Transfer Pricing
Malaysia: MIRB issues specific Transfer Pricing (TP) guidance on intra-group loan transactions
The Malaysian Inland Revenue Board (MIRB) released the Transfer Pricing guidelines on Controlled Financial Transactions: Intra-Group Loans (“Guidelines”) on 30 July 2026. The Guidelines supplement the Malaysia Transfer Pricing Guidelines 2024 and signal a heightened focus on the pricing, characterization, and documentation of intra-group loans.
Debt vis-à-vis equity classification
A key feature of the Guidelines is the emphasis on determining whether a financial arrangement should be treated as debt or equity before establishing an arm's-length interest rate. Assessing the economic substance of the arrangement, including factors such as repayment obligations, borrower creditworthiness, accounting treatment, and tax treatment, would help establish the characteristics of genuine debt.
Delineation of Intra-Group Loans
The Guidelines require taxpayers to evaluate intra-group financing arrangements from both the lender's and borrower's perspectives. Lenders are expected to assess borrower risk, economic conditions, and alternative uses of funds, while borrowers must evaluate the commercial rationale and cost-effectiveness of financing options. Creditworthiness plays a central role in this analysis, with independent credit ratings recognized as useful indicators for determining arm's-length conditions. Taxpayers must maintain contemporaneous documentation supporting their credit rating assessments.
Importantly, the Guidelines acknowledge that membership within a multinational enterprise (MNE) group may provide implicit support that enhances a borrower's credit profile and lowers borrowing costs. Such implicit support generally does not warrant separate compensation or transfer pricing adjustments.
Detailed guidance on benchmarking approaches
To determine arm's-length interest rates, the MIRB endorses several pricing approaches. The Comparable Uncontrolled Price (CUP) Method remains the preferred approach, allowing benchmarking against comparable loans, bonds, third-party borrowings, deposits, and other financial instruments, subject to appropriate comparability adjustments.
The Guidelines also recognize the Cost of Funds Method, particularly where financing is sourced externally and passed through intermediary group entities. In such cases, remuneration should reflect only the intermediary's functions, assets, and risks rather than a full financing return. The Guidelines further clarify that both external borrowing costs and the opportunity cost of internally generated funds should be considered when applying this method.
Introduction to simplified method
The MIRB introduced a simplified approach for eligible intra-group loans to reduce taxpayers' compliance burden. Under this method, taxpayers may apply prescribed rates based on the Bank Negara Malaysia (BNM) Deposit Rate or Average Lending Rate (ALR) without conducting a full transfer pricing benchmarking study. Eligibility is subject to specific conditions, including a maximum intra-group loan threshold of RM50 million, restrictions on funding sources and currencies, and no intermediary financing arrangements.
Enhanced documentation expectations
The Guidelines place considerable emphasis on documentation. Taxpayers are expected to retain loan agreements, credit assessments, comparability analyses, and evidence supporting the selected pricing methodology. While interest rate benchmarking under standard methods may generally be refreshed every three years if circumstances remain unchanged, taxpayers adopting the simplified method must maintain detailed evidence demonstrating eligibility and compliance with the prescribed requirements.