Presented By:

Hazwani Hanis Binti Mohamed

2008260968

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IRB REQUIREMEN

TS

Legislation

Documentation disclosure requirement

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Statute of limitation

Transfer pricing

methods

Comparables

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- Six years for tax adjustments

- In the case of fraud, willful default or

negligence, there is no time limit.

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Total effect: Total tax expenses of the company : RM 17 + RM 50 = RM 67Total profit for the company : RM 83 + RM150 = RM 233

Parent CompBased in Singapore

Subsidiary CompSituated in Malaysia

Selling price to Sub Comp RM 300Cost of a product (RM 200)Profit before tax RM100Tax rate 17%Tax expenses (RM 17)Profit after tax RM 83

Selling price to M’sia Market RM 500Cost from parent comp (RM 300)Profit before tax RM 200Tax rate 25% Tax expenses (RM 50)Profit after tax RM 150

Total effect: Total tax expenses of the company : RM 42.5 + RM 12.5 = RM 55 (save tax expenses by RM 12 mil)Total profit for the company : RM 207.5 + RM 37.5 = RM 245 (increased profit by RM 12 mil)

Parent CompBased in Singapore

Subsidiary CompSituated in Malaysia

Selling price to Sub Comp RM 450Cost of a product (RM 200)Profit before tax RM 250Tax rate 17%Tax expenses (RM 42.5)Profit after tax RM 207.5

Selling price to M’sia Market RM 500Cost from parent comp (RM 450)Profit before tax RM 50Tax rate 25% Tax expenses (RM 12.5)Profit after tax RM 37.5

ATO unable to charge Roche A$126 million increased tax adjustment because of the subjective nature of transfer pricing, where Roche product (Valium) only sell, market and distribute through related company.

No comparisons can be made by ATO to decide the agreed transfer price.

ROCHEParent Comp

Situated at Swiss

ROCHESubsidiary Comp

Situated at AustraliaSold their product

(Valium) at higher price

•Higher price charged by parent company reduce profit of subsidiary company.•Lower profit cause lower taxpaid by subsidiary companyto Australian Tax Office (ATO).

- No specific legislation governing APA (Advance Pricing Agreements), they just need to submit declaration form to IRB

- Tax adjustment on TP transactions limited to 6 years assessment except for, fraud cases, there is no time limit

- No basis to value unique transaction

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Legal Issues

- The MN exploit the country’s resources, such as minerals, labor and facilities to generate income

- Negative impact to the environment and society - Low tax collection by the government

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Corporate Governance

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Advance Price Agreement (APA) Thin Capitalisation

RECENT DEVELOPMENT OF TP

Effective

Jan, 2009

•RPTs must be carried out on an arm’s length basis

• be able to prove that the pricing for the RPTs is no

different than independent parties

- agreement with tax authorities on prices of goods and services to be transacted in future between a taxpayer and its related companies for a specified period

- allow them to achieve certainty on their pricing for RPTs and also to minimise penalties

- aims to restrict the deduction of interest

expenses on loans between associated parties

- MIRB indicated 3:1 ratio applied

IRB has a responsibility to employ and to train more expertise in TP so that IRB will be able to challenge taxpayer during tax audit and in court.

To create statutory framework on TP which consist specific rules, guidelines and also laws.

Other enforcement agencies also should consider TP as one of the crucial part when performing related party transactions.