IRAS updates guidelines on transfer pricing to clarify the arm’s length principle, turnaround times for mutual agreement procedures as well as advance pricing arrangements

10 February 2017

On 12 January 2017, the Inland Revenue Authority of Singapore (IRAS) released the e-Tax Guide, “Transfer Pricing Guidelines (4th Edition)”.


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.

In this edition, the revised guidelines make reference to the Base Erosion and Profit Shifting (BEPS) Action Plans 8 – 10 Aligning Transfer Pricing Outcomes with Value Creation and Action Plan 13 Transfer Pricing Documentation. A summary of key changes made by IRAS in this edition of the e-Tax Guide is as follows:

  • Aligning transfer pricing outcomes with value creation

IRAS has explicitly noted that profits should be taxed where the real economic activities generating the profits are performed and where value is created.

Further, a more robust risk analysis is now required to demonstrate not only that an entity is contractually bearing risks, but also that the entity has the capacity and capability, from both a financial and operational perspective, to assume and manage the specific economically significant risks.

Additional guidance and examples on risk analysis have been provided by IRAS.

  • Safe harbour provisions for intercompany loan transactions

IRAS has introduced an administrative practice wef 1 January 2017, whereby a safe harbour interest margin can be applied for cross-border intercompany loans provided or received by a Singapore taxpayer.  The interest margin, which will be published on an annual basis, can be applied on all new loans, which are below the S$15 million threshold.

For floating interest rate arrangements, the interest rate margin needs to be applied on the selected interbank rate, and whereas for fixed interest rate arrangements, the swap rate is to be applied. Should a taxpayer choose not to apply the safe harbour interest rate margin, a transfer pricing analysis will need to be carried out to support the arm’s length interest rate.

  • Enhanced guidance on Advance Pricing Arrangements (APAs)

The IRAS has now clarified that, depending on the facts and circumstances of each request, it may exercise its discretion to vary the number of roll-back years whereas previously the number of roll-back years will generally not exceed two financial years.

Reference has also been made to Action Plan 5 – Countering Harmful Tax Practices More Effectively, taking into Account Transparency and Substance – to outline the framework by which IRAS will exchange information on unilateral APAs with foreign jurisdictions.

  • Enhanced guidance on Mutual Agreement Procedures (MAPs)

Similar clarifications have also been provided for MAPs.  For example, IRAS aims to resolve a MAP case within 24 months from receiving the taxpayer’s complete application as well as to consider refunds of any interest and/or penalties that may have already been imposed in a transfer pricing audit during the MAP discussions.

The IRAS has also noted that any negotiation between the IRAS and the foreign competent authority may be challenging if the taxpayer has already chosen to accept the transfer pricing audit settlement with the foreign competent authority.

For further details, please refer to the IRAS e-Tax Guide.

Source: IRAS