In this episode, our Managing Director, Mr Thanneermalai Somasundaram clarifies the applicability of the newly introduced Sec 113B of the Income Tax Act 1967 and the penalty regime under the TP Audit Framework when taxpayers fail to furnish TP documentation.
Ladies and gentleman.
There appears to be some uncertainty with regards to transfer pricing – whether there will be a fine or there will be a penalty if you do not submit the documentation on time. This is causing a little bit of confusion. Let me clarify the thought.
As far as I am concerned both the transfer pricing audit framework is still there. It hasn’t been removed. The Section 113B that was introduced from 1st January 2021 is also there. So you have two things – there is a (1) fine and there is a (2) penalty. As far as the framework is concerned, it said if you haven’t file the documentation or unable to file the documentation within the given time or if you do not have the documentation you will get a penalty of 50% of the tax undercharged. If you have documentation but it is inadequate or if you do not file the documentation on time, you will get a penalty of 30% of the tax undercharged.
Now what is happening is at the same time with the introduction of Section 113B from 1st January 2021, you are effectively going to be subject to the penalty if you are unable to provide the documentation within 14 days. They are quite strict about the 14 days. If you don’t submit the documentation within the 14 days in which of the time they give it to you, there will be automatically a fine of RM20,000 up to RM100,000 if you are not convicted.
But my view is and I think that the authorities also will take the view that both will not be applied at the same time. So most likely the way thing is going is that only the fine under Section 113B will be applied and the penalty will not be applied. So that’s where my view is and that’s how things I think will develop. You cannot have both the fine and the penalty applying on the non-compliance.