Transfer Pricing Regulation Published

Transfer Pricing Regulation (Number 2020/R-43) has been published in the Government Gazette on 10 June 2020.

The purpose of the Regulation is to govern and implement the requirement imposed under Section 68 of the Income Tax Act (“ITA”) which entails all person’s subject to tax under the ITA to prepare and maintain Transfer Pricing Documentation in relation to transactions and arrangements entered into between related parties. The Regulation introduces instruments that will allow the MIRA to assess the nature of the transactions between associates and reclassify or derecognize such transactions where the economic nature of the transaction does not reflect ‘arm’s length terms’ or in other words, terms which would not be agreed upon by unrelated parties.

The requirement to maintain transfer pricing documents are not imposed on micro, small or medium-sized businesses; or if the transaction or arrangement is with respect to an exempt income. Other transactions qualifying for exemptions are also outlined in the Regulation subject to certain conditions.
It must be noted that transfer pricing is one of the most crucial areas for multinational enterprises, as now, with the renewed focus on counteracting base erosion and profit shifting, greater scrutiny is placed on transfer pricing arrangements. Being familiar with the transfer pricing rules of domestic legislations and adapting to the increasing disclosure requirements has become a necessity.

The Regulation takes effect from 10 June 2020.