Overview of Transfer Pricing Compliance in Malaysia for 2025

Introduction

Transfer pricing compliance is becoming increasingly significant for businesses in Malaysia as of 2025 due to evolving regulations set by Inland Revenue Board of Malaysia (IRBM also known as LHDN). For Malaysian businesses, staying informed about the key updates regarding transfer pricing is not just to avoid harsh penalties, but also to ensure smooth local and international transactions and maintain fair financial practices across related entities.

What Is Transfer Pricing and Why It Is Crucial

Transfer pricing governs the pricing of transactions between related entities and this entails parent companies and their subsidiaries. This principle ensures that intracompany transactions involving goods, services, or intangible assets are conducted at an ‘arm’s length’ price.

The arm’s length principle, as defined by the OECD and Malaysia’s Transfer Pricing Guidelines, means that the pricing of such transactions should reflect what unrelated entities would agree to under comparable circumstances. By adhering to this principle, businesses not only avoid the risks of tax disputes and penalties but also conduct ethical financial practices by ensuring that their pricing aligns with the fair market value and avoids cross-border tax evasion.

Key Updates in 2025

Malaysia’s Transfer Pricing Guidelines 2024, issued by the IRBM, continue to regulate the compliance framework in 2025. The updates are as follows:

1. Stricter Documentation Requirements: Companies must now submit transfer pricing documentation within 14 calendar days upon receiving an official request from the IRBM, emphasizing the readiness for a company to have the documentation prepared.
2. Increased Focus on Compliance Audits: The IRBM is expected to intensify its scrutiny of cross-border transactions, particularly those involving intangible assets and services, which are often prone to unintentional or intentional mispricing.
3. Revised Penalty Structures: Non-compliance can result in severe consequences, including fines ranging from RM20,000 to RM100,000, imprisonment for up to 6 months, or both, along with additional tax adjustments.

For detailed information, refer to the official Malaysia Transfer Pricing Guidelines 2024 published by the IRBM.

Challenges

Transfer pricing compliance poses several hurdles beyond just the risk of penalties:

1. Data Compilation Complexities: Gathering detailed financial data across multiple jurisdictions to meet such documentation requirements is a time-consuming and intricate process. This includes analyzing comparable uncontrolled transactions, which can be difficult in niche markets.
2. Changing Regulatory Frameworks: Frequent updates to global and local tax regulations require businesses to consistently monitor changes to ensure their policies remain compliant.
3. Disputes Arising from Subjectivity: Differences in the interpretation of the arm’s length principle and selection of comparable transactions often lead to disputes with tax authorities which adds to compliance burdens.
4. Cross-Border Adjustments: Variations in transfer pricing enforcement across jurisdictions may result in double taxation which would require businesses to adopt advanced planning and dispute resolution mechanisms.

How Businesses Can Prepare to Stay Compliant

To navigate the challenges and ensure adherence to the latest regulations, businesses should consider these steps:

1. Maintain comprehensive documentation: Ensure your documentation includes a thorough analysis with an appropriate benchmarking study. Document the justification of the pricing for each intracompany transaction to ensure it aligns with the arm’s length principle.
2. Update policies regularly: Periodically review and adjust internal pricing policies to reflect the most recent regulatory requirements and fair market value. The use of advanced software solutions can assist in the tracking and reporting of intracompany transactions.
3. Seek guidance from industry experts: Collaborate with transfer pricing experts or tax consultants to ensure compliance. Reach out to professionals who are well-versed in Malaysian regulations and have access to global databases.

Conclusion

Transfer pricing compliancy is no longer an aspect that every business can declare ‘Yes’ and not adhere to—it is a legal obligation. As the regulatory landscape evolves, businesses in Malaysia must adopt proactive measures to protect their operations by having accurate documentation that aligns with global and local standards at the ready. If not, businesses should seek out expert guidance from companies that can assist them in doing so.

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