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In the globalization era, with the increasing cross-border business transactions where tax rates vary from country to country, businesses may reduce tax costs by transferring profits to low tax regimes. Therefore, tax authorities like IRBM would want to prevent the unreasonable shifting of profits to protect their tax revenues. This is exemplified in the OECD’s introduction of Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017 as guidance on applying the “arm’s length principle.” The guidelines forms the international consensus on Transfer Pricing, especially on the valuation for tax purposes of cross-border transactions between related enterprises.

Ever since Malaysia joined the OECD’s Inclusive Framework on BEPS, the Transfer Pricing landscape in Malaysia has been gradually shifting to be more aligned with the OECD arrangements and frameworks. Therefore, Transfer Pricing policies and regimes in Malaysia largely mirror the 2010 Transfer Pricing Guidelines issued by the OECD. Malaysia commits to observing that the minimum standard prescribed by the Framework is fulfilled.

Going back in the history of Malaysia, tax collections from Transfer Pricing audits have increased significantly over the years. From RM155.9 million in 2014, the amount increased almost fourfold to RM582.6 million in 2018 within five years.

The table below depicts the tax revenue collected from Transfer Pricing audits by the IRBM Multinational Tax Department between 2014 and 2018:

1a

Source: IRBM, Nuarrual Hilal Md Dahlan, Abu Tariq Jamaluddin, and Rohana Abdul Rahman, Taxation Transfer Pricing law in Malaysia: Salient legal Issues, 2020 (https://www.researchgate.net/publication/341312717)

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