IRB’s Latest Audit Focus What Companies Need to Know
In recent years, the Inland Revenue Board of Malaysia (IRBM) has escalated its scrutiny over transfer pricing, signalling a stricter enforcement environment for taxpayers engaged in related-party or controlled transactions. In December 2024, IRBM released Malaysia Transfer Pricing Guidelines 2024 (MTPG 2024), which revoked its previous Guidelines. The new Guidelines provide relief for companies that do not meet certain related party thresholds and therefore are exempt from preparing a full Transfer Pricing Documentation (TPD). While this may appear to be a significant relief, the Guidelines clearly state that these companies must still be able to justify that their transfer prices fall within the arm’s length price range.
A notable recent trend is the IRBM’s practice of issuing Surat Memohon Dokumen dan Maklumat (SMDM) notices that require companies to submit transfer pricing documentation for several years, sometimes covering as many as four years including 2024.
Given the evolving rules and heightened audit activity, this blog explains IRBM’s latest transfer pricing audit focus in Malaysia, highlights key risk areas, and guides companies on how to position themselves to respond effectively. Here are a few pointers that the Malaysian Transfer Pricing ecosystem should keep in mind, given latest updates:
Understanding Transfer Pricing Tax Audit
Under the Transfer Pricing Tax Audit Framework (TPTAF) 2025, the Inland Revenue Board of Malaysia (IRBM) has outlined a more structured and comprehensive approach to transfer pricing (TP) tax audits.
A comprehensive TP audit examination may up to six (6) years of assessment, and may extend up to seven years, depending on the audit findings and the complexity of the case. The limit to the coverage duration does not apply in instances involving fraud, wilful default, or negligence, where the IRBM retains full discretion to extend the review period beyond the standard timeline under subsection 91(3) of the Income Tax Act 1967(ITA 1967).
IRBM identify taxpayers for transfer pricing audits in few ways. Key factors are include:
A formal notification issued by the IRBM;
• Selection through risk assessment criteria for taxpayer’s controlled transactions;
• Business restructuring activities undertaken by the taxpayer’s group; and
• Information received from third-party sources including foreign tax authorities through cross-border exchange mechanisms.
It is crucial to note that businesses with following conditions may trigger transfer pricing risk assessment:
1. Continuous loss for more than 2 years
2. Pricing policies that are inconsistent with fluctuating profit margins, particularly when the industry’s margin is stable
3. Transfer pricing margin that are unusually low or high;
4. Absence of Transfer Pricing Documentation (TPD)
5. High loans from company to directors
Surat Memohon Dokumen dan Maklumat (SMDM) will be issued to the taxpayer through an official e-mail or ordinary post to obtain documents and information including TPD. The taxpayer is required to provide feedback within fourteen (14) calendar days from the date of the SMDM issued by the IRBM. If a taxpayer fails to submit TPD within the prescribed time, a written notice under section 113B ITA and subrule 5(3) P.U.(A)165/2023 will be issued to the taxpayer.
It is important to note that Surat Pemberitahuan Lawatan Pematuhan (SPLP) will be issued to the taxpayer at least 14 calendar days prior to the date of the audit visit. The SPLP will include the following: date of visit, records that need to be prepared, the years of assessment to be audited, the names of the audit officer, and duration of the audit visit.
The TPTAF 2025 stipulates that a TP tax audit examination should be concluded within 450 calendar days from the audit commencement date. This commencement date may be determined by:
• A formal notification issued by the IRBM;
• The date of the on-site (field) audit visit; or
• Any other date mutually agreed upon between the IRBM and the taxpayer.
In circumstances where the audit cannot be completed within the stipulated timeframe, the IRBM may formally notify the taxpayer of an extension. Additionally, in cases involving offsetting adjustments between related Malaysian entities, the IRBM is r required to conduct a separate audit on the local counterparty to ensure consistency and accuracy of adjustments.
Transfer Pricing Non-compliance Penalty Structure
The Inland Revenue Board of Malaysia (IRBM) imposes strict penalties and surcharges for non-compliance with transfer pricing (TP) requirements under the Income Tax Act 1967 (ITA). These penalties vary depending on the basis period and the nature of the non-compliance.
For the basis periods starting before 1 January 2021, penalties are imposed under Section 113(2) of the ITA. If additional tax is found to be undercharged a tiered basis penalty ranging from 15% to 45% may be applicable on the undercharged amount.
For audits starting on or after 1 January 2021, penalties related to failure to furnish transfer pricing documentation fall under Section 113B of the ITA with fines ranging from RM20,000 to RM100,000 and/or imprisonment, and a surcharge of up to 5% may be imposed on transfer pricing adjustments of the tiered penalty rates.
According to paragraph 10.2(e) of Transfer Pricing Tax Audit Framework 2025 (TPTAF 2025), when a taxpayer fails to submit their Transfer Pricing Documentation (TPD) within 14 days of receiving a written notice from the IRBM, the following monetary penalties will be imposed based on the duration delay:
| Delay (beyond the 14-day deadline) | Penalty (RM) |
|---|---|
| Up to 7 days | 20,000 |
| 8–14 days | 40,000 |
| 15–21 days | 60,000 |
| 22–28 days | 80,000 |
| More than 28 days | 100,000 |
| No response after 14 days | Possible prosecution (up to 6 months imprisonment) |
Keys To Smooth Transfer Pricing Audit Response
1.Transfer Pricing Voluntary Disclosure
The Inland Revenue Board of Malaysia (IRBM) allows taxpayers to make a voluntary disclosure after the submission deadline of their income tax return, provided this is done before a transfer pricing audit begins. The voluntary disclosure must be made in writing and submitted together with relevant documentation to the State MIRM Director. The relevant document includes transfer pricing documentation, organisational chart, audited accounts, tax return forms, comparability analysis, information on the omitted income or error and any other documents which assist tax payer to justify its appeal.
Taxpayers who opt for voluntary disclosure can benefit from a reduced surcharge rate ranging between 0% and 4% on the transfer pricing adjustment subject to discretion of IRBM.
2. Pre-prepared of Slides
Taxpayers are required to prepare presentation slides to be submitted to the Inland Revenue Board of Malaysia (IRBM) within 7 calendar days before audit visit is carried out. These slides should provide an overview of the company’s background, including its global and local business operations, the overall management structure and functions, details of the controlled transactions, as well as information on record keeping and accounting controls. This presentation helps the IRBM understand the company’s operations and transfer pricing policies effectively before the audit visit.
3. Well prepared supporting documents
When transfer pricing documents are well prepared in advance, taxpayers avoid the last-minute scramble to gather information under tight deadlines to produce the documents within 14 days. Proper organization of records saves valuable resources by preventing the need to divert staff from their core duties, ensuring workforce continuity without interruption. This also reduces costs related to overtime work or hiring temporary help during audit periods.
Additionally, avoiding rushed documentation lessens the risk of errors, omissions, or inconsistencies which could otherwise lead to adverse audit findings or penalties. Overall, thorough early preparation streamlines the audit process, preserves operational efficiency, and strengthens the company’s defence position with accurate and reliable evidence
4. Comparability studies
Comparability studies for transfer pricing should be conducted on a yearly basis rather than every three years. This regular review allows companies to closely monitor their pricing policies and ensure they remain aligned with the arm’s length principle. When deviations arise, the company can promptly strategize and take corrective actions to keep controlled transactions within the acceptable arm’s length range, thereby reducing the risk of adjustments or penalties during audits and ensuring compliance with evolving market conditions.
5. Keeping record
Proper record keeping is essential for timely and efficient production of documents during a transfer pricing audit.
When records are well organized and maintained, the required documents can be easily accessed and provided within the stipulated timeframe, such as the 14-day period often requested by the tax authorities.
Having records readily accessible, whether in hard copies or electronically to the Inland Revenue Board (IRB) officers is a requirement. This not only demonstrates compliance stipulated in the TPTAF 2025 but also minimizes disruption to business operations by avoiding last-minute rushes, which often lead to errors and incomplete documentation. Efficient record management ultimately supports a transparent audit process and helps mitigate potential penalties or adjustments due to inadequate evidence.
The Inland Revenue Board of Malaysia’s (IRBM) latest audit focus and the released of the Transfer Pricing Tax Audit Framework 2025 reinforces Malaysia’s firm commitment to promoting fair, transparent, and compliant transfer pricing practices.
Transfer pricing compliance is no longer a mere post filling exercise. To mitigate risks, companies must understand the expanded audit scope, maintain robust and contemporaneous Transfer Pricing Documentation (CTPD), and leverage opportunities for voluntary disclosure. These measures not only help avoid penalties but also strengthen resilience against the IRBM’s intensified audit scrutiny.
In essence, proactive compliance is no longer optional—it is an essential part of sustainable business governance in Malaysia’s evolving transfer pricing landscape. With Treasure Advisory at the helm, transfer pricing compliance won’t be a challenge but an opportunity to strengthen your business. Reach out to us to explore our full range of services.
At Treasure Advisory, our team of transfer pricing professionals helps businesses design, implement, and defend their intercompany pricing models with compliance. In essence, effective transfer pricing compliance is both a safeguard and a strategy — protecting businesses from regulatory risk while enhancing their global value chain efficiency. With the right advisory support, Malaysian companies can achieve a balanced approach that satisfies tax authorities and strengthens their competitive edge in a globalized economy. For Transfer Pricing Advisory Services, contact us at Treasure Advisory.
Disclaimer: This article is written for general informational purposes only. The content should not be construed as professional tax, legal, or transfer pricing advice. Readers are encouraged to seek tailored guidance from qualified professionals before making any business or compliance decisions.