MNCs face greater transfer pricing scrutiny

Multinationals are facing new tax challenges due to growing transfer pricing (TP) scrutiny by world’s tax authorities, according to a survey.

The survey by international accounting firm Ernst & Young found a dramatic increase in the scope of TP documentation required by governments with penalties imposed more frequently and at higher levels when multinationals get it wrong.

Locally, Malaysia has introduced the new Sections 140A and 138C of the Income Tax Act 1967 relating to TP, which referred to the price charged by one part of an organisation for products and services it provides to another.

Given the need for governments to raise revenues in this challenging economic climate and the changing regulatory environment, the study anticipates heightened litigation in the near future.

This expectation was driven by the almost universal trend towards increased TP investigation resources within tax authorities, it said, adding that this trend was also shared by Malaysia.

“As governments search for tax revenues to offset growing budget deficits, many are sharpening their focus on compliance, enforcement and legislative approaches,” said Ernst & Young Malaysia partner and head of transfer pricing, Janice Wong.

“It has thus become inevitable that both domestic and multinational businesses be prepared for more TP audits and investigations,” she said.

In Malaysia, the Inland Revenue Board (IRB) has set up a dedicated Multinational Tax Department to focus its efforts and resources on TP matters such as TP audit, compliance, policy and advance pricing arrangement.

The specialist resources consist of accountants, economists and those with business and finance backgrounds, and the dedicated resources are expected to increase significantly.

Source: StarBiz