IRAS issues e-Tax Guide: “Transfer Pricing (2nd Edition)”

8 January 2015

On 6 January 2015, the Inland Revenue Authority of Singapore (IRAS) issued an e-Tax Guide, “Transfer Pricing (2nd Edition)”.

Transfer pricing (TP) concerns the prices charged in transactions between related parties.

Generally, a transaction between two unrelated parties will be conducted at a price approximating to the market price for the transaction. But this may not necessarily be the case when two related parties transact with each other.

To prevent price distortion, tax authorities may audit the prices of transactions between related parties to verify if they are reflective of market prices. Such audit can lead to transfer pricing adjustments bringing about double taxation.

To reduce the risks of audits and double taxation, taxpayers transacting with their related parties should apply the internationally endorsed arm’s length principle – that the transfer price between them should be an arm’s length price as if they were unrelated parties negotiating in a normal market. Taxpayers should also maintain proper transfer pricing documentation to demonstrate that the pricing is arm’s length.

If taxpayers are faced with double taxation, they may apply for a Mutual Agreement Procedure (MAP) with their tax authorities under the tax treaty provisions to eliminate double taxation. They may also apply for an Advance Pricing Arrangement (APA) to agree in advance with one or more tax authorities the appropriate transfer pricing for their related party transactions for a period of time.

The Guide explains IRAS’ transfer pricing compliance programme and position regarding various transfer pricing matters and provides taxpayers with guidance on transfer pricing relating to:

  • The application of the arm’s length principle when transacting with their related parties
  • The application of the arm’s length principle for specific transactions, like related party services and loans
  • Maintenance of transfer pricing documentation; and
  • Facilities provided under tax treaties to resolve transfer pricing disputes.

Summary of changes made in this edition of the e-Tax Guide are as follows:

  • Updates made to the arm’s length principle section (i.e. section 5 of the Guide) to provide more guidance, including:
  1. Other relevant aspects of a comparability analysis, including:

– evaluating transactions on a separate or aggregate basis

– selecting comparables

– using multiple year data; and

– considering losses.

  1. Application of Transactional Net Margin Method (TNMM), including:

– choice of net profit indicator or profit level indicator, and

– the use of Berry ratio.

  • Updates to the section on TP documentation to provide more comprehensive guidance on TP documentation (i.e. section 6 of the Guide).
  • Updates to the section on Transfer Pricing Consultation (TPC) (i.e. section 7 of the Guide), including:

– provision of a flowchart of the TPC process; and

– removal of the outdated transfer pricing questionnaire.

  • Updates to the sections on avoiding and resolving transfer pricing disputes, MAP and APA processes (i.e. sections 8 to 10 of the Guide) to provide more guidance, including:

– annual compliance report for APA

– minimum information required for pre-filing meetings; and

– a sample of letter of authority and APA agreement.

  • New section inserted regarding IRAS’ position on the adjustments relating to transfer pricing (i.e. section 11 of the Guide).
  • Updates to the section on related party services to provide clearer guidance on the application of the arm’s length principle to related party services (i.e. section 12 of the Guide). The revised section also includes information that is already available at the IRAS’ website.
  • Updates made to the section on related party loans to provide clearer guidance on the application of the arm’s length principle to related party loans (i.e. section 13 of the Guide).
  • New section inserted on IRAS’ position regarding attribution of profit to permanent establishment (PE) (i.e. section 14 of the Guide). This information is already available at IRAS’ website.

This Guide consolidates four previous e-Tax Guides on transfer pricing:

  • Transfer pricing guidelines (published on 23 February 2006)
  • Transfer pricing consultation (published on 30 July 2008)
  • Supplementary administrative guidance on advance pricing arrangements (published on 20 October 2008); and
  • Transfer pricing guidelines for related party loans and related party services (published on 23 February 2009).

The previous edition was published on 23 February 2006.

For full details, please refer the e-Tax Guide on the IRAS website.

Source: This article was extracted from the Inland Revenue Authority of Singapore’s (IRAS) website. Visit for more information.