Transfer pricing case study: From the prespective of IRBM multinational tax branch

Globalisation, borderless world as well as multinational corporations (MNCs) have brought attention to the importance of transfer pricing, issues which commonly discussed in developed countries, to Malaysia especially when it always associated with
tax avoidance. Hence, this study examines, first, the methods of transfer pricing used by MNCs to reduce the amount of taxes paid; and second, to what extent the MNCs are legitimately paying their fair share of tax in Malaysia. Data collected from the tax authority are real transfer pricing cases audited by the IRBM Multinational Tax Branch (MTB). Three (3) case studies with three (3) different headquarters abroad which represents different business characterization were chosen. The analysis shows how MNCs have applied different transfer pricing method to prove that their transaction is at arm’s length basis. Further examinations of the most appropriate transfer pricing methodology applied were carried out. The analysis reveals how different treatment between tax regulation and practices implemented by MNCs could result in huge tax losses for the country. In their perspective, MNCs have disclosed legitimately all available information. As for tax authorities, there are tax gaps and loopholes that cause different treatment between the transacted countries/parties. Therefore, Section 140 prior to 2009 and Section 140A of the Income Tax Act 1967 with an effective date from the year 2009, acted as the general anti-avoidance provision to shelter tax avoidance scheme in Malaysia.