Transfer Pricing Updates · 2018. 4. 27. · Transfer Pricing Updates The updated guidelines...

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TECHNICAL n BY ABDUL RAZAK RAHMAN WHAT YOU NEED TO KNOW ABOUT THE MALAYSIAN UPDATES TO TRANSFER PRICING GUIDELINES INCORPORATING THE BEPS ACTION PLANS 8 TO 10. TRANSFER PRICING UPDATES The updated guidelines essentially realign the existing transfer pricing (TP) standards to that of the Base Erosion and Profit Shifting (BEPS) Actions 8 to 10 (Aligning transfer pricing outcomes with value creation) and BEPS Action 13 (Transfer pricing documentation and country-by-country reporting). The following are the key points from the session by SM Thanneermalai, Managing Director of Thannees Tax Consulting Services at the MIA Transfer Pricing Conference 2017. CHAPTER II: ARM’S LENGTH PRINCIPLES • Transfer price is acceptable if all transactions between associated entities are conducted at arm’s length price which would have been determined if such transactions were made between independent parties under similar circumstances. • Ensuring that returns are aligned to value creation and not to an entity solely ON 15 July 2017 the Inland Revenue Board Malaysia (IRBM) announced new updates to the Transfer Pricing Guidelines 2012. The updates, which are an expansion of the existing guidelines, are effective immediately and introduce changes to the following chapters: Chapter II: The arm’s length principles Chapter VIII: Intangibles Chapter X: Commodity transactions Chapter XI: Documentation 60 ACCOUNTANTS TODAY | MAR / APR 2018

Transcript of Transfer Pricing Updates · 2018. 4. 27. · Transfer Pricing Updates The updated guidelines...

Page 1: Transfer Pricing Updates · 2018. 4. 27. · Transfer Pricing Updates The updated guidelines essentially realign the existing transfer pricing (TP) standards to that of the Base Erosion

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What You Need to KNoW about the MalaYsiaN updates to traNsfer priciNg guideliNes iNcorporatiNg the beps actioN plaNs 8 to 10.

TransferPricing Updates

The updated guidelines essentially realign the existing transfer pricing (TP) standards to that of the Base Erosion and Profit Shifting (BEPS) Actions 8 to 10 (Aligning transfer pricing outcomes with value creation) and BEPS Action 13 (Transfer pricing documentation and country-by-country reporting).

The following are the key points from the session by SM Thanneermalai, Managing Director of Thannees Tax Consulting Services at the MIA Transfer Pricing Conference 2017.

Chapter II: arm’s Length prInCIpLes• Transferpriceisacceptableifall

transactionsbetweenassociatedentitiesareconductedatarm’slengthpricewhichwouldhavebeendeterminedifsuchtransactionsweremadebetweenindependentpartiesundersimilarcircumstances.

• Ensuringthatreturnsarealignedtovaluecreationandnottoanentitysolely

On 15 July 2017 the Inland Revenue Board Malaysia (IRBM) announced new updates to the Transfer Pricing Guidelines 2012. The updates, which are an expansion of the existing guidelines, are effective immediately and introduce changes to the following chapters:

Chapter II: The arm’s length principles Chapter VIII: Intangibles Chapter X: Commodity transactions Chapter XI: Documentation

60 accountants today | mar / apr 2018

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Transfer Pricing UPdaTes

becauseithascontractuallyassumedrisksorprovidedcapital,andidentifycircumstancesinwhichtransactionscanbere-characterised

• Accuratelydelineateordrawtheresponsibilitylinesofthecontrolledtransactions,toensurethattheactualconductsubstantiallyconformstothetermsofthewrittencontract.

• Focusedandrobustanalysisonfunctions,assetsandrisks(FAR)withemphasisonvaluecreationbetweenaffiliateentitiestoascertainthetransferpricingoutcomes.

• Functionsinvolveallocationofthefunctions,identificationofthepartyundertakingandthecapabilitytoundertake.

• Assetsinvolveidentificationofthepartycontributingandthetypeofassets.

riskswithspecificity.• Step2:Contractualassumptionofrisks• Step3:Functionalanalysisinrelationto

risks• Step4:InterpretingSteps1to3• Step5:Ifdifferencesexist,reallocating

therisksaccordingly• Step6:Pricingthetransaction• Introducesmeasuresthattaxpayers

canconsidersuchasworkingcapitaladjustmentsandrecognitionofBerryRatioasaprofitlevelindicator.

Chapter VII: IntangIbLes• Detailedguidanceonidentification

andcategorisationofintangibles.Inadditiontotradeandmarketingintangibles,thedefinitionofintangibleshasbeenbroadenedtocovergovernmentlicensesandexclusiverights,productionsharingcontracts,

• Risksdealwiththeallocationofriskssupportedbytheactualdecisionmaking.

• IntroductionoftheRiskAnalysisFramework(asix-stepapproach)forthepurposeofaccuratelydelineatingactualtransactionsinrelationtorisks.The6-stepapproachencompasses:

• Step1:Identifyeconomicallysignificant

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Transfer Pricing UPdaTes

complywiththeCountry-by-CountryReportingrequirements

• Taxpayersarenolongerencouragedbutrequiredtomaintaincontemporaneousdocuments.Documentationshouldincludeadescriptionofthemanagementstructureofthelocalentityandlocalorganisationchart,aswellasadetaileddescriptionofthebusinessandbusinessstrategypursuedbythelocalentity.

• ThecomparablesearchesinthedatabasesupportingpartoftheTransferPricingshouldbeupdatedeverythreeyearsratherthanannually.However,financialdataandsuitabilityoftheexistingcomparableshouldbereviewedandupdatedeveryyear.

• Guidanceprovidedondisclosureofmaterialchangesimpactingtransferpricinganalysissuchaschangesinshareholding,changesinbusinessmodelandstructure,changesinbusinessactivities,changesinfinancial/financingstructure,changesinTPpolicyormergerandacquisition.

• Additionalinformationonpricinganalysesisspeltouttoimproveclarity.Pricingpolicyshouldincludeinformationsuchasdetailsontheformulaadopted,howtheformulaisapplied,whodeterminesthepricingpolicy,howoftenthepolicyisrevised,thesampleofdocumentstosupportthepricingpolicy,andresultsofacomparabilitystudytoensurethearm’slengthprice.

• Taxpayersarerequiredtoevaluatethemanagement,allocationandassumptionsofrisksbymakingreferencetotheRiskAnalysisFramework.

• Thechapteralsore-emphasisesthepoweroftheIRBMtoimposepenaltyandthepenaltyisexpectedtoincreaseupto100%in2018. n

licensesthatgranttraderestrictions,powerpurchaseagreement,andcontractstosupplypharmaceuticalproductstogovernmenthospitals.

• IntroductionoftheDevelopment,Enhancement,Maintenance,ProtectionandExploitation(DEMPE)concepttoanalysetransactionsinvolvingintangibles,andtoidentifylegalownerandeconomicownersforallocationofthearm’slengthremunerationwithregardstotheircontributiontowardsthedevelopmentofintangibles.

• Guidanceondeterminationofarm’slengthcompensationforspecifictransactionsandowners,whichincludeR&Dserviceproviders,limitedriskdistributorsperformingAMPactivitiesandlocalcontractmanufacturers.

• Guidanceontransferpricinganalysisinvolvingtheuseandtransferofintangibles,whichincludetransferofrightsinintangibles,transferofcombinationofintangiblesandtransactionsinvolvingtheuseofintangiblesinconnectionwiththesaleofgoodsorperformanceofservices.

• IntroductionofvaluationtechniquesinadditiontoComparableUncontrolledPrice(CUP)andProfitSplitMethod

toestimatethearm’slengthpriceforintercompanytransferofintangibles.

Chapter X: CommodIty transaCtIons• Thisisanewchapterandprovides

taxpayerswithguidanceontheapplicationofCUPmethodoncommoditytransactions.

• Reasonablyaccurateadjustmentsshouldbemadetothequotedpriceforthecommoditytoensuretheeconomicallyrelevantcharacteristics.

• EvidenceofPrice-SettingPolicytobeprovidedbythetaxpayertotheIRBMaspartofthetransferpricingdocumentation

• Incaseofmismatchofpricingdatesbetweenthecontractandactualconduct,theIRBMhasthediscretiontodeterminethepricingdatebasedonevidenceavailabletotheIRBM.Thepricingdatereferstothespecifictimeanddateselectedbythepartiestodeterminethepriceforcommoditytransactions.

Chapter XI: doCumentatIon• IntroducestheMasterFileaspartof

thetransferpricingdocumentationfortaxpayerswhoarerequiredto

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