The Income Tax (Transfer Pricing) Rules 2023 (“TP Rules 2023”) have been gazetted on 29 May 2023 and will take effect from the year of assessment (“YA”) 2023 and subsequent YAs. TP Rules 2023 replaces the Income Tax (Transfer Pricing) Rules 2012 (“TP Rules 2012”).

➡ Introduction and Applicability
Effective from the year of assessment (YA) 2023 onwards.

Previous 2012 Transfer Pricing Rules are revoked. TP Rules 2012 remains applicable for prior YAs?

➡ Contemporaneous hashtag#TP Documentation
Must be prepared prior to tax return filing due date.

The date of preparation must be clearly stated.

New schedules (Schedules 1, 2, and 3) are added detailing specific documentation requirements.

Taxpayers must indicate when the TP documentation is finished.

Documentation must contain foundation documents and supporting materials.

Documentation must be submitted to IRB within 14 days upon request.

➡ Arm’s Length Range
Defined as figures between 37.5 percentile to 62.5 percentile.

If a transaction price is within this range, it’s regarded as the arm’s length price.

The DG can adjust to the median or above due to comparability defects.

If outside the range, the median becomes the arm’s length price.

Up to 5% surcharge can be applied on TP adjustments by DG.

➡ Comparability Analysis
Precise delineation of controlled transactions emphasized.

Use of prior year data outlined with specific purposes.

The DG can change the selected method if deemed more appropriate.

➡ Definitions and Changes
Definitions added or amended: “Multinational Enterprise Group”, “Profit Level Indicator”, “Intangible Property”, “Marketing Intangibles”.

Re-characterization of transactions and offsetting adjustments provisions from 2012 rules removed.

➡ Practical Considerations for Taxpayers
The new rules provide clarity but have challenges.

DG can still adjust to the median, even if within arm’s length range.

Additional documentation is required, especially for Multinational Enterprise Groups.

The burden on taxpayers to maintain and prove documentation.

Removal of offsetting adjustments provision from 2012 rules; now discretionary for DG.

➡ Next Steps for Taxpayers
Begin preparation to meet Schedule 1 requirements.