Introduction of Transfer Pricing
Transfer pricing is an accounting practice that represents the price that one division in a company/country charges another division in a company/counry for goods or services provided. As reference to Transfer Pricing Guideline 2012 in Malaysia and s.140A of Income Tax Act, a transfer price should be at its arm’s length price, which is the market price one charges to another division, subsidiary, or holding company for services rendered.
In recent years, companies have used inter-company transfer pricing to benefit from tax in different jurisdictions. For instance, company may charge a higher price to division in high-tax countries (reducing profit) while charging a lower price (increasing profits) for divisions in low-tax countries.
Transfer Pricing Guideline
Malaysian Transfer Pricing make reference to Malaysian Transfer Pricing Guideline 2012. The overall stance of the Malaysian Guidelines is to provide guidance for an examination of transfer prices in accordance with Section 140A of the Act.
The Malaysian Guidelines are largely based on the OECD Guidelines, with specific modifications to ensure adherence to the Act, the procedures of the Malaysian tax authority and domestic circumstances.