Updated Rules on TP and APAs

Updated Rules on TP and advance pricing arrangements (APAs)

The TP rules aim to prevent the artificial pricing of transactions between related parties in order to minimize or avoid tax. The fundamental ideology overlaying the rules is the arm’s length principle (ALP), which mandates that all related party transactions must be made at prices at which unrelated parties would have agreed to transact with each other. TP rules also usually provide an avenue for companies to enter into APAs with the tax authorities to confirm that the TP methodology adopted is acceptable.

Sections 138C, 140A and 154 of the Income Tax Act 1967 (ITA) provide the legal basis for companies to enter into APAs with the IRB, introduce TP dedicated provisions and empower the Minister of Finance (MoF) to facilitate implementation of the provisions by way of detailed rules.

On 29 May 2023, the following Rules were gazetted:

• Income Tax (Transfer Pricing) Rules 2023 [P.U.(A) 165]

This revokes the Income Tax (Transfer Pricing) Rules 2012 [P.U.(A) 132/2012]

• Income Tax (Advance Pricing Arrangement) Rules 2023 [P.U.(A) 166]

This revokes the Income Tax (Advance Pricing Arrangement) Rules 2012 [P.U.(A) 133/2012]

Broadly, the TP rules stipulate the requirement for taxpayers to prepare contemporaneous documentation and prescribe how related companies should determine and apply the ALP. The APA rules prescribe the application process and the relevant timelines. The covered period under the APA rules is between three to five YAs.

For further details on the above, please refer to Special Tax Alert No. 2/2023 – Malaysia introduces new Transfer Pricing Rules 2023 and Special Tax Alert No. 3/2023 – Malaysia introduces new Advance Pricing Arrangement Rules 2023.

The Rules are available at the following links:

• Income Tax (Transfer Pricing) Rules 2023
• Income Tax (Advance Pricing Arrangement) Rules 2023