Transfer pricing is often associated with large multinational groups, cross-border transactions and complex tax structures.
In practice, that is no longer the whole picture.
As Malaysian businesses become more sophisticated, many SME groups now have multiple related companies, shareholder loans, management fees, shared services, intercompany purchases and other transactions between connected entities.
That raises an important question:
Are these transactions being carried out on terms that can be supported as arm’s length?
The issue has become more relevant in 2026 following further developments from the Inland Revenue Board of Malaysia (HASiL), including new guidance on intra-group loans and amendments to the transfer pricing rules.
Transfer pricing is not only a multinational issue
At its simplest, transfer pricing concerns the pricing of transactions between related parties.
For example, imagine a group with:
- A holding company
- An operating company
- A property company
- A management services company
The companies may charge one another for management services, rental, financing, shared employees, IT support or other services.
There may be perfectly legitimate commercial reasons for these arrangements.
The question is whether the pricing can be supported if the transactions are examined by the tax authority.
The arm’s length principle is central to this assessment. In broad terms, related parties should transact on terms that would reasonably be expected between independent parties in comparable circumstances.
Intra-group financing deserves particular attention
One area that deserves more attention from Malaysian groups is financing between related companies.
It is common for a shareholder or holding company to provide funding to a subsidiary, particularly during periods of expansion, acquisition or working capital requirements.
Historically, some businesses treated these arrangements rather informally.
There may be no formal loan agreement, no clear repayment schedule and sometimes no clearly documented basis for the interest rate.
That becomes more difficult to defend when the transaction is material.
HASiL published the Malaysia Transfer Pricing Guidelines on Controlled Financial Transactions: Intra-Group Loans on 30 July 2026, supplementing Chapter 9 of the Malaysia Transfer Pricing Guidelines 2024. The Guidelines set out HASiL’s expectations for pricing, characterising and documenting intra-group loans under the existing arm’s length principle in section 140A of the Income Tax Act 1967 — including a new simplified method for eligible taxpayers — and they inform HASiL’s ongoing assessment of intra-group financing arrangements generally, not only new loans from a specific date.
For business owners, the practical message is straightforward.
If a related company is lending a significant amount of money to another company, the commercial terms should make sense and the documentation should tell the same story.
Documentation matters
Transfer pricing is not simply about arriving at a number.
It is also about being able to explain why that number makes sense.
A group should consider questions such as:
- Why was the transaction entered into?
- What service was actually provided?
- How was the price determined?
- What would an independent party reasonably have agreed to?
- Who bears the relevant risks?
- Are the contractual terms consistent with what actually happens?
- Is the transaction properly recorded and supported?
This becomes particularly important when the accounting records, agreements and actual commercial arrangements tell different stories.
What should SME groups review?
A practical review can begin with the group’s related party transactions.
Look beyond the obvious transactions such as sales and purchases. Consider management fees, rental, financing, guarantees, reimbursements, shared costs, intellectual property and other recurring arrangements.
The next step is to identify which transactions are material or potentially sensitive.
Not every related party transaction requires the same level of analysis. The approach should reflect the nature, value and risk of the transaction.
Most importantly, documentation should be prepared as part of normal business processes rather than reconstructed when a tax review begins.
Transfer pricing is ultimately about commercial discipline
For business owners, transfer pricing should not be viewed purely as a tax compliance exercise.
It can also be a useful test of how well the group understands its own internal transactions.
If one company pays another company RM500,000 every year for management services, management should be able to explain what it is actually receiving for that RM500,000.
That is good tax governance, but it is also good business management.
As Malaysian SME groups continue to grow, related party transactions will naturally become more common. The earlier these arrangements are documented and reviewed properly, the easier they are to manage.
The objective is not simply to have a transfer pricing file. It is to have transactions that make commercial sense, supported by documentation that explains why.
Source: Inland Revenue Board of Malaysia, Transfer Pricing materials and 2026 updates.