Malaysia: Malaysia Seeks More Information From Mncs For Undertaking Transfer Pricing Risk-Assessment

Last Updated: 15 March 2018
Article by SKP  

Recently, the Inland Revenue Board of Malaysia (IRBM) introduced certain changes in Form MNE, requiring additional details in relation to cross-border transactions for undertaking transfer pricing risk–assessment. Form MNE is required to be filled and submitted by the taxpayers within 30 days of receiving a notice from the IRBM.

The updated Form MNE [Pin 1/2017], requires the following additional information in Part C of the Form:

  • Name of the company and country in which the taxpayer has entered into a cross-border transaction if the said country has a lower tax rate compared to Malaysia.
  • Details on any business restricting activity carried out within the group in last five years including:
    • The relevant date when the restructuring took place; and
    • Number of employees before and after restructuring.
  • Information in relation to Research and Development (R&D) activities performed by the taxpayer, such as:
    • The type of R&D activity;
    • Type of process involved in the R&D activity (i) enhancement of a product's production or engineering process, (ii) enhancement of current product or updating the current model, (iii) creating a new product;
    • Whether the R&D activity is performed for own use or on the behalf of other related parties;
    • Whether there are any incentive granted in relation to the aforesaid R&D activities; and
    • Whether the R&D activity leads to the creation of an intellectual property.
  • Information associated with any financial assistance received by the taxpayer from related parties, such as:
    • Name of the company and country of the financial provider;
    • Type of financial assistance;
    • Whether interest paid or any other remuneration paid for the financial assistance;
    • Information on the type of payment (if different from interest); and
    • Frequency of payment.
  • Group information associated with a brand name or intellectual property if any, held by the group or its related parties:
    • Name of the legal owner and its location; and
    • List of related companies performing R&D activity.
  • Part D of the updated Form MNE [PIN 1/2017] would also require details in relation to the transactions entered into with related companies inside and outside Malaysia.
SKP's comments
  • Seeking details on transactions incurred with countries having low tax rate/s compared with Malaysia and details on business restructuring would help IRBM to check serious concerns over non-taxation and low taxation, either by way of MNEs claiming an excessive deduction, avoiding taxable status in a particular country, shifting profits to tax havens, etc.
  • The additional details sought will help IRBM in validating substance in the gamut of business operations and evaluate whether the transaction is structured without aligning transfer pricing outcomes with value creation activities.
  • Information furnished by the taxpayer in relation to R&D and intellectual property, would enable IRBM to evaluate activities performed by group entities and economic benefits generated out of such activities which would assist in determining value creation done by various group entities for the Development, Enhancement, Maintenance, Protection and Exploitation (DEMPE) of the intangibles.
  • Additional details required in updated Form MNE would empower IRBM to scrutinize cross-border transactions from a risk-based perspective and prioritize tax audit of 'high risk' taxpayers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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