TRANSFER PRICING IS AN IMPENDING MAJOR TAX CHALLENGE FOR COMPANIES ESPECIALLY MULTINATIONALS

Recently,one of the big four international accounting firm Ernst &Young has conducted a survey on transfer pricing

According to the survey,

• There is a dramatic increase in the scope of Transfer Pricing documentation required by governments with penalties imposed more frequently and at higher levels when multinationals get it wrong.
• Governments are constantly searching for tax revenues from conducting transfer pricing investigation so as to offset growing budget deficits. Hence,we can see the growing focus on compliance,enforcement and legislations.

For Malaysia,we see:

• The introduction of the new Sections 140A and 138C of the Income Tax Act 1967 relating to TP,which referred to the price charged by one part of an organisation for products and services it provides to another.
• The local Inland Revenue Board (IRB) has set up a dedicated Multinational Tax Department to focus its efforts and resources on TP matters such as TP audit,compliance,policy and advance pricing arrangement.The specialist resources consist of accountants,economists and those with business and finance backgrounds,and the dedicated resources are expected to increase significantly.

For those accountants who are somehow  involve in the transfer pricing system,perhaps it would the right time to review and revamp any loop holes in your company’s transfer pricing methodology otherwise it might come as a surprise to you when Inland Revenue knocks at your door.

Always bear in mind that when implementing transfer pricing system,we should always be consistent in our documentation vide corporate policy or other documentations like other competitors prices,budgets from related companies and others. However,as transfer pricing is pertaining to trade related matters,try alway to adopt  a practical approach to what you are doing say for example if you deviate from your present transfer pricing system and give a very much better discount to your  related company,try to justify it from the practical customer-supplier standpoint.

• What Is An Effective Transfer Pricing System In A Divisional Organization
• Criteria Of A Good Intra Transfer Pricing System(Part2)
• Reasons For Implementing Intra Group Transfer Pricing(Part1)
• Transfer Pricing System:Core Documentation File (Part A)
• Transfer Pricing System:Definitions &Relevant Acts (Part B)
• Glaxo pays $3.1 bln to settle U.S. tax dispute
• Malaysian Companies Should Pay More Attention On Tax Risks