On this episode, our Managing Director, Mr Thanneermalai Somasundaram sheds light on the transfer pricing penalty and the surcharge on any transfer pricing adjustment under Section 140A (3C) of the Income Tax Act 1967.

Are taxpayers hit with a double whammy?

Video Transcription

On transfer pricing listing, there is another matter that is causing a lot of concern to the tax payers. The issue is if there is a TP adjustment, will there be a penalty imposed and in addition with the new introduction under Section 140A(3C) will the 5% surcharge also be applied. So will there be a 5% surcharge and the penalty be applied at the same time. The penalty can be range from 25% to 45% depends on the gravity of the situation.

Now the second point I want to make before I get into the details, it is actually the surcharge. The surcharge now is on the gross amount. Whenever there is a TP adjustment where the penalty is on the tax liability, even if it is 25% on a RM100 of tax and you have to say it is on the tax liability. You are going to pay the penalty where is now with the surcharge which is not a penalty nor a fine. It is a surcharge in which it is something new to many of you. It is going to be on the gross amount. 

And the second thing is in the past it didn’t make a different. When the two companies of you and if you increase one company while the other company you are actually decrease it, the both were paying taxes, the both were tax exempt, the both were tax losses – it made no difference to them because they cannot collect any extra taxes. Now it doesn’t matter the both companies of you in this scenario whether they are making an adjustment even if it didn’t result in tax liability, you are going to be imposed 5% surcharge. So that is going to be the new thing.

The last thing to answer the first question I actually post to you is my reading of the situation and I think the authorities are going to agree with me that you can’t be imposing both the penalty and the surcharge and in this scenario my view is and I think that is the way things are going to go – only the surcharge will be imposed and the penalty will not be imposed.

Thank you.