 signals a significant shift towards stricter compliance and greater precision in transfer pricing practices. By narrowing the range from the traditional interquartile range (25th to 75th), the guidelines emphasizes closer alignment of results with the central tendency, ensuring that taxpayers' reported outcomes reflect a higher degree of conformity with the arm's length principle.
4. Simplified Approach for Low Value-Adding Intra-Group Services (LVAS)
The guidelines provide a simplified approach for documenting LVAS. These are routine services that do not significantly contribute to a multinational group's profits. The new rules aim to reduce compliance burdens for taxpayers handling such services.
Under the new guidelines, taxpayers can adopt a 5% mark-up rate for routine intra-group services that are non-core to the business and involve minimal risk.
The simplified process removes the need for extensive benchmarking but requires robust documentation of costs and benefits.
5. Strengthened Compliance for Financial Assistance
The updated MTPG 2024 concur the same definition for financial assistance as stated in TP Rules 2023 while further clarifying that “financial assistance” broadly refers to “any type of monetary help or aid provided or received by a person.” This inclusive provision reflects the authorities’ intent to cover a broader spectrum of monetary assistance, effectively addressing the evolving financial practices of multinational enterprises (MNEs).
All financial assistance, including loans, trade credits, and guarantees, must reflect arm’s length interest rates. The IRBM also plans to release separate guidelines to address the complexities of these transactions.
6. Business Restructuring Compliance
The MTPG 2024 introduces specific guidance on transfer pricing implications for business restructuring exercises.
MTPG 2024 describes business restructuring exercises as the cross-border reallocation of functions, assets (tangible and / or intangible) and risks, each potentially linked with profits or losses. It is critical to distinguish MNEs restructurings from routine business acquisitions or ongoing concerns must align with the arm’s length principle.
Therefore, proper documentation, including feasibility analysis and decision-making frameworks, is critical for ensuring compliance.
Why These Changes Matter
The MTPG 2024 is a progressive step to ensure transparency and curb tax avoidance. Businesses must adapt to stricter compliance measures, focusing on aligning profits with value creation and maintaining accurate records to avoid penalties.
Failure to comply with the arm’s length principle or maintain proper transfer pricing documentation may result in a maximum of 5% surcharge on the total transfer pricing adjustment made by the IRBM during an audit.
Non-compliance with documentation requirements may lead to increased scrutiny, additional taxes, and potential interest or penalties imposed under Section 140A of the Malaysian Income Tax Act 1967.
For detailed assistance or guidance on navigating these updates, consult us today!