16 June 2015
Transfer pricing refers to the determination of prices charged in transactions between related parties. Such transactions can be sale or purchase of goods, provision of services, borrowing or lending of money, use or transfer of intangibles, etc.
To assist taxpayers in their transfer pricing compliance in Singapore, the IRAS issued the second edition of its Transfer Pricing Guidelines on 6 January 2015. In this post, we provide answers to a few of the often asked questions about the transfer pricing rules in Singapore based on the IRAS’ Transfer Pricing Guidelines.
1. Are Singapore companies required to prepare transfer pricing documentation (TPD)?
Yes, IRAS expects taxpayers to maintain appropriate and sufficient transfer pricing documentation as part of the record-keeping requirements for tax. It is important that taxpayers prepare and keep contemporaneous records to support the pricing of their transactions with their related parties. Taxpayers should keep TP documentation to demonstrate their compliance with the arm’s length principle as part of the record-keeping requirements for tax. Doing so will also avoid the consequences of being unable to deal with transfer pricing enforcement actions by tax authorities and double taxation arising from those actions. By preparing TP documentation, taxpayers will achieve the following objectives:
- A thorough evaluation of their compliance with the transfer pricing rules before or at the time of filing their tax returns would have been conducted
- Readiness to demonstrate that their transfer prices are determined in accordance with the arm’s length principle to manage domestic and cross-border transfer pricing risks
- Ability to defend their transfer pricing in the event of a transfer pricing audit by the tax authorities,
- Provision of assistance to tax authorities in the resolution of transfer pricing issues under the Mutual Agreement Procedure (MAP), and
- They facilitate tax authorities in the discussion and conclusion of Advance Pricing Arrangement (APA) Agreements.
2. What are the broad guidelines set by IRAS for preparing TPD?
Taxpayers are to provide documentation of their group and the specific members of the group with which taxpayers transact. The TP documentation are to be organised at the Group and Entity levels. Group level At this level, the documentation should provide a good overview of the group’s businesses that is relevant to the business operations in Singapore. Relevant information includes an overview of the group’s global business, organisation structure, the nature of the global business operations and overall transfer pricing policies. The following information should be included:
- General information on the Group as at the end of the financial year
- Description of Group’s business relevant to the Singapore taxpayer for the financial year
- Group’s financial position for the financial year
Entity level At this level, the documentation should provide sufficient details of the Singapore taxpayer’s business and the transactions with its related parties. Detailed information includes the business operations and specific related party transactions. The following information should be included:
- General information on the Singapore taxpayer as at the end of the financial year
- Description of the Singapore taxpayer’s business for the financial year
- Transactions between Singapore taxpayer and related parties subject to TP documentation for the financial year
- Transfer pricing analysis/ benchmarking
3. Are there any circumstances under which a company can be exempted from preparing TPD?
Specifically, IRAS does not expect taxpayers to prepare TP documentation under the following situations: (a) Where the taxpayer transacts with a related party in Singapore and such local transactions (excluding related party loans) are subject to the same Singapore tax rates for both parties, (b) Where a related domestic loan is provided between the taxpayer and a related party in Singapore and the lender is not in the business of borrowing and lending, (c) Where the taxpayer applies the 5% cost mark-up for routine services in relation to the related party transactions concerned in accordance with the administrative practice stated in paragraph 12.26 of the IRAS e-Tax Guide, “Transfer Pricing Guidelines (2nd Edition)”, (d) Where the related party transactions are covered by an agreement under an APA. In such a situation, the taxpayer will keep relevant documents for the purpose of preparing the annual compliance report to demonstrate compliance with the terms of the agreement and the critical assumptions remain valid, or (e) Where the value or amount of the related party transactions (excluding the value or amount in sub-paragraphs (a) to (d)) disclosed in the current year’s financial accounts does not exceed the thresholds shown below:
|Category of related party transactions||Threshold (S$) per financial year|
|Purchase of goods from all related parties||15 million|
|Sale of goods to all related parties||15 million|
|Loans owed to all related parties||15 million|
|Loans owed by all related parties||15 million|
|All other categories of related party transactions. Examples: service income, service payment, royalty income, rental income, rental expense. For the purpose of determining if the threshold is met, aggregation should be done for each category of related party transactions. For example, all service income received from related parties is to be aggregated.||1 million per category of transactions|
4. Is the TPD required to be submitted to IRAS? If yes, what is the deadline file the TPD report?
IRAS does not require taxpayers to submit the TP documentation when they file their tax returns. Taxpayers should keep their TP documentation and submit it to IRAS within 30 days upon request. In the event the taxpayers are unable to provide the TP documentation upon request by IRAS, they may be penalised under section 94(2) of the ITA for not complying with the record keeping requirements under the ITA.
5. How often must the TPD be updated?
Taxpayers should update their TP documentation when there are material changes to the operating conditions that impact their functional analysis or transfer pricing analysis. In any case, IRAS encourages taxpayers to update their TP documentation at least once every three years. Taxpayers should review their TP documentation periodically to ensure that:
- The financial analysis and economic analysis contained in the TP documentation are still accurate
- The applied transfer pricing method disclosed in the TP documentation is still relevant, and
- The transfer pricing supported by the TP documentation is still at arm’s length.
Taxpayers should retain the TP documentation for five years from the relevant year of assessment, as required in section 67 of the ITA. However, it is prudent to retain the TP documentation for a longer period if the taxpayers are involved in an audit or a MAP.
For full details, please refer the e-Tax Guide, “Transfer Pricing (2nd Edition)” published on 6 January on the IRAS website.
Source: This article was extracted from the Inland Revenue Authority of Singapore’s (IRAS) website. Visit http://www.iras.gov.sg/ for more information.