Do I need to do Transfer Pricing Documentation (TPD) every year?

Overview:

Due to the subjective nature and new implementation of rules and penalty for transfer pricing, it is important for taxpayer to understand What is transfer pricing, Who is involved and How should we deal with it.

We have run through 2 e-KTP on Transfer Pricing. Just in case you missed out, you may retrieve here: -

e-KTP 179: Part 1 – Associated Persons

e-KTP 180: Part 2 – Controlled transaction

Key takeaways:

You will understand: -

1. Importance of Transfer Pricing Documentation (TPD)

2. Requirement of Transfer Pricing Documentation

3. The frequency to update the Transfer Pricing Documentation

Summary of learnings:

A) Importance of Transfer Pricing Documentation

The documentation is crucial for taxpayer to prove that the related party transactions are conducted at arm's length especially the visit of LHDN.

TPD can act as a defense document during a transfer pricing audit to reduce any potential disputes. Without TPD, this may lead to additional tax payables on transfer pricing adjustment and subsequent penalty.

B) Requirement of Transfer Pricing Documentation

Transfer Pricing Guidelines 2012 requires taxpayer to prepare and keep the transfer pricing documentation which consists of the relationship between the associated person, transactions occurred between each parties and all available information on proofing that they are doing within arm's length.

LHDN has provided a leeway for companies below the threshold to prepare a simpler version of TPD.

But should I prepared the contemporaneous (full) or abbreviate (partial) TPD? Let’s click here to have a simple test and more details.

C) The frequency to update the Transfer Pricing Documentation

There are 3 types of information which requires regular update.

1) Financial data – update annually

2) Benchmarking analysis – every 3 years

3) Other material changes – update when necessary

Such as changes on transfer pricing policy or business activities or economic downturn and so forth.

Sources:

Transfer Pricing Guidelines2012:

http://phl.hasil.gov.my/pdf/pdfam/MalaysianTransferPricingGuidelines2012.pdf

Transfer Pricing Guidelines - Chapter XI Documentation:

http://www.hasil.gov.my/bt_goindex.php?bt_kump=5&bt_skum=20&bt_posi=1&bt_unit=1&bt_sequ=7&bt_lgv=2

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