Transfer Pricing Highlights - Budget 2021 Finance Bill 2020 - Deloitte
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Transfer Pricing Highlights – Budget 2021 Finance Bill 2020 November 2020
Transfer Pricing Highlights of Budget 2021 2
Transfer Pricing
Change in penalty for non-compliance with Transfer Pricing regulations
1.
Existing
2. [Section
Effective: 113(2) of
01 January the ITA read with TP audit framework]
2021
3. Additional tax arising from TP adjustment in audit Penalty @ 30-50% of
4. AND
Our commentary: tax undercharged
5. Non-filing or delay in filing or poor quality of TP documentation
6. With the proposed amendments, the government seeks to reinforce its position that the taxpayers should prepare
their TPD on contemporaneous basis and make it available upon request. Introduction of new penal provisions
Section 113Bthe
demonstrates of the ITA – Failure
government’s to furnish contemporaneous
aggressiveness and commitment TP towards transfer
Subsections 140A (3C)by
pricing compliance & taxpayers.
(3D) of
The new penalty provision will specifically affect domestic taxpayers with related party transactions but notaudit
documentation the ITA – TP adjustment in
chargeable to tax due to certain tax incentives, capital allowances or business losses. The preparation of robust
On conviction, Surcharge of not more than
contemporaneous TPD fine of RM20,000arm’s
to substantiate to RM100,000 or of related party transaction
length price will assist in mitigating the
5% of increase in income, or
Proposed
imprisonment
penalty risk up tounder
and surcharge 6 months or both
the new provisions.
Burden of proof on taxpayer in case of prosecution reduction in deduction or
7.
loss; and
On conviction, the court may further order to furnish TP
documentation within 30 days or such other period as it deems Surcharge will be collected
as if it was tax payable for
fit
the purpose of collection
If no prosecution is instituted, the DGIR may impose a penalty
and recovery of tax under
of RM20,000 to RM100,000
Sections 103 to 106 of the
Taxpayer may appeal to SCIT against any order of penalty
ITA
Effective: 1 January 2021
Our commentary:
With the proposed Section 113B of the Income Tax Act 1967 (“ITA”), the Director General of Inland Revenue (“DGIR”)
reinforced its position that taxpayers should prepare contemporaneous Transfer Pricing (“TP”) documentation and
furnish it upon request within the given timeframe. Implications under the proposed Section 113B of the ITA are expected
to apply separately to each year of non-compliance.
In the absence of the definition of “contemporaneous” under the ITA, reference can be made to the TP Rules, wherein TP
documentation is defined as “contemporaneous” if it is prepared before entering into a controlled transaction and is
updated prior to return filing due date for the relevant year of assessment. Further, according to FAQs released by the
Inland Revenue Board (“IRB”) dated 1 November 2018, the date of the comparables search must be stated in the TP
documentation.
The proposed surcharge under subsection 140A (3C) of the ITA will be applicable to all taxpayers with controlled
transactions, irrespective of whether or not they have any tax attributes (e.g. incentives, capital allowances, business
losses, etc.).
The proposals are expected to replace the existing penalties in the TP Audit Framework 2019 [read with Section 113(2) of
the ITA]. Further guidance from the IRB is expected on this, including application to voluntary disclosure cases.
Preparation of robust contemporaneous TP documentation for all open years of assessment would help mitigate risk of
fine/penalty and surcharge. Further, taxpayers should ensure TP documentation is ready by return filing due date and is
submitted to the IRB upon request.
Transfer Pricing Highlights of Budget 2021 3
Re-characterisation of controlled transactions
Income Tax (Transfer Pricing) Rules 2012
(a) Economic substance of that
transaction differs from its form
Existing
DGIR may disregard any
structure in a controlled or
transaction if: (b) Commercially irrational
arrangement, and the structure
impedes the DGIR from
determining an appropriate
transfer price
Insertion
Proposed
Income Tax Act 1967
Subsections 140A (3A) & (3B)
Effective: 1 January 2021
Our commentary:
Through this insertion, the proposal fortifies the power of the DGIR to disregard the structure in a controlled transaction, as
well as make adjustments to that structure as he deems fit.
This proposal may lead to increased scrutiny of controlled transactions involving, among others, intragroup interest-free
financial assistance arrangements and aggressive tax planning structures.
To mitigate the risk of re-characterisation, taxpayers should ensure that their controlled transactions are accurately
delineated through contemporaneous TP documentation, and the actual conduct is aligned with intercompany agreements.Transfer Pricing Highlights of Budget 2021 4 Contact us Name Designation Email Telephone Transfer Pricing Theresa Goh Executive Director tgoh@deloitte.com +603 7610 8837 Subhabrata Dasgupta Executive Director sudasgupta@deloitte.com +603 7610 8376 Philip Yeoh Executive Director phyeoh@deloitte.com +603 7610 7375 Tan Wei Chuan Executive Director wctan@deloitte.com +604 2189888 (ext. 3007)
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