Quick answer: Interest on a related-party loan must reflect the rate and terms that independent parties would have agreed in comparable circumstances. A company should document the borrower’s credit position, currency, duration, security, repayment capacity and market evidence—not simply copy a bank’s headline lending rate or use a group-wide percentage without analysis.
Which financing arrangements fall under transfer pricing?
The Malaysia Transfer Pricing Guidelines 2024 treat financial assistance broadly. It can include loans, advances, interest-bearing trade credit, debt arrangements, guarantees and security provided between associated persons.
Both the price and the actual terms matter. A zero-interest loan, an overdue intercompany balance or an undocumented cash advance can attract attention where an independent lender would have required interest, repayment dates, security or covenants.
How is an arm’s-length interest rate determined?
The analysis should identify the transaction that actually occurred and compare it with realistic independent financing. Relevant factors include:
| Pricing factor | Evidence to review |
|---|---|
| Borrower creditworthiness | Financial statements, forecasts, debt ratios, cash flow and external or internal credit analysis |
| Loan purpose | Working capital, asset acquisition, project funding or refinancing |
| Currency and market | Currency of funding, location of borrower and market rates when the loan was entered |
| Term and repayment | Maturity, instalments, bullet repayment, early repayment and actual payment history |
| Security and guarantees | Assets pledged, parent support, guarantee fees and covenant protection |
| Subordination and risk | Priority against other creditors and the lender’s realistic recovery position |
Comparable uncontrolled loan data may be used where the terms are sufficiently similar. Adjustments may be needed for credit quality, tenor, currency, security or other material differences.
What documents should be retained?
- Executed loan agreement and board approvals;
- Drawdown and repayment schedules;
- Purpose of the financing and cash-flow forecasts;
- Credit assessment and debt-capacity analysis;
- Interest benchmark, search steps and adjustments;
- Evidence of interest invoices, accruals and payments;
- Guarantee or security documents; and
- Accounting and tax reconciliations.
The agreement should match the parties’ conduct. Repeated extensions, missed payments or large balances outside the contract may change how LHDN evaluates the arrangement.
Common related-party loan risks
Frequent weaknesses include using the same rate for borrowers with different risks, leaving loans interest-free without commercial support, relying on a lender’s cost of funds alone, omitting guarantee analysis and failing to update documentation after terms change. LHDN may adjust or impute interest where the result is not arm’s length.
When is full CTPD required for financing?
Controlled financial assistance exceeding RM50 million annually triggers full CTPD under the current guidelines. Lower values may still require minimum documentation if no exemption applies. Review the separate guide on who must prepare CTPD and HTL’s transfer pricing services for transaction-specific support.
This article provides general information and is not a substitute for advice based on a specific financing arrangement or tax position.
Last updated: 4 Aug 2026
Official reference: HASiL — Controlled Financial Transactions: Intra-Group Loans (30 July 2026)
