21/06/2026
Transfer Pricing for Intercompany Transactions in Malaysia
Assume:
Company A Sdn. Bhd. (Parent Company)
Company B Sdn. Bhd. (Subsidiary)
Both companies are incorporated in Malaysia and are related parties.
Scenario
Company A secures an engineering project worth RM1,000,000 from a customer.
Instead of performing the work itself, Company A appoints Company B to carry out the project.
The key transfer pricing question is:
How much should Company A pay Company B for the services provided?
Example 1 – Arm's Length Arrangement
Item
Amount (RM)
Customer Contract Value
1,000,000
Payment to Company B
850,000
Profit retained by Company A
150,000
If an independent contractor would normally charge around RM850,000 for similar work, the arrangement is likely considered arm's length.
Tax implication:
Company A reports profit of RM150,000.
Company B reports profit based on its costs and margin.
LHDN is unlikely to challenge the arrangement if supported by evidence.
Example 2 – Non-Arm's Length Arrangement
Item
Amount (RM)
Customer Contract Value
1,000,000
Payment to Company B
980,000
Profit retained by Company A
20,000
Suppose Company A actually:
Negotiated the contract,
Managed the client,
Assumed commercial risks,
Controlled project ex*****on.
Yet it retains only RM20,000.
LHDN may argue that Company A should earn a larger share of the profit and may adjust the profits between the companies.
Domestic Malaysian Transactions
Where both companies:
Are Malaysian tax residents; and
Pay tax at the same corporate tax rate (24%),
the transfer pricing risk is generally lower because there is little overall tax advantage.
However, LHDN may still scrutinize the arrangement if:
One company has tax losses;
One enjoys tax incentives (e.g., Pioneer Status, MSC, Special Tax Rate);
There are substantial management fees or service charges;
The arrangement appears artificial.
Practical Documentation
Company A should maintain:
Service Agreement between A and B.
Scope of work performed by B.
Basis of pricing (e.g., cost plus 10% markup).
Invoices and supporting documents.
Evidence that the pricing is commercially reasonable.
Example of Cost Plus Method
Company B's costs:
Cost Item
RM
Salaries
500,000
Travel
50,000
Materials
150,000
Total Cost
700,000
Add 15% markup:
RM700,000 × 15% = RM105,000
Transfer Price: RM700,000 + RM105,000 = RM805,000
This "Cost Plus" approach is one of the commonly accepted transfer pricing methods in Malaysia.
In many Malaysian SME groups, when Company A obtains a project and Company B performs most of the work, a cost-plus markup (5%–20%) for Company B is often easier to justify than simply allocating profits arbitrarily between the two companies. The exact markup depends on the functions performed, assets used, and risks assumed by each company.
