Malaysia amends transfer pricing rules for 2026.
Malaysia has gazetted the Income Tax (Transfer Pricing) (Amendment) Rules 2026, Order P.U. (A) 300/2026, made on 19 August 2026 and published on 27 August 2026. The amendment changes the Income Tax (Transfer Pricing) Rules 2023, which govern the pricing of transactions between related entities.
The amendment is deemed to have effect from the year of assessment 2023, aligning it with when the principal rules first applied. This means businesses in the middle of a transfer pricing audit or review covering YA 2023 onward should account for the amended provisions, including the new offsetting adjustment mechanism, despite the amendment being gazetted only in August 2026.
A route to correct double taxation
The most significant change inserts a new subrule 13(1A) into the principal rules. Where the Director General adjusts one party’s assessment because a controlled transaction was not priced at arm’s length, the other party to that transaction can now request a corresponding offsetting adjustment to their own assessment. The request remains subject to the Director General’s approval, so the mechanism is not automatic, but it gives businesses a formal route to avoid paying tax twice on the same income within Malaysia.
Previously, an adjustment to one party did not provide a corresponding route for the other party to obtain relief. Businesses with related entities in Malaysia, particularly those with existing or anticipated transfer pricing disputes, should factor this mechanism into how they respond to any future adjustment.
A clearer scope for multinational enterprise groups
The amendment also refines the definition of a multinational enterprise group under rule 4(4). It is now defined as a group of associated enterprises with business establishments in two or more jurisdictions. This clarifies which entities fall within the scope of certain transfer pricing documentation obligations tied to multinational enterprise group information. Businesses should check whether this clearer wording changes how their own group structure is classified for documentation purposes.
Other changes made
Two further amendments are more technical in nature. The definition of service under rule 3 has been reworded, a change that does not alter its substantive scope.
The 2023 Rules had also included, in rule 10(3), a definition of associated person specifically for cost contribution arrangements. That definition duplicated, word for word, the general test for controlled transactions already set out in section 140A(5) of the Income Tax Act 1967, covering persons where one controls the other, individuals who are relatives and persons both controlled by a third party.
The 2026 amendment deletes rule 10(3), removing this repeated wording from the Rules. Because the same test remains in force through section 140A(5) of the Act itself, the deletion does not change how associated persons are identified for cost contribution arrangements in practice. It simply removes a redundant restatement.
What this means going forward
Taken together, these amendments give businesses a new avenue for relief where a transfer pricing adjustment creates double taxation, sharpen the criteria for multinational enterprise groups and tidy up overlapping wording within the Rules. Because the changes reach back to YA 2023, businesses should review any transfer pricing positions taken since then against the amended provisions, particularly where a dispute or audit is already underway.
The interaction between the offsetting adjustment mechanism, the Director General’s powers and the retrospective effect may depend on the circumstances. Businesses should therefore engage a tax adviser to confirm how these changes affect their existing arrangements and documentation.
