Transfer pricing documentation: the question directors ask us most
18 June 2026 · 4 min read
This is the question we field most often when a director first hears the phrase transfer pricing. The assumption is that it is a large-group issue. In practice it applies whenever a company transacts with a related party, and related parties include a shareholder's other company, a foreign parent, and a fellow subsidiary down the corridor.
The transactions that draw attention
Sales and purchases of goods or services, management fees, royalties, inter-company loans (interest-bearing or not), guarantees, and cost-sharing arrangements. In the files we review, inter-company loans attract the most scrutiny — particularly where no interest is charged, or where the terms exist only as a verbal understanding between two directors who are the same person.
Contemporaneous means before you file, not after they ask
Documentation is expected to exist by the time the tax return is submitted. A file assembled after a query arrives carries far less weight, and the timing gap itself invites further questions. We prepare documentation as part of the annual cycle for this reason — it sits alongside the tax computation rather than waiting for a letter.
What a defensible file actually contains
A description of the group and the Malaysian entity, an honest explanation of what each party does and which risks it genuinely bears, a schedule of the controlled transactions with values, the pricing method chosen and why the alternatives were rejected, and benchmarking showing the outcome sits within an acceptable range.
The weakness we find most often
Agreements that do not match behaviour. If the contract says the Malaysian entity carries the marketing risk but the accounts show the parent paying every marketing invoice, the analysis fails no matter how good the benchmarking looks. Before we document anything, we read the agreements against the ledger and reconcile the two.
A practical sequence
List the related parties, quantify the flows, review the agreements, then document. Clients who maintain the file annually rather than rebuilding it each cycle spend materially less time and fee on it.
We prepare contemporaneous documentation, master file support and benchmarking, and will review an existing file before you rely on it.
From the file
A Malaysian subsidiary had lent a substantial sum to its foreign parent, interest-free, recorded as a one-line "amount owing by holding company". There was no agreement and no documentation. The exposure was not the loan itself — it was that nobody could explain the commercial reason for it years later. We reconstructed the position, priced it, and put an agreement in place; the same work done at the time would have taken a fraction of the effort.
Anonymised and de-identified. Shared to illustrate the point, never to identify a client.
Reviewed by Patrick Chai Chuin Wei, CA (M), FCCA — Founder & Managing Partner. Written by the audit and tax team at C.W. Chai & Partners (AF 001844). General guidance only — it is not advice on your specific position.
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