FAQs on Transfer Pricing Surcharge

The Inland Revenue Board of Malaysia (“IRB”) released FAQs on the imposition of a surcharge on Transfer Pricing (“TP”) adjustments made under Section 140(3C) of the Income Tax Act 1967 (“ITA”).

The salient points discussed in the FAQ are as follows:

The imposition of a surcharge is meant to ensure equal tax treatment for all taxpayers that fail to comply with the arm’s length principle, regardless whether the TP adjustment will result in additional taxes or not. This is to encourage compliance with the TP legal framework.
The surcharge will be applicable for TP audit cases that commence on or after 2 January 2021, regardless of the year of assessment covered in the audit exercise.
The surcharge is mutually exclusive with the penalty under Section 113(2) of the ITA.
The surcharge will be imposed on the TP adjustment and not on the tax undercharged.
Taxpayers who are aggrieved with the surcharge imposed can appeal to the Director General by making a written appeal application with justification to the IRB.
The surcharge will generally be imposed at 5 %. However, a lower surcharge may be offered for voluntary disclosure cases.