Transfer Pricing in ASEAN | Key Trends and Challenges

Transfer Pricing Ensures Fair Tax Distribution Across Borders

| What Is Transfer Pricing and Why It Matters

Transfer pricing (TP) is a critical concept in international taxation that governs how transactions between related entities in different jurisdictions are priced. Its primary purpose is to ensure that businesses do not manipulate prices for goods, services, or intellectual property to shift profits to low-tax jurisdictions, thereby minimising tax obligations. This is important for tax authorities to preserve the integrity of national tax bases and to prevent tax evasion through profit shifting. Transfer pricing regulations help establish fair market value for intercompany transactions, ensuring that profits are allocated appropriately based on economic activities performed in each jurisdiction.

| Compliance Is Crucial for Multinational Companies

For businesses operating internationally, transfer pricing has significant implications. Non-compliance with TP regulations can result in penalties, adjustments, and increased scrutiny from tax authorities. Additionally, companies must maintain extensive documentation to demonstrate that their transfer pricing practices are in line with local regulations. This adds a layer of complexity for multinational corporations, especially those operating in multiple countries with varying TP rules. The impact on business strategy is profound, as failure to comply with TP laws can lead to audits, tax liabilities, and reputational damage, making it essential for companies to carefully monitor and document their transfer pricing practices.

Ultimately, transfer pricing ensures fairness in the distribution of tax revenue among different jurisdictions. It serves as a tool for governments to combat base erosion and profit shifting (BEPS), promoting equitable taxation. For businesses, navigating these regulations effectively is vital to avoid costly disputes and ensure compliance with the increasingly complex global tax environment.

Businesses Struggle with Inconsistent TP Documentation

| Inconsistent TP Rules Across ASEAN Markets

Transfer pricing documentation can be a significant challenge for businesses in Southeast Asia, particularly due to the complex and often inconsistent regulations across the region. Each country in ASEAN has its own set of rules, guidelines, and compliance requirements, which vary considerably in terms of implementation and enforcement. This fragmentation of regulations poses a challenge for businesses operating in multiple ASEAN markets, as they must manage different documentation standards and filing procedures for each jurisdiction.

| High Burden of TP Documentation for Businesses

For many businesses, the task of compiling and maintaining comprehensive transfer pricing documentation is resource-intensive. Companies must prepare detailed reports to justify the pricing of transactions between related parties. These reports often require access to local financial data, industry benchmarks, and comparability analyses to support the pricing decisions made by the business. The lack of a unified framework for TP documentation in ASEAN means that companies are left to interpret diverse sets of regulations, making it difficult to ensure compliance across borders.

| Lack of Reliable Data Increases Compliance Costs

Additionally, businesses in ASEAN are also faced with the challenge of limited access to reliable and up-to-date financial data. The absence of easily accessible or standardised market data makes it harder for businesses to perform the necessary benchmarking exercises required for TP compliance. This results in increased reliance on external advisors and third-party services, which adds further costs and complexity to the process.

For businesses to overcome these challenges, they must invest in robust documentation systems, stay informed about local tax changes, and consider leveraging digital solutions to streamline the process. By improving their transfer pricing processes, businesses can mitigate the risks associated with non-compliance and safeguard their operations from costly penalties.

Local Financial Data is Key to Defending TP Compliance

| Local Data Anchors TP Compliance in Southeast Asia

Localised financial data is a cornerstone of effective transfer pricing compliance, particularly for businesses operating across multiple jurisdictions. In Southeast Asia, the diversity of tax regulations and business environments means that generic, global financial benchmarks are often insufficient for justifying intercompany pricing. Local data provides the contextual relevance needed to ensure that transfer prices are in line with the economic conditions and market realities specific to each country.

| Benchmarking Requires Country-Specific Comparables

One key challenge businesses face in complying with TP regulations is the need to use data that reflects the local market conditions in which their operations occur. Localised data, such as financial statements of comparable companies, industry profit margins, and economic indicators, is crucial for conducting accurate benchmarking analyses. Without this, businesses may struggle to defend their transfer pricing positions in the event of an audit, as generic or outdated data might not align with the economic conditions of the local market.

| ASEAN Tax Authorities Demand Local TP Justifications

Moreover, tax authorities across ASEAN countries, such as Inland Revenue Board Malaysia (IRBM), Malaysia and General Department Of Taxation (Ministry Of Finance)
Vietnam, expect companies to use data that accurately reflects the local economy. These authorities often require that businesses conduct country-specific comparisons to ensure that prices charged in intercompany transactions are consistent with those charged in similar transactions between unrelated parties. Using local financial data not only improves compliance with local TP rules but also enhances the credibility of the business’s transfer pricing documentation.

Reliable Financials Are Crucial for Effective TP in ASEAN

The demand for reliable company financials in ASEAN has increased significantly, driven by the growing complexity of transfer pricing regulations and the region’s expanding role in the global economy. As multinational companies operate across various ASEAN markets, tax authorities are becoming more vigilant in scrutinising intercompany transactions, placing a premium on the availability and accuracy of financial data. This shift has led to a greater emphasis on sourcing robust, transparent, and up-to-date financial statements for TP purposes, making reliable company financials a critical asset for compliance.

| Financial Data Supports TP Defence and Documentation

Reliable financial data is essential for businesses to ensure that their transfer pricing is defensible under local regulations. As TP audits become more frequent and stringent, tax authorities are placing increasing reliance on financials to assess whether intercompany prices are set in accordance with local market conditions. This data not only supports the calculation of arm’s length prices but also plays a central role in the preparation of TP documentation reports. Businesses need to ensure that their financial data reflects accurate revenue, cost structures, and profits to meet the benchmarks set by tax authorities.

| Stricter TP Standards Drive Need for Accurate Data

The pressure for high-quality financials is particularly evident in ASEAN countries such as Malaysia and Vietnam, where the tax authorities have implemented stricter TP compliance standards. Companies in these jurisdictions must maintain detailed financial records, and any discrepancies or gaps can result in fines, adjustments, or other penalties. The increased regulatory focus has led businesses to seek out more reliable sources of financial data, including local market reports, industry databases, and third-party providers, to better align with local tax expectations.

Technology Improves Accuracy and Efficiency in TP Compliance

As transfer pricing regulations become more complex and scrutiny from tax authorities increases, businesses in ASEAN are turning to technology to streamline compliance processes. Advanced technological solutions, such as artificial intelligence (AI), machine learning, and automated data analytics, are revolutionising the way businesses handle TP documentation and compliance. These tools not only improve efficiency but also enhance the accuracy of transfer pricing practices by automating the most time-consuming aspects of the process.

| Digital Tools Help Navigate TP Complexity

By incorporating advanced technologies into their TP compliance processes, businesses in ASEAN can not only ensure greater accuracy but also improve the efficiency of their operations. These tools allow companies to focus on strategic aspects of their transfer pricing policies while leaving the administrative tasks to automated systems. This approach helps businesses navigate the increasingly complex transfer pricing landscape with confidence and reduces the risk of non-compliance.

Streamline Your Transfer Pricing Workflow

Accurate, structured data is the foundation of effective transfer pricing — and the right tools can make all the difference. Speeda is purpose-built to support businesses in Southeast Asia with their transfer pricing needs.

With access to a comprehensive database of public and private companies across ASEAN, Speeda allows users to:

• Identify relevant comparables based on industry, region, and financial performance
• Access normalised financials and peer benchmarking
• Explore industry classifications and segment insights for stronger comparability analysis

Explore the platform now. —Streamline your TP documentation, cut research time, and eliminate audit preparation uncertainty.