This checklist is for Malaysian companies with domestic or cross-border related-party transactions, including management fees, goods, rentals, royalties, loans, advances and guarantees.
What is an LHDN transfer-pricing audit?
A transfer-pricing tax audit is an examination of a taxpayer’s business records and financial affairs relating to controlled transactions. LHDN reviews whether the transfer-pricing method is appropriate, the arm’s length principle has been applied and the documentation meets the Income Tax (Transfer Pricing) Rules 2023 and current guidelines.
Selection for audit does not by itself mean that an offence has been committed. It does mean the company must respond accurately and within the stated deadlines.
What should be ready before an audit notice?
- Full or minimum CTPD completed and dated before the relevant tax-return due date.
- Group legal and operational organisation charts.
- Related-party register and transaction schedule by entity, type, currency and value.
- Signed intercompany agreements and any amendments.
- Invoices, credit notes, payment records and general-ledger extracts.
- Reconciliation from the CTPD transaction values to the audited financial statements and tax computation.
- Functional analysis covering functions performed, assets used and risks assumed.
- Pricing-method selection, tested-party analysis and benchmarking support where relevant.
- Segmented financial information and allocation workings.
- Evidence supporting the commercial benefit of intragroup services.
Transfer-pricing audit checklist by transaction type
| Transaction | Documents to prepare | Common audit question |
|---|---|---|
| Sale or purchase of goods | Agreements, invoices, product lists, pricing policy, gross-margin analysis and comparable evidence | Why does the related-party price differ from third-party pricing? |
| Management or support services | Scope of work, staff records, deliverables, benefit evidence, cost pool and allocation key | Was a real service received and is the charge proportionate? |
| Loans and advances | Loan agreement, purpose, drawdown, repayment schedule, credit analysis and interest benchmark | Would independent parties agree to the same rate and terms? |
| Rental or asset use | Tenancy or licence agreement, asset details, valuation or market comparisons | Is the consideration consistent with market conditions? |
| Royalty or intellectual property | Licence agreement, ownership records, use evidence and royalty benchmark | Who owns and develops the intangible, and who benefits? |
How quickly must CTPD be furnished?
LHDN may require contemporaneous transfer pricing documentation to be furnished within 14 days from the date a written notice is served. A company should therefore maintain a final, dated annual file rather than a draft report that still depends on missing information.
Failure to furnish CTPD within the prescribed period can expose the taxpayer to consequences under section 113B of the Income Tax Act 1967. A transfer-pricing adjustment may also attract a surcharge under subsection 140A(3C), subject to the law and current framework.
How to perform a pre-audit health check
- Reconcile the numbers. Match every controlled-transaction amount in the CTPD to the ledger, notes to the accounts and tax return disclosure.
- Compare contract and conduct. Confirm that parties actually performed the responsibilities stated in the agreement.
- Test service evidence. Retain emails, reports, meeting records, time records or deliverables showing that services were provided.
- Review losses and unusual margins. Separate transfer-pricing factors from commercial causes and retain supporting analysis.
- Check year consistency. Explain changes in method, markup, tested party, comparables or transaction characterisation.
- Prepare response ownership. Nominate one finance contact and maintain a request tracker with document versions.
Common weaknesses identified during preparation
- CTPD prepared after the tax-return due date or left undated.
- Management fees recorded without agreements or benefit evidence.
- Benchmarking that does not match the tested transaction or functional profile.
- Amounts in the report that do not reconcile with the accounts.
- Interest-free related-party balances with no commercial analysis.
- One report reused for several years without updating functions, risks and financial results.
What should management do after receiving a notice?
Read the scope and response deadline carefully, preserve all relevant records and centralise communication. Management should avoid sending incomplete or conflicting documents in separate batches without a reconciliation. If an item is unavailable, the response should explain why and identify the alternative evidence provided.
How HTL can assist
HTL helps businesses review CTPD, reconcile controlled transactions, organise audit evidence, prepare responses and support discussions with LHDN. Learn more about HTL’s transfer-pricing and audit-support services.
This article is a general preparation guide and is not a substitute for advice on a specific audit notice, transaction or year of assessment.
