Malaysia Transfer Pricing Methods: How to Choose the Right Method (2026)

Quick answer: Malaysia recognises five principal transfer pricing methods: the Comparable Uncontrolled Price method, Resale Price method, Cost Plus method, Transactional Net Margin Method and Profit Split method. The correct method depends on the actual transaction, functions, assets, risks and availability of reliable comparable information—not simply the method that produces the lowest tax result.

The five Malaysia transfer pricing methods

The Income Tax (Transfer Pricing) Rules 2023 apply from the year of assessment 2023, and the Malaysia Transfer Pricing Guidelines 2024 explain how taxpayers should apply the arm’s-length principle and prepare contemporaneous transfer pricing documentation.

How to choose the most appropriate method

1. Accurately define the controlled transaction

Start with what actually happened, not only what the agreement calls it. Identify the goods, services, financing, intellectual property or other transaction, the parties involved, contractual terms and the commercial purpose.

2. Perform a functions, assets and risks analysis

Document what each party does, which assets it uses and which economically significant risks it controls and bears. This analysis helps identify the value contributed by each party and whether one party can be treated as the less complex tested party.

3. Check for reliable internal comparables

An internal comparable exists when the same business enters into a sufficiently comparable transaction with an independent party. It may provide more relevant information than an external database, but differences in product, volume, geography, credit terms or market conditions must still be considered.

4. Assess external comparable information

When no reliable internal comparable exists, external price, margin or company data may be considered. The search strategy, screening criteria, financial periods, adjustments and rejection reasons should be documented so the analysis can be reproduced.

5. Select the method that best fits the evidence

A direct price method should not be forced when material differences cannot be reliably adjusted. Likewise, TNMM should not be selected merely because it is easier to run through a database. The selected method must match the transaction and the information that can be verified.

6. Reconcile the result to the financial statements

The amounts tested in the analysis should reconcile to the general ledger, management accounts and audited or final financial statements. Where several related-party transactions exist, segmentation may be necessary to prevent profitable and loss-making activities from being blended together.

CUP method: when is a price comparison reliable?

CUP can provide a direct measure of an arm’s-length price where the controlled and independent transactions are highly comparable. Differences in product specifications, contract duration, market level, volume, delivery terms, currency, credit risk or geographic market may materially affect the price.

For a related-party loan, for example, an apparently similar bank rate is not automatically comparable. Currency, tenure, security, ranking, repayment terms and the borrower’s credit profile should be reviewed. See HTL’s Malaysia transfer pricing guide for the broader compliance framework.

Resale Price Method: suitable for routine distributors

RPM begins with the price charged to an independent customer and deducts an appropriate gross margin for the reseller’s functions and risks. It is usually more reliable when accounting classifications are consistent and the distributor does not perform substantial processing, own valuable marketing intangibles or make unique contributions.

Gross-margin comparisons can become unreliable when one company classifies freight, warranty, marketing or personnel costs above gross profit while another records them as operating expenses.

Cost Plus Method: services and routine activities

The Cost Plus method applies an arm’s-length mark-up to an appropriate cost base. The analysis must explain which costs are included, which are excluded, how shared costs are allocated and whether the recipient received an economic or commercial benefit.

For management or support services, an invoice alone is usually not enough to explain the charge. Agreements, working papers, time records, deliverables, correspondence and allocation calculations help demonstrate that services were actually provided. Read HTL’s guide to management fees and evidence of services.

TNMM: selecting the tested party and profit indicator

TNMM compares a net profit indicator with results earned in comparable independent circumstances. The tested party is generally the party for which reliable data is available and which does not make the more complex or unique contribution.

Possible profit indicators include an operating margin on sales, a mark-up on relevant costs or a return on operating assets. The denominator must be economically connected to the tested transaction. A cost-based indicator may suit a routine service provider, while a sales-based indicator may be more relevant for a distributor.

Profit Split Method: integrated and unique contributions

Profit Split may be appropriate where multiple associated parties make unique and valuable contributions or their activities are so integrated that a reliable one-sided method is not available. The method requires a defensible calculation of combined profit and allocation factors that reflect how independent parties would share that value.

Can one method be used for every related-party transaction?

No. A company may need different methods for product sales, services, royalties, loans and guarantees because the economic characteristics and available comparables differ. Each material transaction category should be analysed separately before aggregation is considered.

Unsure which method fits your transactions? HTL can review the transaction flow, functions, agreements and financial data as part of its transfer pricing advisory services.

Documents needed to support the selected method

• Intercompany agreements and invoices
• Organisation charts and descriptions of each party’s activities
• Functions, assets and risks interviews or questionnaires
• Segmented profit-and-loss statements and ledger reconciliations
• Cost-pool calculations and allocation keys
• Internal price lists and independent customer or supplier transactions
• Comparable-company or market-data search strategy
• Benchmarking calculations and comparability adjustments
• Evidence of services, deliverables, financing terms or intellectual-property use
• The conclusion, completion date and supporting index for the CTPD

Businesses should not wait for an LHDN request to begin reconstructing these records. Where CTPD is required, it should be prepared contemporaneously and capable of being furnished within the applicable statutory timeframe. HTL’s full versus minimum transfer pricing documentation guide explains the scope distinction.

Frequently asked questions

Which transfer pricing method is best in Malaysia?

There is no universally best method. The most appropriate method is the one that fits the accurately defined transaction and can be applied using reliable comparable information. CUP may be direct where comparability is strong, while TNMM may be more workable for a less complex tested party.

Is TNMM automatically accepted by LHDN?

No method is automatically accepted simply because it is commonly used. The taxpayer should support the tested party, profit indicator, comparable search, adjustments and reconciliation to the financial statements.

Can a company use different methods for different transactions?

Yes. Product sales, services, royalties and financing may have different economic characteristics and available comparables. The company should select and document the most appropriate method for each material transaction category.

What is the difference between an internal and external comparable?

An internal comparable is an independent transaction involving one of the parties being tested. An external comparable involves independent companies or transactions obtained from market information or databases. Both require a documented comparability assessment.

What should a business provide to HTL for a method review?

Useful starting information includes the group structure, related-party transaction listing, agreements, ledger amounts, financial statements, descriptions of each party’s functions and any independent transactions that may be comparable.

This article provides general information. Transfer pricing conclusions depend on the facts, contractual terms, conduct and reliable data for each transaction.