The Prediction of Transfer Pricing Manipulation Among Public Listed Companies in Malaysia

Transfer pricing has become one of the main issues in the Malaysian tax perspectives since the pioneer legal case has proven to attract more scrutinyand supervision of the related authorities. In 2012, the comprehensive act by the Inland Revenue board to replace the Transfer Pricing Guidelines 2007is believed to curb any manipulation and malpractice among related party transactions. This study aims to examine the relationships between threerisk indicators of transfer pricing and the probability of transfer mispricing practices among Public Listed Companies (PLCs) in Malaysia. Using amicro backward-looking approach for seventy companies consisting of 350 firm-years provides evidence that the number of tax haven subsidiaries andgross profit margin affected the extent of Effective Tax Rate yielded. These findings show that transfer pricing practices among PLCs may amount toa serious tax evasion scheme if the practices are not properly controlled and monitored by the authorities.