Budget 2021 has made the preparation of contemporaneous transfer pricing documentation on an annual basis compulsory. Did you know non-compliance will result in hefty penalties and this will apply retrospectively?
On this episode of Take 5 with Thannees’, our Managing Director, Mr. Thanneermalai discusses the implications of this change to taxpayers.
Today I am going to just talk to you quickly about contemporaneous documentation. Under Budget 2021, the Finance Minister has introduced in the bill which has already passed the policy stage so it is very likely to become an act in January 2021.
One of the key areas which will affect all of you now – it is compulsory for you to prepare TP documentation on an annual basis. Because if there is a failure to prepare contemporaneous documentation, there will be penalties imposed on you. If you go to court on conviction, there will be in between RM20,000 to RM100,000 and/ or in imprisonment up to 6 months. If there is no prosecution, the DG imposes a compound, then it will be a fine of between RM20,000 to RM100,000 if you do not have contemporaneous transfer pricing documentation. You can appeal of course to the Special Commissioners on the penalties.
Now the question is what is contemporaneous documentation? Contemporaneous documentation should be prepared at time the transaction is under taken or at the latest before you file your tax returns which is for example 31st December 2020 if you talk about the year end it will be filed by 31st August. So your contemporaneous TP documentation must be done and it must be ready. You do not need to submit to the tax authorities when you file your tax returns but you will need to have it ready whenever the authority comes and within 30 days you must submit the documentation. If you do not do it then there will be this fine.
And the next question is will you be fined by every year if you failed? For example, the transfer pricing can be go back for 7 years, so for 7 years if you haven’t done the documentation and if you failed, the penalty will be 7 times that amount. It can be with RM140,000 to RM700,000 at this point of time. Secondly, if you do ask for an extension of time, does it mean that actually there will be no penalty imposed? At the moment we are not certain So asking for an extension of time you may still be subject to the penalty. So you got to be careful.
The last thing is you’ve got to actually record your transaction on a contemporaneous basis. Now, it is no longer flexible to go prepare the documentation 7 years later or 5 years later. It is best you prepare it on a yearly basis so that it is contemporaneous. It is about being contemporaneous.