The High Court has granted leave and an interim stay to Berjaya Group in its judicial review application challenging the Inland Revenue Board’s (IRB) RM428 million transfer pricing assessment.

The decision allows Berjaya Group to proceed with its challenge against the IRB’s transfer pricing adjustment, while the enforcement of the additional assessment is temporarily suspended pending the determination of the substantive judicial review proceedings.

Although the High Court has not yet decided on the merits of the dispute, the granting of leave indicates that the court considers that the application raises serious and arguable legal issues concerning the interpretation and application of Malaysia’s transfer pricing provisions under Section 140A of the Income Tax Act 1967.

Key Transfer Pricing Issues Raised in Berjaya Group’s Judicial Review

The case involves several important transfer pricing questions that may have wider implications for taxpayers involved in related-party transactions, particularly intra-group financing arrangements.

The key issues include:

• Validity of changes in intra-group financing arrangements
  Whether variations to related-party financing arrangements are permissible under Malaysian transfer pricing legislation and OECD transfer pricing principles.
• IRB’s power to disregard commercial arrangements
  Whether the IRB is entitled to disregard the commercial and economic substance of group financing structures when determining transfer pricing adjustments.
• Requirement of “reason to believe” under Section 140A(3)
  Whether the IRB had properly established the statutory requirement of having a “reason to believe” before making transfer pricing adjustments.
• Reliance on economic analysis and evidence
  Whether transfer pricing adjustments must be supported by proper legal interpretation, factual evidence and accepted economic principles, rather than being based on retrospective reconstruction of transactions.

Significance of the Case for Malaysian Taxpayers

The Berjaya Group transfer pricing dispute comes at a time when transfer pricing enforcement has become increasingly active both in Malaysia and globally.

The outcome of this case may provide further guidance on the extent of the IRB’s authority in making transfer pricing adjustments, particularly in relation to financing arrangements between related parties.

For taxpayers, the case highlights the importance of maintaining robust transfer pricing documentation, ensuring commercial rationale is properly supported, and aligning related-party transactions with both Malaysian transfer pricing rules and internationally accepted principles.