Revised Transfer Pricing Tax Audit Framework 2024

The Inland Revenue Board of Malaysia (“IRB”) has issued the revised Transfer Pricing Tax Audit Framework 2024 (“TPTAF 2024”), effective 24 December 2024. This framework supersedes the 2019 Transfer Pricing Audit Framework (“TPTAF 2019”), bringing significant updates to transfer pricing (“TP”) audit guidelines. The TPTAF 2024 underscores stricter compliance requirements and enhanced transparency in the administration of TP audits, in line with the newly released Income Tax (Transfer Pricing) Rules 2023 (“TP Rules 2023”) and the Malaysian Transfer Pricing Guidelines 2024 (“MTPG 2024”).

The TPTAF 2024 introduces significant changes in the conduct and administration of audits. The following are the key changes in the updated TPTAF 2024.

Comprehensive TP Audit

The TPTAF 2024 now refers to audits as “comprehensive” audits. Previously, a distinction was made between field audits and desk audits.

The comprehensive audit examination is carried out as follows.

At the taxpayer’s premises, the IRB’s office or any places agreed by both parties; and
Applying the TPTAF 2024 comprehensive audit examination procedures that involve examination of the taxpayer's business records with additional procedures such as the submission of business information slides as well as the TPD before the audit visit to ensure that the controlled transactions carried out are in accordance with the arm’s length principle.

Selection of Cases

The TPTAF 2024 has developed the basis for selecting TP tax audit cases as follows:

Selection through risk assessment criteria for control transactions;
Restructuring of the company group; and
Information received from third parties including foreign tax authorities.

Audit Visits

The IRB may conduct an audit visit to any premises of the taxpayer or those related to the taxpayer by informing the taxpayer in advance. The audit visit may be extended to the related company if necessary.

The duration of the audit visit has been changed from previously four (4) to five (5) days to currently one (1) to three (3) days,

Audit Settlement

The TPTAF 2024 mentions that the TP tax audit case needs to be completed within 450 calendar days from the audit commencement date. If the case cannot be resolved within that period, the taxpayer will be notified through the IRB.

The IRB clarifies that for TP tax audits involving only associated enterprises in Malaysia, when an adjustment is made to one of these associated enterprises, the offsetting adjustment for the same amount is not automatically passed on to the other associated parties.

The request for an adjustment must be made by the other related parties, and examinations will be carried out to ensure that the claim can be accepted under the provisions of the ITA.

Voluntary Disclosure

Under TPTAF 2024, voluntary disclosure means that taxpayers file a voluntary declaration after the deadline for filing the tax return form but before the audit begins.

The TPTAF 2024 also mentions that taxpayers may hold preliminary discussions with the State IRB Director / Special Branch Director regarding the voluntary disclosures that will be made, if necessary, subject to the discretion of the State IRB Director / Special Branch Director. However, discussions without detailed taxpayer information will not be entertained.

A confirmation letter of receipt of the Voluntary Disclosure Form for TP case will be issued to the taxpayer by the State IRB / Special Branch within five (5) working days.

In case the documents submitted by the taxpayer are incomplete, an audit visit will be made, or a letter of inquiry will be issued to the taxpayer. Further review will be carried out on additional information obtained from the audit visit / letter of inquiry. If the comparable analysis is accepted, then the voluntary disclosure will be finalised. However, if the comparable analysis needs to be adjusted, then the adjustment will be made, and a notification will be issued to the taxpayer before the tax calculation is finalised and the assessment is raised.

Penalty and Surcharges

Penalty and Surcharge for TP Audit Adjustment

In line with the MTPG 2024, for TP audit case commencing on or after 1 January 2021, the surcharge of up to 5 % will be imposed on the TP adjustment amount. The surcharge may still be imposed even if no assessment or additional assessment is raised.

The surcharge rate for voluntary disclosure ranges from 0 % to 4 %.

Penalty under Section 113B of the ITA for Failure to Submit a TPD

In line with the MTPG 2024, from the year of assessment 2023, failure to submit a TPD within 14 days from the date of service of a written notice, the taxpayer may be fined between RM20,000 to RM100,000 for each year of assessment or imprisonment for not more than 6 months or both.

The TPTAF 2024 has provided further clarity on the imposition of the penalty, which is based on the period of delay in submitting the TPD, as follows:

No.	Period of Delay* (Number of days)	Penalty Amount (Section 113B)
1	up to 7 days	RM20,000
2	more than 7 days up to 14 days	RM40,000
3	more than 14 days up to 21 days	RM60,000
4	more than 21 days up to 28 days	RM80,000
5	more than 28 days	RM100,000

Note: *The period of delay is calculated from the expiration of a 14-day period from the date of service of the written notice until a complete TPD is submitted to the IRB.

A concession for the imposition of a penalty under Section 113B for taxpayers whose accounting period begins before 29 May 2023, which is the date of the gazette of the P.U.(A) 165/2023.

Key Takeaway for Taxpayers

The TPTAF 2024 is a pivotal development in Malaysia’s transfer pricing framework to align the TP Rules 2023 and MTPG 2024. It provides details and clarifications on TP audit procedures that are currently in place.