Increasing focus on transfer pricing, says Deloitte

KUCHING: Accounting firm Deloitte Malaysia stressed on the government increasing focus on transfer pricing whereby there is a new requirement for taxpayers to declare if one has prepared all the necessary transfer pricing documentations.

In the past, one was only required to disclose related-party transactions but there was no requirement to identify the adequate preparation of necessary documentation – until now.

According to Yohan Francis, senior manager for Transfer Pricing of Deloitte, this move signified the Inland Revenue Board’s increasing emphasis on transfer pricing.

In this year’s budget announcement, it has also been proposed under both the Income Tax Act and Petroleum Income Tax Act that the time limit for the Director General to raise an assessment or additional assessment be increased from five years to seven years for transactions entered into between associated persons not at arm’s length.

“This indicates that The Inland Revenue Board will be focussing on this area more, and it is expected for transfer pricing audit cases to increase in the near future,” he said.

“Several years ago, the statute of limitation for transfer pricing was seven years, but that was reduced to five years.

Now under Budget 2015, the requirement has been extended back to seven years,” he told The Borneo Post when met during Deloitte’s TaxMax seminar in Kuching yesterday.

“This means that audit cases can now be opened for a longer period of time, say for example in the year 2016, they can look into cases as far back as 2009.

This will raise additional tax exposure for taxpayers.” Resl estate tax leader Tham Lih Jiun added that transfer pricing does not only apply to cross border transactions but also to all related party transactions within the country.

“So, domestic companies or a group of companies such as family-related companies will be impacted as well.” It is noted that other countries in Southeast Asia are increasingly enhancing transfer pricing practices in preparation for the Asean Economic Community (AEC) next year.

Singapore’s Inland Revenue Authority, for example, invited comments early last month on proposed contemporaneous transfer pricing documentation requirements.

In the current state of globalisation, transfer pricing plays a major role, Yohan added.

“Although Malaysia might not be a OECD or G20 country, there is still a whole lot of tax that can be collected from the transfer pricing arena.”

Also present during the event were Deloitte Kuching Branch members including head of Kuching branch Wong King Yu, senior tax manager Chai Sui Phin and real estate tax leader Tham Lih Jiun.

Other Deloitte members from KL include mergers and acquisition tax leader Sim Kwang Gek, business tax and GST associate director Joshua Voon, GST tax manager Kane Bong, and business tax partner Julie Tan.