26/01/2026

BIZ & FINANCE MONDAY | JAN 26, 2026

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Transfer pricing audits on the rise – are you prepared? IN RECENT years, Malaysia’s Inland Revenue Board (IRB) has stepped up its focus on transfer pricing audits. document must be prepared at the time transaction is being undertaken or before the tax return for a particular year of assessment is filed.

on the gross adjustments made. The benchmarking study must be conducted and up to date using reliable databases and appropriate Malaysian comparables. Taxpayers must review and update the comparability analysis regularly to ensure it reflects current market conditions. Service fees without proper support Payment of service fees to related parties without adequate documentation to prove the services were actually received and benefited the recipient is a common audit trigger. If companies cannot substantiate these expenses, IRB may disallow them in the tax computation, leading to additional taxes and penalties. To deal with this, taxpayers must maintain detailed service agreements, timesheets, invoices and evidence of the services and benefits received by the related party. Ensure that service fees charged reflect actual services rendered and align with the arm’s length principle. Ignoring these risks can lead to costly penalties, increased tax bills and unnecessary headaches. This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com). PETALING JAYA: End-to-end piping solutions provider ISF Group Bhd posted revenue of RM23.99 million for the third quarter ended Sept 30, 2025 (Q3’25), with gross profit (GP) margin of RM9.98 million and a net profit of RM5.02 million. This translated into GP and net profit margins of 41.61% and 20.93% respectively. For 9M’25, the company recorded revenue of RM73.98 million, primarily derived from the supply and installation of piping systems for end-user premises, as well as water supply and sewer infrastructure piping. In terms of profitability, the company recorded a GP of RM32.75 million with a GP margin of 44.27%, and a net profit of RM18.52 million, translating into net profit margin of 25.04%. Notably, ISF’s strong performance in 9M’25 has already surpassed the full-year revenue of RM54.67 million recorded in the financial year ended Dec 31, 2024 (FY24), while net profit has nearly doubled from the RM9.64 million achieved in FY24. Managing director Jeff Ai Boon Chen said the company reported a robust third quarter, delivering performance that reflects the growing demand for its services across key end-user segments. “This momentum provides clear validation of the resilience of our business model and positions us well as we approach our upcoming listing on the ACE Market of Bursa Malaysia. “Looking forward, we see ourselves as a vital partner in supporting Malaysia’s infrastructure development,“ he said in a statement. With a solid operational and financial foundation, ISF is well-prepared to execute its expansion plans and capitalise on these promising growth opportunities ahead. As of Dec 9, 2025, ISF’s unbilled order book stood at RM120.68 million, of which RM117.47 million relates to end-user premises piping projects, while the remaining RM3.21 million is made up by infrastructure piping projects. This is expected to provide earnings visibility up to the financial year ending Dec 31, 2028. ISF is scheduled to be listed on the ACE Market of Bursa Malaysia on Wednesday. Upon listing, ISF will have a market capitalisation of RM330 million based on its enlarged issued share base of one billion shares at the initial public offering price of 33 sen each. ISF Group delivers robust results for third-quarter FY25

toll manufacturer and contract manufacturer. If IRB finds that the facts are not aligned with your documentation, they have the right to recharacterise and reprice the transaction, resulting in additional taxes and surcharge. Profit fluctuations without commercial ex planation Profit margins naturally fluctuate in business, but unexplained variations often raise red flags. During audits, IRB expects companies to provide clear commercial reasons for profit swings, such as market changes, new product launches or operational issues. Taxpayers must document the commercial reasons behind profit fluctuations thoroughly. Keep internal reports, market analyses and business decisions that explain changes in profitability to support your position during an audit. External comparability study is not robust A key part of transfer pricing is benchmarking against comparable independent parties. If the external comparability study is not robust or reliable, IRB will adjust the company’s profit margin to the median of the independent parties’ margins. This adjustment often results in additional tax payable and a surcharge of up to 5%

Businesses engaging in related party transactions are increasingly in the spotlight. With the growing scrutiny, it’s essential for companies to understand the common pitfalls that can trigger hefty penalties and additional taxes, and how to prepare effectively. Preparation of Contemporaneous Transfer Pricing Documentation (CTPD) not a choice, but a requirement The CTPD should not be treated as a mere formality as it is the foundation that supports the pricing of related party transactions and demonstrates that transactions are commercially rational and that it meets the arm’s length principle. The preparation of CTPD for taxpayers who exceed the prescribed threshold is mandatory. The Transfer Pricing Rules (TP Rules) comprehensively set out the information that must compulsorily be disclosed. If any of the requirements stated in the TP Rules are not applicable, reasons must be provided to support the non-application. The dating of the CTPD is extremely important as the

During a transfer pricing audit, the IRB typically grants taxpayers 14 days to submit the information re quested, which includes the CTPD. Failure to submit the CTPD within this 14-day time frame will auto matically be treated as the taxpayer not having CTPD in place, thus triggering penalties and the maximum 5% surcharge on any transfer pricing adjustment arising from the audit. Taxpayers must ensure that a robust and fully compliant CTPD is prepared within the deadline and updated annually. Having the documentation before an audit begins will protect taxpayers from penalties and surcharges. Wrong characterisation of transactions Mischaracterising the nature of a transaction will result in wrong transfer pricing analysis. For example, where the transfer price involves merely an agency arrangement versus a buy-sell arrangement, the arm’s length pricing on the former transaction will be much lower compared to the latter. Another example will be between a

M’sian durian exporters must ensure quality and reliability o Competition in lucrative China market intensifies with entry of fruit from Laos but premium grades from Malaysia can hold their own, say experts Ű BY DEEPALAKSHMI MANICKAM sunbiz@thesundaily.com

PETALING JAYA: Laos’ recent entry into China’s lucrative durian market is set to intensify competition for Malaysian ex porters, particularly on pricing and logistics, but analysts say Malaysia’s premium durian segment is likely to remain resilient if quality and branding are preserved. The development marks a shift in competitive dynamics within Asean, as Laos leverages lower production costs and a direct rail link to China to reduce shipping time and expenses, potentially undercutting suppliers that rely on air freight. Associate Professor Dr Fazleen Abdul Fatah of Universiti Teknologi Mara said Laos’ lower land and labour costs, coupled with the China-Laos Railway, could exert downward pressure on durian prices, though mainly in the mass or mid-range segment. “Lower production costs in Laos could create price pressure, but not necessarily for Malaysia’s premium varieties,” she told SunBiz , noting that Malaysia’s durian exports, particularly Musang King, operate in a distinct high-end market segment. She added that Malaysian Grade A durians exported to China can command prices three to four times higher than lower grade fruit, supported by strong branding, flavour profiles and varietal identity. “As long as Malaysia maintains strict quality control, credible traceability, con sistent grading and certification such as MyGAP, its premium positioning can remain intact,” she said, cautioning however that premium status is not guaranteed if quality consistency weakens or supply reliability falters. China’s durian demand remains vast, with imports reaching more than 1.56 million tonnes in 2024. While Laos has set a modest export target of 400 tonnes, representing less than 0.03% of China’s total

tection, premium branding and positioning its durian as a tree-ripened, high-quality product, akin to how consumers differentiate Wagyu beef from standard beef. Productivity gains and technology adoption will also be critical in offsetting higher domestic costs, she added, highlighting precision fertilisation, smart farming, improved pest management and post-harvest technologies such as cold chain logistics and digital traceability. Teng echoed this view, saying any technology that reduces production costs, increases yields and preserves freshness would strengthen Malaysia’s competi tiveness, while stable pricing contracts could help smooth out volatility. On the demand side, Teng said Chinese consumers remain drawn to both Thai varieties such as Monthong and Malaysian premium cultivars including Musang King, Black Thorn and D24, but are still price sensitive. “Durian has a special appeal because of the unique flavour of each variety,” he said, adding that sustained marketing campaigns in China would be essential to reinforce Malaysia’s premium image. Both experts also pointed to the importance of diversifying export markets beyond China to manage long-term risk. Dr Fazleen noted that Malaysia currently accounts for only about 3% of global durian exports, suggesting significant un tapped potential in markets such as Taiwan, the Middle East and Latin America. “Diversifying markets and expanding value-added durian products will be critical for long-term resilience,” she said.

imports, its entry adds to growing competition from Thailand and Vietnam. Prof Paul Teng Piang Siong, visiting senior fellow at the ISEAS-Yusof Ishak Institute, said Laos’ geographic advantage could allow it to take some market share from Malaysia if quality expectations are met. “Laos has the advantage of direct land transport to China, which reduces shipping costs, shortens transport time and helps maintain freshness,” he said, adding that lower labour costs further strengthen its position. However, he stressed that Laos’ advan tage hinges on whether its durian varieties meet the taste and quality expectations of Chinese consumers. “Ultimately, fruit quality will determine how much market share Laos can realisti cally capture,” he said. On food security, Teng noted that durian is not a staple crop and therefore poses little risk to Malaysia’s national food security. “Durian is more of a luxury item, so the overall impact on Malaysia’s food security is minimal,” he said, though he cautioned that lower earnings could affect household food security for durian growers without diver sified income streams. Looking ahead, Fazleen said rising regional competition underscores the need for Malaysia to rethink its long-term agricultural export strategy, particularly for high-value crops. “In the past, gaining access to China’s market was itself a major advantage,” she said. “Today, access alone is no longer enough.” She said Malaysia’s strategy would likely centre on geographical indication pro