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Transfer Pricing and Advance Pricing Arrangement (APA) : Advanced Taxation
Transfer Pricing and Advance Pricing Arrangement (APA) : Advanced Taxation
ADVANCED TAXATION
• Ideally, the transfer price should not differ from the prevailing
market price.
– However, when business dealings are made between such
connected persons, they may not always reflect the dynamics of
market forces as would be expected if such transactions were
carried out by independent enterprises.
– As with any tax administration, it is the duty of the IRBM to ensure
that the transfer pricing methodologies adopted by MNEs are
reasonable, and that their Malaysian subsidiaries are paying their
fair share of tax.
– In order to do so, MNEs involved must be able to provide adequate
documented proof to support their transfer pricing policies.
TRANSFER PRICING
Pricing system on transfer of goods, services and
intangibles between entities in a group of companies
Cost
Comparable Plus Price (CUP)
Uncontrolled
Resale Price
1. CUP Method
• This method focuses directly on the price of the goods or
services transferred in a controlled transaction to the price
charged for the goods or services in a comparable independent
transaction.
1 Company’s details
2 Transaction’s details
• This APA assists to resolve any future dispute among the two
countries’ tax authorities on the appropriate profit attributable to
the two countries.
Importance of APA
Because APA Provides certainty on the appropriate TPM to apply in pricing a covered
transaction thus enhancing the predictability of tax treatment on
addresses international transactions
future
transactions, Avoids and eliminates potential double taxation through bilateral or
multilateral APA, ensuring that all profits are correctly allocated and taxed. A
a taxpayer taxpayer is, thus, always encouraged to apply for a bilateral/multilateral APA
stands to
benefit from Alleviates costly and time-consuming examination of transfer pricing issues
in the event of an audit, and lessens the possibility of protracted and
an APA as expensive litigation
follows:
Places the taxpayer in a better position to predict costs and expenses,
including tax liabilities
Reduces record keeping burden as the taxpayer will know in advance the
required documentation to be kept to substantiate the agreed TPM.
Tutorial Questions
1. Jun 2019, Q4
2. Dec 2018, 4(d).
3. Jan 18, Q4 (a).
4. Jul 2017, Q4 (A).
5. Dec 2016, Q3 (D)
6. Jun 2016, Q4 (iv)