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Malaysia: Impact of COVID-19 on Advance Pricing Arrangements in Malaysia

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In brief

The pandemic-afflicted economic distress has given rise to significant uncertainty and potentially an increase in tax audits. Malaysia has had advance pricing arrangement (“APA“) rules since 2012. APAs provide certainty in terms of transfer pricing risk management on a prospective basis.

Recently, the Malaysian Inland Revenue Board (“MIRB“) has issued a set of guidance in the form of frequently asked questions (“FAQ“) with respect to the treatment of APAs in the COVID-19 pandemic landscape. We are pleased to share the key takeaways from the FAQ on APA Treatment below.

Contents

  1. Key Takeaways from the FAQ
  2. How We Can Help
  3. APAs
    1. What is an APA?
    2. Benefits of APAs
    3. Eligibility criteria

Key Takeaways from the FAQ

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How We Can Help

In light of the FAQ, taxpayers may wish to assess the probability and significance of the economic impact caused by the COVID-19 pandemic on their businesses in considering their options moving forward.

We have a multi-faceted and multi-disciplinary team of transfer pricing practitioners who are economists and tax lawyers who are able to provide strategic advice and assistance in respect of the following:

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  • For taxpayers whose businesses remain resilient in the pandemic, it may be worth considering applying for an APA now despite the uncertainty and volatility, given that audits are currently on the rise. The APA can be refined in its later stages before conclusion when the full impact of the pandemic on the business can be ascertained.
  • Taxpayers whose APA applications are pending conclusion may wish to consider if a withdrawal of their application is necessary, and in doing so, weigh the need for long-term certainty against the probability and level of pandemic-driven economic disruptions to their businesses.
  • Finally, taxpayers with concluded and operating APAs should be mindful to ensure compliance with all critical assumptions under the same. Depending on the circumstances, taxpayers may wish to explore the options of renewal, revision or cancellation of the APA.

APAs

What is an APA?

Essentially, an APA is an agreement between a tax authority and a taxpayer which establishes the appropriate transfer pricing methodology/ies (“TPM“) to ascertain the arm’s length transfer prices of specified related party transactions between the taxpayer and its foreign affiliates over a certain period of time, under prescribed terms and conditions. There are three types of APA: unilateral, bilateral, and multilateral APA.

Benefits of APAs

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Eligibility criteria

Generally, a taxpayer who carries on a cross-border transaction may apply to the MIRB for an APA. However, the MIRB will only consider the APA application if the following conditions are satisfied:

  • the application is submitted by a taxpayer who is a company or permanent establishment assessable and chargeable to tax under the Malaysian Income Tax Act 1967, and has a turnover value exceeding RM 100 million;
  • the proposed covered transaction relates to income that is chargeable and not exempted;
  • the value of the proposed covered transaction meets the corresponding thresholds, as set out in the table below:

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Author

Adeline Wong heads the Tax Practice Group of Wong & Partners. She has more than 25 years of experience in the area of corporate tax planning, advisory, audit and investigation work. She has presented in both domestic and international tax conferences, including conferences organised by the Tax Executive Institute in the US, Society of Trust and Estate Practitioners in Singapore and more recently, Bloomberg BNA's Global Transfer Pricing Conference in Shanghai. She is also a regular contributor to established publications on tax-related legislation and developments in Malaysia, such as Bloomberg BNA and the International Bureau of Fiscal Documentation.

Author

Krystal Ng is a partner in the Tax, Trade and Wealth Management Practice Group of Wong & Partners with over 10 years of experience. Her primary focus is on tax and transfer pricing issues in the context of crossborder transactions as well as post-mergers and acquisitions integration for multinational clients in a wide range of industries.
She has been recognised as a Next Generation Partner by Legal 500 Asia Pacific 2023, and is named as Up and Coming for Tax in Chambers Asia Pacific 2023. In the Chambers guide, clients commend her for being "a very responsive and knowledgeable tax consultant." She was also awarded the Tax Rising Star award by Euromoney Women in Business Law Awards Asia Pacific 2022.
Krystal's practice extends to the provision of strategic tax advice on a broad range of subjects such as income tax, double tax treaties, withholding tax, real property gains tax, assisting with tax incentives and exemptions as well as the planning and management of transfer pricing considerations to achieve an optimal and more tax effective model on a domestic, regional or global level.
She is regularly called upon by clients to advise on international and domestic tax planning matters concerning in-bound investments to achieve an optimal and effective business model, tax structuring and integrations postmerger and acquisitions as well as negotiating tax incentive applications for foreign investments into Malaysia.

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