In recent months, discussions with many SME business owners on transfer pricing (TP) have revealed recurring misconceptions:

“The companies are all mine … why should I worry?”
“We file and pay taxes on time … surely that means we’re low risk.”
“TP is too technical. We lack the resources.”
“Our previous tax agent never raised this issue.”
“It’s costly to prepare TP documentation, and the risk feels far away.”
“Our current tax agent is overwhelmed … there’s no time for this.”

These justifications are increasingly unacceptable under the Inland Revenue Board’s (IRB) current enforcement approach.

With the rollout of the Income Tax (Transfer Pricing) Rules 2023, the Transfer Pricing Guidelines 2024, and the upcoming TP Audit Framework, the regulatory landscape has changed significantly.

What’s changing?

Under the new regime, TP documentation is no longer optional.

Starting from Year of Assessment 2023, contemporaneous TP documentation (CTPD) must be completed before filing the tax return and submitted within 14 days upon IRB’s request.

Key compliance expectations include:

Narrowed arm’s length range (37.5th to 62.5th percentile)
Mandatory completion dates in CTPD
Disclosure of unavailable data with justification
Justified use of multi-year data
Penalties of up to RM100,000 for late submissions

Why this matters for SMEs

Despite the perception that TP rules apply only to large multinationals, SMEs are increasingly within IRB’s audit net—especially where related-party transactions exist, such as:

Intragroup management or service fees
Interest-free advances or loans
Low-value-adding services with standard mark-ups
Intercompany transactions reported through e-Invoicing

The IRB is aligning more closely with OECD standards and has made it clear that documentation must reflect commercial substance, not just group structure.

What should SMEs do now?

Conduct a review of all related-party transactions
Evaluate whether you meet TP documentation thresholds
Assess the defensibility of your current pricing approach
Ensure documentation is complete and aligned with reporting
Prepare for e-Invoicing to complement your TP compliance

Transfer pricing has moved beyond policy. It is now a key compliance risk. A reactive approach may result in unnecessary tax adjustments, double taxation, and financial penalties.

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P.S.: This article is adapted from insights shared by our Advisory Manager, Yew Jia Chong, in her recent LinkedIn reflection on the CTIM seminar she attended.