The Malaysian Inland Revenue Board (IRB) wants far higher compliance with Transfer Pricing (TP) legislation in Malaysia. Accordingly, the new Finance Act 2020 which was recently gazetted comes with amendments that would galvanize business owners to ensure they have prepared TP documentation before their respective tax return filing due dates and comply with arm's length principles when setting prices for related party transactions.
Taxpayers are required to have TP documentation available by their income tax filing due date and file it upon request by the IRB. Section 113B introduces a penalty of RM20,000 to RM100,000 for failure to furnish a contemporaneous TP documentation, essentially targeting companies that either do not have TP documentation for open years or, have not prepared TP documentation by the return filing due date.
The timeframe given to taxpayers to submit the TP documentation has been reduced from 30 days to 14 days effective 1 January 2021. The IRB has indicated that this new penalty will apply separately to each year of non-compliance. The statute of limitation for TP is 7 years and requests for TP documentation varies from 3 to 6 years of assessment. Applying this new penalty, failure to furnish the TP documentation on time for 6 years would result in a penalty of RM120,000.
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