Key changes arising from the 2023 APA Rules
|Limited types of APAs which may be applied for
- Where a jurisdiction has a Double Taxation Agreement (DTA) with Malaysia or the Malaysian party is a permanent establishment, only a bilateral or multilateral APA may be applied for.
- Where the jurisdiction of the counterparty of the cross-border transaction does not have a DTA with Malaysia, only a unilateral APA may be applied for.
|Changes to the APA process
- The 2023 APA Rules introduce a longer timeline of six months for an APA application (in contrast to the previous timeline of two months).
- A renewal application must be now be made within two months from when the taxpayer is informed that they may renew their APA.
- The Inland Revenue Board of Malaysia (IRBM) may decline an application for an APA where the cross-border transaction involves improper use or abuse of a DTA to obtain an unintended benefit.
- An APA may be revoked where there is failure to disclose any occurrence of voluntary disclosure, investigation, audit or incentive approval.
- Rollbacks are only permitted for bilateral/multilateral APAs and may only be applied for up to three years immediately preceding the covered period.
- The rollback of the APA is subject to verification on audit that the facts and circumstances surrounding prior years are substantially the same as that of the covered period.
- Rollback is unavailable where amongst others, a tax audit has been conducted on prior years, a voluntary disclosure has been submitted and where the matter has been decided by the Special Commissioners or a court.
|Powers to request information and documents
- Information and documents relevant to the APA application requested by the IRBM must be furnished within 30 days.
|Changes to fees
- The non-refundable fee for an APA application is now:
- RM 5,000 if the application is made within two months after receipt of the notification to proceed within an application
- RM 10,000 if the application is made after two months but within six months after receipt of the notification to proceed with an application
What this means for you?
The 2023 APA rules take effect from 30 May 2023 and taxpayers seeking to apply for an APA will need to be mindful of the following developments:
- Taxpayers looking to take part in the Special Voluntary Disclosure Programme 2.0 for transfer pricing matters should note that they may not apply for a rollback of an APA to prior years covered under a voluntary disclosure.
- Taxpayers will need to take into account the timeline changes to the APA application process.
- Given Malaysia's extensive DTA network, taxpayers will typically only have the bilateral/multilateral route available to them. As bilteral/multilateral APAs generally take more resources and a longer timeframe to negotiate and approve given their complexity, taxpayers should undertake a cost benefit analysis to determine if an APA is suitable and commensurate to their needs.
Existing APA taxpayers should ensure that the IRBM is aware of voluntary disclosures, investigations, audits or incentive approvals to avoid revocation of their APA and be mindful of the changes to the renewal timeline.
How can we help?
Support and assistance with APA applications
- We can work with your team to conduct forward planning opportunities, including conducting a cost benefit analysis and framework for an APA application.
- We would be able to represent and support you throughout APA negotiations.
- We would be able to advise on the technical aspects of APAs and support you by monitoring the relevant APA timelines.
Transfer pricing documentation
We are able to assist with the development and preparation of the transfer pricing documentation needed for the application of APAs and to defend your transfer pricing position.
Transfer pricing analysis & advice
We are well placed to provide tailored legal advice and solutions on transfer pricing matters to support the arm's length pricing of related company transactions.
Recap on APA
An APA is an agreement between the IRBM and a taxpayer that determines the appropriate transfer pricing methodologies to ascertain the arm’s length transfer prices of related party transactions between the taxpayer and its foreign affiliates over a certain period of time, under prescribed terms and conditions. There are generally 3 types of APA being:
- Unilateral APA being an arrangement between the taxpayer and the IRBM where the APA does not involve or require agreement with the Competent Authority of a DTA partner country.
- Bilateral APA being an arrangement between the Malaysian Competent Authority and the Competent Authority of a DTA partner country.
- Multilateral APA where there is a multilateral arrangement between the relevant Malaysian taxpayer, the Malaysian Competent Authority and Competent Authorities or more than one tax treaty partner that binds all of the parties.
Derric Toh, Legal Assistant, contributed to this legal update.
1 Rule 1(1) of the Income Tax (Advance Pricing Arrangement) Rules 2012
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