Malaysia Taxation: Transfer Pricing Methodologies for Transfer Pricing 2012

in (Malaysian) IRBM Transfer Pricing Guideline 2012

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Methodologies determined in IRBM Transfer Pricing Guideline 2012 (TP2012) have not much changes from the IRBM Transfer pricing guideline announced dated 2 July 2003. Thus, part of this section would be copied from my TP topic JsonDiary on Transfer Pricing with some reasonable additional information to complied with the new TP2012.

The following methodologies can be used in determining arm’s length price:

Traditional Method

1. Comparable uncontrolled price method (CUP)

2. Resale price method (RPM)

3. Cost plus method (CPM)

Transactional Profit Method

      4. Transactional Profit Method (TPM) /Profit split method

      5. Transactional net margin method (TNMM)

[Para 11]

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Note : ‘Transactional profit methods’ be used only when traditional methods cannot be reliably applied or exceptionally cannot be applied at all.

In deciding the  most appropriate method, the following must be considered:

a.       The nature of the controlled transaction

b.      The degree of actual comparability when making comparisons with transactions between independent parties;

c.       The completeness and accuracy of data in respect of the uncontrolled transaction;

d.      The reliability of any assumptions made; and

e.       The degree to which the adjustments are affected if the data is inaccurate or the assumptions incorrect.