Chapter Twenty-One

Malaysia Transfer Pricing Guidelines

The Government of Malaysia adopted its Transfer Pricing Guidelines on July 2, 2003.1 These transfer pricing parameters loosely follow the Organisation for Economic Co-operation and Development (OECD), Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations but provide innovative examples and other guidance. This guidance specifically addresses foreign-based multinationals in the Malaysian context. We also examine Malaysia’s advance ruling process effectively promulgated January 1, 2007, the specific advance rulings guideline procedure promulgated on February 14, 2008, and the limitations on that advance ruling process from a transfer pricing standpoint.

INTRODUCTORY PROVISIONS

Transfer pricing in Malaysia generally pertains to the pricing of cross-border transfers of goods, services, and intangibles.2 The Malaysia Transfer Pricing Guidelines address leasing only in passing; they fail to address intercompany loans and borrowing. The guidelines themselves are 31 pages in length. The Malaysia Transfer Pricing Guidelines, while acknowledging that transfer pricing can apply to transactions between associated enterprises within the same country, address only transactions between associated enterprises within a multinational business where one enterprise is subject to tax in Malaysia and the other enterprise is located overseas.3

The Malaysia Transfer Pricing Guidelines would apply to the taxpayer by analogy as to transactions between a permanent establishment (PE) and to the company’s head office or other related branches. The guidelines hypothetically treat the PE as a distinct and separate enterprise (i.e., an entity separate from its head office or other related branches).4

The Malaysia Transfer Pricing Guidelines provide a discussion of the arm’s length principle, the concept of comparability, and the factors that determine comparability. The guidelines provide special considerations for intangible property and for intragroup services. Nevertheless, the guidelines expend half its time examining arm’s length methodologies.

MALAYSIAN TRANSFER PRICING PROCEDURE

The audit division of Malaysia’s Inland Revenue Board is responsible for the Transfer Pricing Guidelines. As a general matter, the Malaysian tax law5 empowers the Director General to disregard transactions where the Director General believes these transactions have the direct or indirect effect of altering the taxpayer’s tax incidence.6 Malaysian tax law gives broad powers to the Director General:

• The Director General can alter the taxpayer’s tax incidence as the Director General sees fit to counteract the effects of these transactions.
• The Director General has the power to disregard transactions where the Director General believes that these transactions were not at arm’s length.7
• The Director General can invoke transfer pricing provisions in the above-mentioned situations.
• The Director General can make necessary adjustments to revise the liability or impose the tax liability on the persons concerned.

Non–arm’s length dealings include transactions between persons one of whom has control over the other. In addition, non–arm’s length dealings include transactions between persons both of whom are controlled by some other person.8 “Control” refers to both direct control and indirect control.9 The Malaysian income tax statute interprets the terms “related companies” and “related company” as “companies in the same group,” doing so initially in the contexts of holding companies and subsidiary companies.10 The Malaysia Transfer Pricing Guidelines provide that two enterprises are associated enterprises with respect to each other if:11

• One of the enterprises participates directly or indirectly in the management, control, or capital of the enterprise, or
• The same persons participate directly or indirectly in the management, control, or capital of the enterprise.

APPLICATION OF THE ARM’S LENGTH PRINCIPLE

As a general principle, the Malaysian Transfer Pricing Guidelines state that, ideally, transfer pricing should not differ from the prevailing market price. When business dealings take place between connected persons, these dealings might not always reflect the dynamics of market forces as would be expected if such transactions were carried out by independent enterprises.12

The Inland Revenue Board of Malaysia (IRBM), similar to other tax administrators, has the duty to ensure the multinational taxpayer adopts reasonable transfer pricing methodologies. IRBM’s overriding goal is to make sure that the Malaysian subsidiaries are paying their fair share of tax. The Malaysian taxpayer must be able to provide adequate documented proof to the IRBM to support its transfer pricing policies.13 The Malaysian Transfer Pricing Guidelines, promulgated in 2003, view multinational corporations as having offshore headquarters rather than having a Malaysian base. Given the advances in the Malaysian economy, these provisions may prove to be self-limiting.

The Malaysian Transfer Pricing Guidelines seek to provide all multinational businesses with this information:14

• Information concerning Malaysian legislation
• Transfer pricing methodologies that the IRBM would accept
• Administrative regulations, including the types or records or documentation that the IRBM expects from taxpayers involved in transfer pricing arrangements

MALAYSIA’S TRANSFER PRICING REGIME

The Malaysian Transfer Pricing Guidelines, unlike the United States transfer pricing regime, do not require the taxpayer to select the best transfer pricing method. Instead, the Malaysian Transfer Pricing Guidelines permit the taxpayer to select from various transfer pricing methodologies, doing so “with the ultimate aim of arriving at an arm’s length transfer price.”15 The IRBM intends that the Malaysian Transfer Pricing Guidelines, which the IRBM reviews from time to time, will assist multinational taxpayers in meeting two objectives at the same time:

The IRBM can adjust the taxpayer’s transactions regarding:16

• The sale, purchase, or lease of tangible assets
• The provision of services
• The transfer, purchase, or use of intangible assets
• The lending and borrowing of money
• Other transactions that affect the enterprise’s profit or loss

As a general matter, the governing standard of the Malaysian Transfer Pricing Guidelines is the OECD Transfer Pricing Guidelines.17 The OECD guidelines rely on the arm’s length principle. The Malaysian Transfer Pricing Guidelines contain methodologies and supporting rationale based on the OECD’s arm’s length principle.

The Malaysian Transfer Pricing Guidelines contain examples that are strictly for illustrative purposes.18 The taxpayer must examine the facts and circumstances of each case before deciding on the applicability of the transfer pricing methods described.

The IRBM has adopted the arm’s length transfer pricing approach, which is internationally accepted as the preferred basis for determining the transfer price of a transaction between associated parties.19 The IRBM’s acceptance of the arm’s length approach is consistent with its objective of minimizing the possibility of double taxation.

As a definitional matter, the “arm’s length price” is the price that the taxpayer would determine if such transactions were made between independent entities under the same or similar circumstances. A transfer price is acceptable under the arm’s length principle if all transactions between related parties are at arm’s length.

A taxpayer, in applying the arm’s length principle to a multinational corporation, should focus its attention on the nature of the transactions between two associated entities and dealings between a PE and its head office. The transfer pricing process treats each member of an affiliated group as if it were a separate entity rather than as an inseparable part of a single unified business.

COMPARABILITY AND TRANSFER PRICING

The Malaysian Transfer Pricing Guidelines specify that the taxpayer must undertake a comparability analysis as a prerequisite in applying all transfer pricing methodologies that conform to the arm’s length principle.20 This comparability analysis involves comparing conditions in a controlled transaction with those transactions that take place between independent parties. The IRBM deems transactions to be comparable if there are no material differences between the transactions being compared or, alternatively, if the taxpayer can make reasonably accurate adjustments to eliminate any differences that take place as to the transactions.

These factors are the focus in a comparability analysis:21

• Circumstances surrounding the commercial and financial relations between associated enterprises
• Processes involved
• Economic performance, such as profits and margins
• Factors that influence the economic performance

The taxpayer must undertake a comparability analysis even when dealing with sophisticated products or with high-tech products, such as computer software, or where the activities involve consultancy services or engineering services. The guidelines specifically address the factors that a taxpayer should consider in a comparability analysis.

Comparability Factors

The Malaysian Transfer Pricing Guidelines specify that the taxpayer is to compare prices or is to compare profit margins. The taxpayer is to make this comparison between controlled transactions and uncontrolled transactions.22 The similarity of product characteristics is more relevant in comparing prices than it is in comparing profit margins. The taxpayer, in applying the comparable uncontrolled price (CUP) method, compares product characteristics. The taxpayer makes this physical comparison more in this instance than it does for other transfer pricing methods. The taxpayer can compare these characteristics:

• Physical characteristics, including physical features, quality, and the volume of property supplied23
• Nature and extent of the services it provides24
• Form of the transaction and type of property the taxpayer provides in the case of intangible property25

Functional Analysis

The taxpayer must undertake a functional analysis in determining the comparability of its transactions.26 Functional analysis involves the determination as to how the business is to divide up its functions, assets (including tangible property), and risks. The division impacts the parties involved in the transaction under review.

The taxpayer, in undertaking the functional analysis, is to compare specific functions. Those functions include product design, manufacturing, marketing, advertising, and research and development. The taxpayer, in comparing such functions, is to consider the:

• Assets employed, such as plant and machinery
• Nature of such assets employed, such as age and market value
• Use of intangibles

The taxpayer must consider a variety of risks, such as:

• Market risks
• Financial risks, including exchange risks
• Risks associated with the success or failure of the research and development that the multinational enterprise undertakes

The Malaysian Transfer Pricing Guidelines warn that a functional analysis itself does not determine the arm’s length result of a controlled transaction; instead, the functional analysis itself should form the basis upon which the taxpayer is to identify comparables.

The Malaysian Transfer Pricing Guidelines provides that the taxpayer should analyze contractual terms as part of its functional analysis.27 The contractual agreement would normally define the allocation of responsibilities, risks, and benefits between enterprises. A transaction’s terms and conditions might influence the price of the transfer or the margin, including, among other things:

• Credit or payment terms
• Volume of sales or purchases
• Warranty terms

A comparability study should take into account how in practice the conduct of the associated parties conforms to the terms of the contract. The study should ascertain how the terms and conditions would influence transactions made between independent enterprises.

The taxpayer is to take economic circumstances into account where these economic circumstances will affect prices charged or profits earned in controlled transactions and in uncontrolled transactions.28 Such economic circumstances include:

• Geographic location of the market
• Size of the market
• Availability of substitute goods and services
• Extent of governmental intervention (i.e., whether the government controls the goods being compared)
• Timing of the transactions

The taxpayer is to take business strategies into account in determining comparability. Such business strategies include:29

• Innovation and new product development
• Degree of diversification
• Market penetration strategies
• Selection of distribution channels
• Market level
• Location

The taxpayer, in making this comparability analysis, may need to consider whether independent enterprises in the same circumstances would have adopted the same strategies. The taxpayer would then evaluate what awards would be expected from this behavior.

TRANSFER PRICING ALTERNATIVES

The Malaysian Transfer Pricing Guidelines permit the taxpayer to select from two transfer pricing alternatives:30 traditional transfer pricing methods and other transfer pricing methods, also called transactional profit methods. The traditional transfer pricing methods comprise the CUP method, the resale price method, and the cost plus method. Other transfer pricing methods include the profit split method and the transactional net margin method (TNMM).

The Malaysian Transfer Pricing Guidelines reiterate that the taxpayer has the right to choose any transfer pricing method or any combination of the methods. The Malaysian Transfer Pricing Guidelines do warn, however, that the taxpayer’s emphasis in selecting the transfer pricing method should be on arriving at an arm’s length price. Accordingly, the Malaysian Transfer Pricing Guidelines, similar to the OECD guidelines, provide that the taxpayer is to use transactional profit methods only when the taxpayer cannot reliably apply traditional transfer pricing methods or when the taxpayer cannot apply traditional transfer pricing methods at all.

As a general matter, the Malaysian Transfer Pricing Guidelines indicate that the IRBM prefers taxpayers to select a transfer pricing method that requires the fewest adjustments. Such a method should provide the most reliable measure of an arm’s length result and should reduce the scope and nature of future disputes. The selection of the transfer pricing method depends heavily on the availability of data. The Malaysian Transfer Pricing Guidelines request taxpayers to consider in selecting the “most appropriate [transfer pricing] method”:

• The degree of “actual comparability” when the taxpayer makes comparisons with transactions between independent parties
• The completeness and accuracy of the data as to the uncontrolled transaction
• The reliability of the assumptions the taxpayer makes
• The data might be inaccurate or the assumptions might be incorrect (The issue becomes the extent to which the adjustments are affected.)

COMPARABLE UNCONTROLLED PRICE TRANSFER PRICING METHOD

The Malaysian Transfer Pricing Guidelines provide that the CUP method is ideal only if:31

• Comparable products are available.
• The taxpayer can make reasonably accurate adjustments to eliminate material product differences.

The CUP method involves the direct price comparison for a transaction of a similar product between two independent parties.32 The CUP method is the most direct way of ascertaining the arm’s length price. The Malaysian Transfer Pricing Guidelines warn that the taxpayer will have to consider other transfer pricing methods if the taxpayer cannot adjust material product differences to give the taxpayer a reliable measure of an arm’s length result.33

The taxpayer contemplating the use of the CUP transfer pricing method is to undertake a comparability analysis.34 As a general matter, an uncontrolled transaction is comparable to a controlled transaction for purposes of the CUP method if the taxpayer meets one of these two conditions:35

A multinational corporation can use the CUP method to determine its transfer price by using this process:38

The taxpayer, in undertaking a comparability analysis under the CUP method, should undertake the following facets:

• The taxpayer needs to consider product characteristics, such as the physical features of the product and the quality of the product.
• Is the product in the form of services? In that event, the taxpayer is to provide the nature and extent of such services.
• Is the product sold? In that event, the taxpayer is to compare the product at the same points in the production chain.
• The taxpayer needs to consider product differentiation, which takes place in the form of patented features, such as trademarks, design, and so forth.
• The volume of the sales might impact the amount charged. In that event, the taxpayer is to take sales volume into account.
• Seasonal fluctuations and other changes in market conditions might impact the timing of the sale. In that event, the taxpayer is to take into account these seasonal fluctuations and other changes in market conditions.
• The taxpayer should take into account whether the costs of transport, packaging, marketing, advertising, and warranty are included in the deal.
• The taxpayer should take into account whether the economic conditions are the same in which the taxpayer sells its products.

RESALE PRICE TRANSFER PRICING METHOD

The Malaysian Transfer Pricing Guidelines provide that the resale price transfer pricing method is the most appropriate transfer pricing method when the company’s final transaction in the distribution chain is with an independent distributor.39 The utility of the resale price method depends on how much the company added to value or the extent of the reseller’s alteration before the product is resold or the time lapse between the time the company purchases the product and its outward sale. The resale price method is more difficult for the taxpayer to apply if:

• The product has gone through a number of processes and the time lapse is too long, causing market conditions to have changed before the company sells the product
• The reseller contributes substantially to the creation of an intangible property or the maintenance of an intangible property that is attached to the product

The beginning point in determining the resale price method is the price at which a company purchases the product from an associated enterprise and then the company resells the product to an independent enterprise.40 The company, in determining the resale price, is to reduce from the resale amount an appropriate gross margin (i.e., the resale price margin). The appropriate gross margin is the amount from which the reseller would seek to recover its selling expenses and other operating expenses. The taxpayer, in determining its appropriate gross margin, is to do so in light of the functions it performs, taking into account the assets it uses and the risks it assumes to make an appropriate profit. The taxpayer is to obtain the arm’s length price for the original transaction between associated enterprises by subtracting that gross margin and by adjusting other costs associated with the product, such as customs duties.

A taxpayer can reflect a resale price adjustment in this manner: The arm’s length price is the resale price less the resale price multiplied by the resale price margin. The resale price margin is the sales price less the purchase price, all divided by the sales price. The resale price margin must be comparable to margins earned by other interdependent enterprises performing similar functions, bearing similar risks, and employing similar assets.

The focus of the resale price method is the resale price margin. The taxpayer should establish its resale price margin from comparable transactions between the reseller involved in the controlled transaction and other independent parties. If those transactions do not exist, the taxpayer can determine the resale price margin from the sales of other resellers in the same market. The taxpayer can expect the resale price method to vary according to the reseller’s value added. The contribution to value added depends on the reseller’s level of activities.

A taxpayer, in undertaking a comparability analysis as to the resale transfer pricing method, is to view an uncontrolled transaction as being comparable if the taxpayer meets one of these two conditions:41

The next factors might influence the resale price margin when the taxpayer conducts the comparability analysis:44

• The taxpayer should seek to ascertain the functions that the reseller performs or the activities the reseller performs, together with the risks the reseller undertakes. For example, the taxpayer should seek to ascertain whether the reseller is merely a forwarding agent or, in contrast, is a distributor who assumes full responsibility for advertising the product by risking its own resources in these activities.45
• The taxpayer should seek to ascertain how the reseller employs similar assets in controlled transactions and in uncontrolled transactions through a developed distribution network.46
• The resale price method allows broader product differences than does the CUP method. Nevertheless, product similarities are still significant to some extent, particularly when the taxpayer assigns a high value or unique intangibles to the product.47
• The taxpayer, in applying the resale price margin, might use an independent enterprise in a comparable transaction. If the taxpayer uses such a comparable transaction, the taxpayer should take into account differences in the way the business is managed as an indicia of profitability.48
• There might be a time lapse between the original purchase of the product and the resale of the product. A longer time lapse may give rise to changes in the market, exchange rates, cost, and so forth.49
• The resale price might depend on whether the manufacturer gives the reseller exclusive rights to resell the products.50
• The taxpayer might need to take accounting practices into account to ensure that the cost components are the same in arriving at the same gross margins for controlled transactions as for uncontrolled transactions.51

COST PLUS TRANSFER PRICING METHOD

The Malaysian Transfer Pricing Guidelines view the cost plus transfer pricing method as applying in the following circumstances:52

• A manufacturer sells its semifinished goods to associated parties.
• Different companies in a multinational group have concluded joint facility arrangements.
• The manufacturer is a contract manufacturer.
• A member of the controlled group provides services.

The taxpayer is to begin with the supplier’s cost in applying the cost method in the case of the transfer of products between associated parties. The supplier then is to add an appropriate markup to this cost to determine the price that the supplier should be charging the buyer under the cost plus method.53

The taxpayer ideally should establish the appropriate markup by referring to the markup that the same supplier earns from uncontrolled sales to independent parties. Transactions having similar characteristics are more likely to be found among sales of product by the same supplier than among sales by other suppliers. The taxpayer might not be able to find transactions having these similar characteristics. In the event that the taxpayer is unable to find these comparables, the taxpayer may determine the appropriate markup by relying on independent parties operating independently.

There might be material differences between controlled transactions and uncontrolled transactions that could affect the gross profit markup. In that event, the taxpayer must make appropriate adjustments to the gross profit markup earned in the uncontrolled transaction.

The cost plus allocation formula applies in this matter: The arm’s length price is cost plus the cost amount multiplied by a markup. The cost plus markup is equal to the sales price less costs, all divided by the cost amount. The cost plus markup amount is to reflect markup amounts earned by independent parties performing comparable functions, bearing similar risks, and using similar assets.

The cost plus method that the taxpayer uses to determine costs and accounting policies should be consistent with and comparable between controlled transactions and uncontrolled transactions, determined over time as to the particular enterprise.54 The cost plus method refers to the aggregate direct and indirect costs of production, as a taxpayer would apply these amounts in applying absorption costing. The taxpayer might be able to take additional costs into account if the taxpayer can justify these costs and if the consideration of these costs would result in a more accurate estimate of the appropriate cost plus margin. The taxpayer, in computing costs, must do so in accordance with generally accepted principles or with normal accounting standards in Malaysia.

A taxpayer undertaking a comparability analysis should recognize that an uncontrolled transaction is comparable to a controlled transaction if the transaction meets one of the two conditions:55

The taxpayer, in undertaking the comparability analysis for cost plus purposes, should take into account the similarity of functions, risks assumed, contractual terms, market conditions, business strategies, and any adjustments the taxpayer must make to account for the effects of differences in the aforementioned factors between controlled and uncontrolled transactions.58 As with the resale price method, for purposes of the cost plus method, the fewer adjustments the taxpayer needs to make the better in determining product differences.

ADDITIONAL TRANSFER PRICING METHODS

Although the Malaysian Transfer Pricing Guidelines state that “it is the prerogative of the taxpayer to choose from the various methodologies laid out with the ultimate aim at arriving at an arm’s length transfer price,”59 the guidelines then say that the taxpayer is to consider the transactional profit margin methods only when the taxpayer cannot apply the traditional transfer pricing methods.60 The guidelines, then, view the transactional profit margin methods as “last resort” methods that take into account profits that arise from particular transactions that take place among associated enterprises that are compared to the profits arising from comparable transactions between independent enterprises.

The IRBM takes a strong stance against global formulary apportionment, stating that the global formulary apportionment is arbitrary and that it could not reliably approximate arm’s length conditions. The term “global formulary apportionment” refers to a transfer pricing method that applies a predetermined, mechanistic formula, normally based in a combination of costs, assets, payroll, and sales undertaken, to allocate the global profits of a multinational enterprise among associated enterprises in different countries.

PROFIT SPLIT TRANSFER PRICING METHOD

The Malaysian Transfer Pricing Guidelines provide that the profit split method provides an alternative transfer pricing method where the taxpayer cannot identify comparable transactions between independent parties. The taxpayer might not be able to identify comparables when the transactions are very interrelated and the taxpayer cannot evaluate these transactions separately. The profit split method is based on the concept that the taxpayer can equitably divide profits earned in a controlled transaction between associated parties involved in the transaction according to the functions that each entity performs.

The taxpayer, in arriving at an arm’s length price, is to value the contributions that each associated entity makes to the transactions. The taxpayer assesses the transaction based on how independent enterprises under the same circumstances would expect to split the profits between them. Under the Malaysian Transfer Pricing Guidelines, this analysis would normally involve making comparisons with independent enterprises that have entered into joint ventures.

The Malaysian Transfer Pricing Guidelines recognize two approaches for estimating the division of profits, whether these profits are projected or actual. These methods are the residual profit approach and the contribution analysis approach. The guidelines caution that the residual profit approach and the contribution analysis approach are not necessarily exhaustive or mutually exclusive.

The Malaysian Transfer Pricing Guidelines permit the taxpayer to apply the residual profit split approach as a last resort method, which creates rather than resolves a plethora of ambiguities. There are two stages of dividing profits under the residual profit split approach:61

The Malaysian Transfer Pricing Guidelines permit the taxpayer to apply the contribution analysis approach as a last resort.62 Under the contribution analysis approach, the taxpayer would divide the combined profits based on the relative value of functions, or contributions, that each party performs. The Malaysian contribution analysis approach in many ways is analogous to the U.S. cost sharing approach. The taxpayer, in determining the relative value of a contribution, might need to focus on:

• The degree of each party’s contribution, such as the providing of services and capital invested
• The relative comparison or percentage and market data assigned

Unlike the residual profit approach, the contribution analysis approach does not allocate basic returns to each of the parties to the transaction before the taxpayer undertakes the profit split. As a general matter, the taxpayer is to combine the operating profit. The taxpayer can consider combining a split of gross profits when the taxpayer lacks expense data that it would otherwise apply to controlled transactions. The taxpayer would then deduct expenses after making the gross profit allocation.

RESIDUAL ANALYSIS EXAMPLE

X, Y, and Z are companies that are located in different countries.

• X manufactures the major component. X designs and manufactures the major components of a high quality electrical product. X sells its products to Y.
• Y manufacturers the final component. Taking the components that Y received from X, Y further develops these components and manufactures them into the final component. Y then exports the final product to Z, an independent distributor.
• Z is a distributor.

The profit and loss statements for Company X and for Company Y are:

In this case, the final product is a unique product for which there is no comparable. There are, however, several companies that carry out similar functions to X and Y involving semifinished products and final products, but of a lower quality. The average net markups for these independent companies are 30% as to the type X situation and 20% as to the type Y situation.

The taxpayer is then to select the transfer pricing method. The taxpayer cannot apply the CUP transfer pricing method in this instance because of the uniqueness of the final product. In this instance, there are insufficient data and information to apply the cost plus method. The resale price method is inappropriate because the product has undergone a substantial transformation at the Y level. The taxpayer, after affirmatively rejecting the three traditional transfer pricing methods, adopts the profit split method using the residual approach.

Under the example provided by the Malaysian Transfer Pricing Guidelines, the taxpayer combines the total profit for X and Y, analogous to the computation of combined taxable income for DISC purposes:63

Next, the taxpayer determines the basic return, using the predetermined external data for X and Y, 30% and 20%, respectively, based on cost of goods sold plus other operating expenses. The basic return to X is 30% of cost of goods sold plus other operating expenses. Cost of goods and operating expenses for X are 35 plus 15, 50 in total, so that 30% of this amount is 15.

The calculation of the basic return to Y has to take into account that the cost of goods sold for comparable companies has included the purchase price for the semifinished product. The basic return for Y, as previously stated, is 20%. The basic return for Y is a function of the transfer price (i.e., 20% of the cost of goods sold minus the purchase price), adding the operating expenses and the arm’s length transfer price (TP). The taxpayer does determine this amount directly. Instead, the formula for the basic return becomes 20% of (35 + 10 + TP) or 9 + 0.2TP.

The next step is to determine the residual profit split, which is the net profit minus the sum of the return to X and the return to Y. The net profit, as previously stated, is 170. The sum of the return to X of 15 and the return to Y of 9 + 0.2TP is stated as 170 − (15 + 9 + 0.2TP), which can be simplified as 146 − 0.2TP.

The example assumes that in this instance R&D is a reliable indicator of X’s and Y’s relative contribution of an intangible asset. In that event, X and Y determine R&D in this manner:

Next we determine the residual profit for X and for Y:

We can determine the net profit for X:

We can determine the net profit for Y:

Now we adjust the X and Y transfer price:

The adjusted net profit becomes:

TRANSACTIONAL NET MARGIN METHOD

The TNMM uses a margin method, as do the resale cost method and the cost plus method. The TNMM, however, examines the net profit margin, in this case relative to an appropriate base, such as costs, sales, or assets the multinational corporation attains from a controlled transaction.64 As with the cost plus or resale price methods, the taxpayer should preferably derive its margin from comparable uncontrolled transactions between the same taxpayer and independent parties (i.e., in-house comparables). In situations in which an in-house comparable might not exist, the taxpayer may refer to the net profit margin that would have been earned in comparable transactions by an independent enterprise.

The taxpayer seeking to apply the TNMM must undertake a functional analysis of the associated enterprise to determine comparability. Unlike gross margins or prices, various factors significantly influence net margins other than products or functions. Such factors include competitive position, varying cost structures, differences in cost of capital, and the like. The Malaysian Transfer Pricing Guidelines emphasize that the taxpayer should confine the TNMM to cases in which the functions have a high degree of similarity so as to eliminate the effects of those other factors.

INTANGIBLE PROPERTY

The Malaysia Transfer Pricing Guidelines, following the OECD guidelines, provide that intangible property includes both marketing intangibles and trade intangibles.65

• In general, intangible property includes patents, know-how, inventions, trademarks, brand names, copyrights, registered designs, franchises, licenses, literary and artistic property rights, and other similar items. The taxpayer would value that intangible property for its intellectual content or its intangible content.
• The term “marketing intangibles” refers to trademarks and trade names, for example.
• The term “trade intangibles” refers to patents that the taxpayer creates through risky and costly R&D, for example.

The Malaysia Transfer Pricing Guidelines provide that the taxpayer can undertake the transfer of intangibles between associated parties in this manner:66

• By outright sale; or by transfer for consideration, by gift, or by capital contribution67
• In the form of a lease, or a license, where the royalty is paid to the owner68

Intangibles, by their nature, are essentially unique products.69 The taxpayer must address special considerations regarding these intangibles. These special considerations are discussed next.

The Malaysia Transfer Pricing Guidelines provide that the arm’s length principle, the concept of comparability, and the basis of selecting the most appropriate method all apply to intangibles as they do to tangible property.72 The taxpayer is to undertake the following facets as part of its comparability analysis:

• The taxpayer is to ascertain the expected benefits from the intangible property, undertaking this analysis for controlled transactions and uncontrolled transactions.73
• A special rule applies in the case of a patent. In such cases, the taxpayer is to ascertain the:74
  • Nature of the patent
  • Duration of the patent
  • Nature of the patent laws in relevant countries
  • Value of the final product that is attributable to the patent
• A special rule applies to marketing intangibles such as trademarks. The Malaysian Transfer Pricing Guidelines require the taxpayer to ascertain the value that the trademark adds by taking into account:75
  • Consumer acceptability
  • Geographic significance
  • Market share
  • Sales volumes
• The Malaysian Transfer Pricing Guidelines acknowledge that the taxpayer will find it difficult to find comparable uncontrolled transactions. Accordingly, the Malaysian Transfer Pricing Guide provides that Malaysia taxpayers frequently use the profit split transfer pricing method. The taxpayer, in determining comparability or relative value of the contributions of each party, must ascertain the amount, nature, and incidence of the costs that the taxpayer incurred in developing or maintaining the intangible property under review.76

TRANSFER PRICING SERVICES REGULATIONS

The Malaysian Transfer Pricing Guidelines acknowledge that most multinational corporations provide for a wide range of services for intragroup use. Such services include technical aid and know-how. The parent or other service companies within the multinational group initially bears these costs but recoups them from other associated companies through some intragroup arrangement.77 The Malaysian Transfer Pricing Guidelines view the intragroup services as providing two subissues:78

The Malaysian Transfer Pricing Guidelines recommends that the taxpayer take into account these factors in determining whether the taxpayer rendered the applicable services:81

• Whether the activity of one group member provides the other group member with economic value or commercial value.
• Whether an independent enterprise in comparable circumstances would be willing to pay for or perform such activities in house for itself.
• The taxpayer needs to address the possibility of duplicate services. The taxpayer cannot charge for duplicate services undertaken by one member where these services merely duplicate a service that another group member is performing for itself. The taxpayer cannot pay for services being performed for such other group member by a third party.
• The taxpayer should avoid accounting for incidental benefits. A taxpayer might be providing incidental benefits to associated enterprises that arise out of the activities or services meant for other members of the multinational corporation. The taxpayer should not take these intragroup services into account for that particular enterprise.

The Malaysian Transfer Pricing Guidelines do not specifically address transfer pricing methods in the services context. Instead, the taxpayer is to apply the transfer pricing methods otherwise applicable to transfers of tangibles.82 The taxpayer is to undertake a functional analysis of the various group members to establish the relationship between the relevant services and the activities and performances of the members.

DOCUMENTATION

The taxpayer is required to keep sufficient records for the purposes of providing necessary records to the Director General to ascertain income or loss from the business.83 The taxpayer must keep these records for a period of seven years.84 The taxpayer must keep records pertaining to Malaysia in Malaysia itself.85 For this purpose, records include books of account, invoices, vouchers, receipts, and other documents necessary to verify entries in any books of account.86

As a general matter, it will be advantageous to the taxpayer to adhere to the next documentation and record-keeping requirements for transfer pricing purposes. Adherence with the documentation and record-keeping requirements reduces the risk of a tax audit and subsequent adjustments.87 The Director General has the power to engage in tax audits and make subsequent adjustments according to whether the Director General views them as being reasonable transfer prices.

The taxpayer has no obligation to submit transfer pricing documents with its return forms. In contrast, the taxpayer should make these documents available to the IRBM when the IRBM requests these forms. The taxpayer must keep its relevant documentation in English or in Malay, or translate these documents into English or into Malay.88 The taxpayer is to translate the documents at the time that the taxpayer establishes the transfer price. The translation is to include particulars as to the transaction.

The Malaysian Transfer Pricing Guidelines provide a list of documents that the taxpayer must retain.89 The guidelines indicate that this list is not exhaustive, nor do the guidelines intend to apply this list to all types of businesses. Instead, the taxpayer is to maintain documents that are applicable in the taxpayer’s circumstances. The taxpayer must be prepared to provide additional information or documentation to the IRBM not contained in the list but that might become relevant in determining the arm’s length price.

The documentation requirements are reflected in three parts:

The Malaysian Transfer Pricing Guidelines require the taxpayer to retain three types of company details:90

The Malaysian Transfer Pricing Guidelines require the taxpayer to retain seven types of transaction details:94

The Malaysian Transfer Pricing Guidelines provide that the taxpayer is to retain this information about its transfer price:102

• The taxpayer is to specify the pricing methodology it adopts, showing the IRBM how the taxpayer derives its arm’s length price.103
• The taxpayer is to specify its functional analysis, taking into account all risks that the taxpayer assumes and the assets the taxpayer employs.104
• A comparability analysis might result in a range of arm’s length outcomes. In the event that there is a range of arm’s length outcomes, the taxpayer is to provide documents relating to these outcomes. The taxpayer is to provide its rationale in selecting the particular arm’s length range.105

MALAYSIA ISSUES ADVANCE RULING GUIDELINES

Malaysia now permits a taxpayer to secure an advance tax ruling in many fact patterns. The advance ruling process is important to U.S. companies doing business in Malaysia as well as for Malaysian companies doing business in the United States because the two countries have no income tax treaty except for a shipping and air transportation treaty signed April 18, 1989. The Malaysian Prime Minister announced the advance tax ruling concept as part of the 2007 budget, effective January 1, 2007. The IRBM promulgated the specific advance rulings guideline procedure on February 14, 2008.106

As we shall see, Malaysia’s advance tax ruling process puts taxpayers in an uncertain position from a transfer pricing standpoint. At the outset, Malaysia’s advance process does not encompass bilateral advance pricing agreements. Further, Malaysia’s advance pricing process possibly might not encompass unilateral advance pricing agreements. Nevertheless, a matched unilateral advance pricing agreement, if permitted by the Malaysian tax authorities, would be an appropriate transfer pricing alternative for Malaysian companies doing business in the United States and for U.S. companies doing business in Malaysia.

GENERAL FACTS ABOUT THE ADVANCE RULING PROCEDURE IN MALAYSIA

As a general matter, Malaysia’s advance ruling procedure is designed to interpret and apply the income tax provisions pursuant to Malaysia’s primary tax law, the Income Tax Act 1967.107 Any taxpayer can request such an advance ruling. A foreign party can request such ruling if the party is represented by local counsel.108 The IRBM intends that the issuance of an advance ruling will achieve these objectives:109

• Ensure clarity and certainty of the tax treatment
• Provide consistency in the application of the income tax law
• Promote tax compliance
• Minimize disputes between the IRBM and the taxpayer

The Income Tax Act 1967 empowers the Director General Inland Revenue (DGIR) to provide an advance ruling on behalf of the taxpayer.110 Upon the taxpayer’s request, the DGIR can rule as to how the provisions of the act would apply to the person and to the arrangement for which the taxpayer seeks a ruling. The Income Tax Act 1967 empowers the Minister of Finance to provide for the scope and procedure as to the advance ruling and to provide fees associated with the advance ruling.111 The advance ruling procedure is retroactive to January 1, 2007.112

The DGIR issues the advance ruling to the taxpayer interpreting how the IRBM is to apply a proposed arrangement pursuant to the Income Tax Act 1967. The scope of advance ruling procedure in Malaysia is narrow, limited only to class of activities that constitute “proposed arrangements.”113 This chapter examines the scope of “proposed arrangement” factors.

As a general matter, an advance ruling is binding on the taxpayer.114 In contrast, the DGIR can withdraw the ruling under defined circumstances.115 The advance ruling comprises these areas:116

• The circumstances that pertain to the ruling provisions contained in the Income Tax Act 1967.
• The ruling must be binding on the taxpayer.
• The ruling applies only to the taxpayer’s taxable year.
• The ruling applies only to the proposed arrangement specified in the advance ruling.

BINDING NATURE OF AN ADVANCE RULING

The advance ruling does not serve as a precedent for other cases. The issued ruling automatically lapses if the taxpayer fails to carry out the arrangement stipulated in the ruling by the end of the ruling’s time period. The ruling is subject to any qualifications stated in the ruling, but otherwise the ruling is binding on the DGIR.117 The guidelines enumerate four situations in which the advance ruling will not be binding on the DGIR:118

The advance ruling guideline provides specific terms that apply through the guideline in various contexts.123 The guideline defines the term “arrangement” in a broad matter to include “any scheme, contract, agreement, plan, or undertaking,” whether such arrangement is enforceable or not.124 Such arrangement includes all the steps and transactions that carry the arrangement into effect. The guideline requires, for the DGIR to approve the ruling, that the taxpayer propose an arrangement that the taxpayer seriously contemplates.125 The guideline defines the term “seriously contemplates” to mean a “concerted effort and a define course of action, whether this action is unilateral or otherwise, to undertake the arrangement in the near future.” The guideline fails to define the term “near future.”

SCOPE OF THE ADVANCE RULING REQUEST

The prerequisite for requesting an advance ruling is that the issues that would be addressed in the ruling require a determination of the income tax laws. The advance ruling guideline cautions that an advance ruling request is not to seek information as to what the law already provides or a question of fact.126 For example, an advance ruling request is not designed to render a decision as to whether a person is a resident.

The prerequisite for requesting an advance ruling is that the taxpayer “seriously contemplates” the proposed arrangement for implementation in the near future.127 The taxpayer is precluded from requesting the advance ruling on a whim or before the taxpayer has adequate documentation concerning the transaction contemplated. The taxpayer must put forward relevant documentation as evidence to indicate that the taxpayer seriously contemplated the arrangement.

Malaysia basic income tax law itself permits a taxpayer to obtain an advance ruling, indicating how any provision in the tax law would apply to the taxpayer’s proposed arrangement.128 The DGIR will issue an advance ruling only if the taxpayer seriously contemplates the arrangement contemplated and the arrangement exists in fact.

The DGIR can provide other restrictions of the advance ruling procedure. The DGIR will not provide an advance ruling if the matter sought by the taxpayer pertains to a provision in the Income Tax Act 1967 that would authorize or require the DGIR or the Minister of Finance to undertake these activities:

• Impose a penalty or remit a penalty
• Remit tax due and payable
• Approve an application
• Inquire as to the correctness of any tax return or of any other information supplied by any person
• Prosecute any person
• Recover any debt owing by any person

Circumstances in which Malaysia Tax Authorities Will Not Issue an Advance Ruling

The DGIR has no obligation to respond favorably to each advance ruling. The DGIR will reject requests to provide an advance ruling in these ten circumstances:129

Circumstances in which the DGIR Can Decline to Issue an Advance Ruling

In addition to the preceding ten situations in which the DGIR will reject requests to provide an advance ruling, the DGIR may generally decline an application for an advance ruling in these four circumstances:140

Notice Requirements

The DGIR has the power to decline to make an advance ruling or not make an advance ruling. In such a case, the DGIR is to notify the applicant in writing at the earliest possible time. The DGIR is to provide the reasons why the DGIR did not make an advance ruling or declined to make an advance ruling.145

ADVANCE RULING APPLICATION PROCEDURE

The advance ruling application procedure addresses these specific processes:146

• Eligible parties
• The application
• Information requirements
• The applicant’s withdrawal of an advance ruling request

As a general matter, any person may apply for an advance ruling as to how a provision of the Income Tax Act 1967 would apply to the person, or to the prospective person, as the case may be.147 As a general matter, any person may apply for an advance ruling as to any particular arrangement that falls under the purview of the advance ruling. The advance ruling process is available to both companies already in existence and companies that are not yet in existence, but the application process differs between them to some extent.

A taxpayer that is already in existence must apply for the advance ruling on its own behalf.148 For example, the taxpayer includes a company that has already been incorporated in Malaysia. The taxpayer, at its option, may employ the services of an approved tax agent or a certified revenue lawyer, both of whom practice their profession in Malaysia. Such an approved tax agent or a certified revenue lawyer can complete the advance ruling application form and prepare the advance ruling application for submission to the DGIR on behalf of the client. The person responsible for the advance ruling application form must sign the form. The responsible person includes, by way of example, a company director or a partner in a partnership. Note that this process is optional on the part of a business incorporated in Malaysia but mandatory on the part of the foreign enterprise.

Two or more persons can jointly make an advance ruling application. The joint application, by way of example, includes a group of companies in the same group, and includes partners in a partnership.149 The “person responsible” for each participant to the joint ruling application must sign the return before the entity submits its return to the DGIR.

Two scenarios limit the taxpayer’s application for the advance ruling:

In either of these two scenarios, the representative of the taxpayer must be an approved tax agent or a certified revenue lawyer where such person practices its profession in Malaysia.150 A representative acting on behalf of the taxpayer must forward a letter of authority that authorizes the representative to act on the taxpayer’s behalf. The representative must fill out the details in the application.

ADVANCE RULING APPLICATION FORM

The taxpayer applying for an advance ruling must furnish this information to the DGIR:151

• A complete description as to all facts that are relevant to the arrangement.152 This description includes all of the taxpayer’s factual assumptions in regard to the arrangement and includes the names, addresses, business activities, and other relevant particulars as to all parties to the arrangement.
• The tax issues that the taxpayer requests the DGIR consider.153
• The provisions under the Income Tax Act 1967 that relate to these items in the advance ruling application:154
  • Appropriate case law
  • Published commentaries, if any
  • Legal reasons that support the taxpayer’s interpretation of the applicable sections
  • The stance or opinion on the tax treatment that should be accorded to the proposed arrangement for which the advance ruling is sought. The taxpayer should identify the relevant provisions in the Income Tax Act 1967 that are applicable.155
  • The commercial or other reasons for the arrangement, if applicable.156
  • Copies of all documents, identifying all the relevant parts or passages.157
  • Information as to the taxable years to which the advance ruling application relates.158
  • A statement identifying whether the applicant has made a previous advance ruling request on the same or similar arrangement.159 If the applicant made such an advance ruling, the applicant is to state the advance ruling application and the reference number of the advance ruling issued by the IRBM.

INFORMATION REQUEST REQUIREMENT

The DGIR needs to receive sufficient information from the applicant to complete its review in granting an advance ruling. The DGIR has the right to request further relevant information or to carry out an on-site inspection in instances where the applicant provided insufficient information.160 The DGIR also has the right to waive any requirements the DGIR would otherwise need in filling out the application. The DGIR can waive these requirements if it is the DGIR’s opinion that it would be unreasonable to request information for which the applicant has no means of providing or information to which the applicant has no access.161

A person who has submitted an advance ruling application can withdraw the advance ruling application before the DGIR issues its advance ruling. A person seeking to withdraw its advance ruling application can do so by forwarding such a notice to the DGIR in writing.162 A person who withdraws its application for an advance ruling remains liable to pay all fees incurred up to the time the DGIR receives a notice of withdrawal.163 A person seeking to withdraw its advance ruling application must acknowledge this requirement in filing the withdrawal request.164

ISSUANCE OF THE ADVANCE RULING

The advance ruling guideline provides that the DGIR is to notify the applicant for the advance ruling that the DGIR has in fact issued such a ruling. In addition, the DGIR is to notify the applicant as to the additional fees the applicant must pay in relation to the advance ruling. The DGIR will issue the advance ruling to the applicant only when the applicant pays all fees payable.165

The advance ruling guideline provides that the advance ruling is to specify:166

• That the DGIR issued the ruling pursuant to section 138B of the Income Tax Act 1967.167
• The identity of the persons requesting the ruling and the applicable provisions within the Income Tax Act 1967 that are subject to advance ruling and the arrangement sought by the applicant.168
• How the provision in the Income Tax Act 1967 applies to the person requesting the ruling and to the arrangement sought by the applicant.169
• The number of taxable years for which the advance ruling applies.170
• The material assumptions the DGIR makes about a future event or other matters.171
• The conditions, if any, that the DGIR imposes.172

The DGIR, in developing the advance ruling, might request additional information from the applicant. The DGIR, at is option, can issue an advance ruling based on assumptions it makes if the applicant cannot provide the necessary information. The DGIR is to make such assumptions that are appropriate, but the DGIR can decline to make an advance ruling if the applicant provides insufficient information.173

The advance process expects that the applicant and the IRBM will undertake prior consultations. The purpose of the collaborative process is to clarify information the applicant provides in the advance ruling application.174 The IRBM is not obligated to disclose the decisions it makes within the applicant’s advance ruling process at any time before the DGIR issues the advance ruling.

The recipient of an advance ruling may apply in writing to extend the application of the ruling beyond the taxable year indicated in the advance ruling.175 The taxpayer must file a request to extend the period for which the advance ruling is applicable, doing so within three months prior to the end of the period or taxable year specified in the advance ruling or at any other period the DGIR approves. The arrangement might be essentially the same as the arrangement specified in the advance ruling. In the event that the arrangement is essentially the same, the applicant may request to the DGIR that it apply the same interpretation of the Income Tax Act 1967 prospectively to another period or to another taxable year.

The advance ruling guideline contains an exculpation clause for typographical errors and/or other minor errors. Such errors, if they were to occur in the DGIR’s advance ruling issued to the applicant, do not adversely affect the advance ruling or make the advance ruling void if these errors do not in any way alter the way the provision of the Income Tax Act 1967 applies in the advance ruling.176

A taxpayer that files an advance ruling application is still obligated to comply with the obligations under the Income Tax Act 1967. For example, the taxpayer is obligated to file its tax return within the stipulated tax frame for compliance before the taxpayer filed its advance ruling application.177 The DGIR’s issuance of an advance ruling to an applicant does not change any powers the DGIR has to make or amend tax assessments under the Income Tax Act 1967.

ADVANCE RULING FINALITY AND DISCLOSURE

When the DGIR issues an advance ruling, that advance ruling is final whether the advance ruling is applicable to the taxpayer or not. The DGIR will not entertain any correspondence or inquiry after the DGIR issues the advance ruling.178 The taxpayer cannot appeal the ruling. However, the taxpayer has the choice not to carry out the proposed arrangement if an advance ruling is disadvantageous to the taxpayer. The taxpayer must comply with the advance ruling if the taxpayer chooses to effectuate the proposed arrangement. Although the advance ruling is final, the taxpayer can object to the tax treatment under the normal Income Tax Act 1967 procedures.179

A taxpayer that receives an advance ruling has an obligation to disclose this information in the preparation of its annual tax return:180

• The existence of an advance ruling181
• Whether the taxpayer has complied with the advance ruling182
• Whether the taxpayer made material changes to the arrangement made in the advance ruling183

The advance ruling guideline fails to address certain timing issues. For example, the disclosure provisions fail to address issues such as the taxpayer must reflect the existence of the ruling in the taxable year in which the DGIR issues the ruling, but the provision does not indicate whether they must reflect advance rulings in prior years. The DGIR can enforce the disclosure provision by penalties that the DGIR can impose for noncompliance with the advance ruling.

THE DGIR CAN WITHDRAW THE ADVANCE RULING

The DGIR retains the right to withdraw an advance ruling at any time after the DGIR issues the ruling to the applicant. The DGIR can withdraw the advance ruling request because of changes in the tax laws based on differing court decisions.184 Nevertheless, the withdrawal provisions are open-ended, permitting the taxpayer to withdraw the request under a wide variety of circumstances independent of court decisions.

The DGIR is to effectuate the withdrawal of an advance ruling issued to an applicant by means of issuing a notice of withdrawal to the applicant. The DGIR is prohibited from withdrawing the advance ruling on a prospective basis. The DGIR also is prohibited from withdrawing the advance ruling beyond a date at which the taxpayer is reasonably expected to receive a notice of withdrawal.185

A taxpayer might have effectuated the arrangement provided for in the advance ruling before the DGIR withdraws the ruling. In the event that the taxpayer has proceeded accordingly, the taxpayer can follow the advance ruling until the end of the period stated in the ruling. However, the taxpayer might not have effectuated the arrangement at the time that the DGIR issues the taxpayer a notice of withdrawal. The arrangement then is prospective, and the taxpayer cannot then take advantage of the advance ruling.186 The proceeding withdrawal process enables an applicant that undertakes an arrangement in reliance of an advance ruling to bind the DGIR for the remainder of the period. However, the DGIR will not be bound by the advance ruling if the DGIR withdraws an advance ruling before the applicant enters into the arrangement.

SITUATIONS IN WHICH THE ADVANCE RULING CEASES TO APPLY

When the DGIR issues an advance ruling to an applicant, this ruling will be binding on the applicant and on the DGIR,187 subject to the provisions subject to the binding nature of an advance ruling188 and the withdrawal of an advance ruling by the DGIR.189 An advance ruling ceases to apply in situations in which any provision of the Income Tax Act 1967 repeals or amends the subject of the ruling. This cessation takes place if the repeal or amendment of that provision in the Income Tax Act 1967 alters the way in which the tax law applies. The cessation of the advance ruling takes place from the date the repeal or amendment becomes effective.

FEE STRUCTURE

An applicant must pay a fee to secure an advance ruling from the DGIR. The fees will be based on each applicant’s requesting an advance ruling, including the request for each applicant requesting the advance ruling.190 The DGIR imposes these fees on the applicant as a debt due to the government of Malaysia.

The fee structure begins with an application fee of RM500 ($150 USD) upon application that is nonrefundable. This fee takes into account the amount of time the DGIR would need to accede to the request.191 In addition, DGIR imposes a further fee of RM150 ($45) per hour or part thereof after the first four hours, including the time that DGIR spends in consulting with the applicant.192 Moreover, the taxpayer must reimburse the DGIR for its professional advice the DGIR obtains with consent of the applicant193 and any other reasonable costs the DGIR incurs.194 In any event, the DGIR will at all times ensure that it is making every effort to minimize the fees payable.

An applicant that withdraws its application for an advance ruling remains liable for all fees incurred on its behalf up to the time at which the applicant receives a letter from the DGIR acknowledging the withdrawal.195 The DGIR may waive any fees payable by an applicant for an advance ruling request, except for the nonrefundable application fee of RM500.196 The DGIR can provide the waiver at its own discretion.

INTERNAL PROCEDURE

The DGIR will normally address an advance ruling request in the order in which it receives the request. The DGIR intends that it will issue the advance ruling within a stipulated time frame of 60 days from the date the applicant submits the application. The DGIR expects to meet this 60-day time period provided the applicant submits the relevant information together with the request and that the DGIR does not need further consultations with the applicant.197 The DGIR is to advise the applicant if any unusual delay is foreseen.

All information in the advance ruling is confidential. The DGIR will not publish the advance ruling in any form.198 There may be situations in which there are similarities of common concern including the applicant and other taxpayers. In the event that there are issues of common concern, the DGIR may produce a public ruling to address these issues.

NOTES

1. Garis Panduan Pindahan Harga.

2. Malaysia Transfer Pricing Guidelines, chapter 1.

3. Malaysia Transfer Pricing Guidelines, chapter 3.1.

4. Malaysia Transfer Pricing Guidelines, chapter 3.2.

5. Income Tax Act 1967, subsection 140(1).

6. Malaysia Transfer Pricing Guidelines, chapter 4.2.

7. Income Tax Act 1967, section 140.

8. Income Tax Act 1967, subsection 140(6).

9. Income Tax Act 1967, section 139; Malaysia Transfer Pricing Guidelines, chapter 4.3.1.

10. Income Tax Act 1967, subsection 2(4); Malaysia Transfer Pricing Guidelines, chapter 4.3.1.

11. Malaysia Transfer Pricing Guidelines, chapter 4.3.2.

12. Malaysia Transfer Pricing Guidelines, chapter 1.

13. Malaysia Transfer Pricing Guidelines, chapter 1.

14. Malaysia Transfer Pricing Guidelines, chapter 2.

15. Malaysia Transfer Pricing Guidelines, chapter 2.

16. Malaysia Transfer Pricing Guidelines, chapter 3.3.

17. Malaysia Transfer Pricing Guidelines, chapter 3.4.

18. Malaysia Transfer Pricing Guidelines, chapter 3.5.

19. Malaysia Transfer Pricing Guidelines, chapter 4.1.

20. Malaysia Transfer Pricing Guidelines, chapter 5.1.

21. Malaysia Transfer Pricing Guidelines, chapter 5.2.

22. Malaysia Transfer Pricing Guidelines, chapter 6.1.

23. Malaysia Transfer Pricing Guidelines, chapter 6.1(a).

24. Malaysia Transfer Pricing Guidelines, chapter 6.1(b).

25. Malaysia Transfer Pricing Guidelines, chapter 6.1(c).

26. Malaysia Transfer Pricing Guidelines, chapter 6.2.1.

27. Malaysia Transfer Pricing Guidelines, chapter 6.2.2.

28. Malaysia Transfer Pricing Guidelines, chapter 6.3.1.

29. Malaysia Transfer Pricing Guidelines, chapter 6.3.2.

30. Malaysia Transfer Pricing Guidelines, chapter 7.1, chapter 7.2.

31. Malaysia Transfer Pricing Guidelines, chapter 7.3.1.

32. Malaysia Transfer Pricing Guidelines, chapter 7.3.2.

33. Malaysia Transfer Pricing Guidelines, chapter 7.3.1.

34. Malaysia Transfer Pricing Guidelines, chapter 7.3.3.

35. Malaysia Transfer Pricing Guidelines, chapter 7.3.3(a).

36. Malaysia Transfer Pricing Guidelines, chapter 7.3.3(a)(i).

37. Malaysia Transfer Pricing Guidelines, chapter 7.3.3(a)(ii).

38. Malaysia Transfer Pricing Guidelines, chapter 7.3.3(b).

39. Malaysia Transfer Pricing Guidelines, chapter 7.4.1.

40. Malaysia Transfer Pricing Guidelines, chapter 7.4.2.

41. Malaysia Transfer Pricing Guidelines, chapter 7.4.3(a).

42. Malaysia Transfer Pricing Guidelines, chapter 7.4.3(a)(i).

43. Malaysia Transfer Pricing Guidelines, chapter 7.4.3(a)(ii).

44. Malaysia Transfer Pricing Guidelines, chapter 7.4.3(b).

45. Malaysia Transfer Pricing Guidelines, chapter 7.4.3(b)(i).

46. Malaysia Transfer Pricing Guidelines, chapter 7.4.3(b)(ii).

47. Malaysia Transfer Pricing Guidelines, chapter 7.4.3(b)(iii).

48. Malaysia Transfer Pricing Guidelines, chapter 7.4.3(b)(iv).

49. Malaysia Transfer Pricing Guidelines, chapter 7.4.3(b)(v).

50. Malaysia Transfer Pricing Guidelines, chapter 7.4.3(b)(vi).

51. Malaysia Transfer Pricing Guidelines, chapter 7.4.3(b)(vii).

52. Malaysia Transfer Pricing Guidelines, chapter 7.5.1.

53. Malaysia Transfer Pricing Guidelines, chapter 7.5.2.

54. Malaysia Transfer Pricing Guidelines, chapter 7.5.3.

55. Malaysia Transfer Pricing Guidelines, chapter 7.5.4 (a).

56. Malaysia Transfer Pricing Guidelines, chapter 7.5.4 (a)(i).

57. Malaysia Transfer Pricing Guidelines, chapter 7.5.4 (a)(ii).

58. Malaysia Transfer Pricing Guidelines, chapter 7.5.4 (b).

59. Malaysia Transfer Pricing Guidelines, chapter 2.

60. Malaysia Transfer Pricing Guidelines, chapter 7.6.

61. Malaysia Transfer Pricing Guidelines, chapter 7.6.1(i).

62. Malaysia Transfer Pricing Guidelines, chapter 7.6.1(ii).

63. IRC section 994(a)(2). See R. Feinschreiber and M. Kent, Export DISC Handbook (2008), p. 146.

64. Malaysia Transfer Pricing Guidelines, chapter 7.6.2.

65. Malaysia Transfer Pricing Guidelines, chapter 8.1.

66. Malaysia Transfer Pricing Guidelines, chapter 8.2.

67. Malaysia Transfer Pricing Guidelines, chapter 8.2(i).

68. Malaysia Transfer Pricing Guidelines, chapter 8.2(ii).

69. Malaysia Transfer Pricing Guidelines, chapter 8.3.

70. Malaysia Transfer Pricing Guidelines, chapter 8.3(i).

71. Malaysia Transfer Pricing Guidelines, chapter 8.3(ii).

72. Malaysia Transfer Pricing Guidelines, chapter 8.4.

73. Malaysia Transfer Pricing Guidelines, chapter 8.4(i).

74. Malaysia Transfer Pricing Guidelines, chapter 8.4(ii).

75. Malaysia Transfer Pricing Guidelines, chapter 8.4(iii).

76. Malaysia Transfer Pricing Guidelines, chapter 8.4(iv).

77. Malaysia Transfer Pricing Guidelines, chapter 9.1.

78. Malaysia Transfer Pricing Guidelines, chapter 9.2.

79. Malaysia Transfer Pricing Guidelines, chapter 9.2(i).

80. Malaysia Transfer Pricing Guidelines, chapter 9.2(ii).

81. Malaysia Transfer Pricing Guidelines, chapter 9.3.

82. Malaysia Transfer Pricing Guidelines, chapter 9.4.

83. Malaysia Transfer Pricing Guidelines, chapter 10.1.

84. Income Tax Act 1967, paragraph 82(1)(a).

85. Income Tax Act 1967, subsection 82(7).

86. Income Tax Act 1967, subsection 82(9).

87. Income Tax Act 1967, section 140.

88. Malaysia Transfer Pricing Guidelines, chapter 10.2.

89. Malaysia Transfer Pricing Guidelines, chapter 10.3.

90. Malaysia Transfer Pricing Guidelines, chapter 10.3(A).

91. Malaysia Transfer Pricing Guidelines, chapter 10.3(A)(i).

92. Malaysia Transfer Pricing Guidelines, chapter 10.3(A)(ii).

93. Malaysia Transfer Pricing Guidelines, chapter 10.3(A)(iii).

94. Malaysia Transfer Pricing Guidelines, chapter 10.3(B).

95. Malaysia Transfer Pricing Guidelines, chapter 10.3(B)(i).

96. Malaysia Transfer Pricing Guidelines, chapter 10.3(B)(ii).

97. Malaysia Transfer Pricing Guidelines, chapter 10.3(B)(iii).

98. Malaysia Transfer Pricing Guidelines, chapter 10.3(B)(iv).

99. Malaysia Transfer Pricing Guidelines, chapter 10.3(B)(v).

100. Malaysia Transfer Pricing Guidelines, chapter 10.3(B)(vi).

101. Malaysia Transfer Pricing Guidelines, chapter 10.3(B)(vii).

102. Malaysia Transfer Pricing Guidelines, chapter 10.3(C).

103. Malaysia Transfer Pricing Guidelines, chapter 10.3(C)(i).

104. Malaysia Transfer Pricing Guidelines, chapter 10.3(C)(ii).

105. Malaysia Transfer Pricing Guidelines, chapter 10.3(C)(iii).

106. LHDN.01/35/42/51/122/3 February 14, 2008.

107. Guideline on Advance Rulings, section 1.

108. Guideline on Advance Rulings, section 10.4; Guideline on Advance Rulings, section 1.

109. Guideline on Advance Rulings, section 1.

110. Guideline on Advance Rulings, section 2.1.

111. Guideline on Advance Rulings, section 2.2.

112. Guideline on Advance Rulings, section 1, section 2.3.

113. Guideline on Advance Rulings, section 5.2, section 6.2.

114. Guideline on Advance Rulings, section 4.1.

115. Guideline on Advance Rulings, section 13.

116. Guideline on Advance Rulings, section 1.

117. Guideline on Advance Rulings, section 4.1.

118. Guideline on Advance Rulings, section 4.2.

119. Guideline on Advance Rulings, section 4.2a.

120. Guideline on Advance Rulings, section 4.2b.

121. Guideline on Advance Rulings, section 4.2c.

122. Guideline on Advance Rulings, section 4.2d.

123. Guideline on Advance Rulings, section 5.

124. Guideline on Advance Rulings, section 5.1.

125. Guideline on Advance Rulings, section 5.2.

126. Guideline on Advance Rulings, section 6.1.

127. Guideline on Advance Rulings, section 6.2.

128. Income Tax Act 1967, section 138B; Guideline on Advance Rulings, section 6.3.

129. Guideline on Advance Rulings, section 7.

130. Guideline on Advance Rulings, section 7a.

131. Guideline on Advance Rulings, section 7b.

132. Guideline on Advance Rulings, section 7c.

133. Guideline on Advance Rulings, section 7d.

134. Guideline on Advance Rulings, section 7e.

135. Guideline on Advance Rulings, section 7f.

136. Guideline on Advance Rulings, section 7g.

137. Guideline on Advance Rulings, section 7h.

138. Guideline on Advance Rulings, section 7i.

139. Guideline on Advance Rulings, section 7j.

140. Guideline on Advance Rulings, section 8.

141. Guideline on Advance Rulings, section 8a.

142. Guideline on Advance Rulings, section 8b.

143. Guideline on Advance Rulings, section 8c.

144. Guideline on Advance Rulings, section 8d.

145. Guideline on Advance Rulings, section 9.

146. Guideline on Advance Rulings, section 10.

147. Guideline on Advance Rulings, section 10.1.

148. Guideline on Advance Rulings, section 10.2.

149. Guideline on Advance Rulings, section 10.3.

150. Guideline on Advance Rulings, section 10.4.

151. Guideline on Advance Rulings, section 10.5.

152. Guideline on Advance Rulings, section 10.5a.

153. Guideline on Advance Rulings, section 10.5b.

154. Guideline on Advance Rulings, section 10.5c.

155. Guideline on Advance Rulings, section 10.5d.

156. Guideline on Advance Rulings, section 10.5e.

157. Guideline on Advance Rulings, section 10.5f.

158. Guideline on Advance Rulings, section 10.5g.

159. Guideline on Advance Rulings, section 10.5h.

160. Guideline on Advance Rulings, section 10.6.

161. Guideline on Advance Rulings, section 10.7.

162. Guideline on Advance Rulings, section 10.8.

163. Guideline on Advance Rulings, section 15.2.

164. Guideline on Advance Rulings, section 10.8.

165. Guideline on Advance Rulings, section 11.1.

166. Guideline on Advance Rulings, section 11.2.

167. Guideline on Advance Rulings, section 11.2a.

168. Guideline on Advance Rulings, section 11.2b.

169. Guideline on Advance Rulings, section 11.2c.

170. Guideline on Advance Rulings, section 11.2d.

171. Guideline on Advance Rulings, section 11.2e.

172. Guideline on Advance Rulings, section 11.2f.

173. Guideline on Advance Rulings, section 11.3.

174. Guideline on Advance Rulings, section 11.4.

175. Guideline on Advance Rulings, section 11.5.

176. Guideline on Advance Rulings, section 11.6.

177. Guideline on Advance Rulings, section 11.7.

178. Guideline on Advance Rulings, section 12.1.

179. Income Tax Act 1967, section 99.

180. Guideline on Advance Rulings, section 12.2.

181. Guideline on Advance Rulings, section 12.2a.

182. Guideline on Advance Rulings, section 12.2b.

183. Guideline on Advance Rulings, section 12.2c.

184. Guideline on Advance Rulings, section 13.1.

185. Guideline on Advance Rulings, section 13.2.

186. Guideline on Advance Rulings, section 13.3.

187. Guideline on Advance Rulings, section 14.

188. Guideline on Advance Rulings, section 4.

189. Guideline on Advance Rulings, section 13.

190. Guideline on Advance Rulings, section 15.1.

191. Guideline on Advance Rulings, section 15.1a.

192. Guideline on Advance Rulings, section 15.1b.

193. Guideline on Advance Rulings, section 15.1ci.

194. Guideline on Advance Rulings, section 15.1cii.

195. Guideline on Advance Rulings, section 15.2.

196. Guideline on Advance Rulings, section 15.3.

197. Guideline on Advance Rulings, section 16.

198. Guideline on Advance Rulings, section 17.