30 June 2016
As announced by the Ministry of Finance on 16 June 2016, Singapore will join the inclusive framework for the global implementation of the Base Erosion and Profit Shifting (BEPS) Project.
The OECD had agreed on the new framework in February 2016 for the implementation of the BEPS Project for which Singapore, as BEPS Associate, played an active role in giving input to the design of the BEPS Project in the development of international standards related to BEPS and in the review and monitoring of the implementation of BEPS measures. The minimum standards of the BEPS Project focuses on the areas of countering harmful tax practices, prevention of tax treaty abuse, country-by-country reporting and improvements in cross-border tax dispute resolution.
Under the guidelines of the BEPS Action Plan 13,”Transfer Pricing Documentation and Country-by-Country Reporting” finalised in October 2015, a three-tiered approach should be applied to transfer pricing documentation as follows:
- A Master file – to provide tax administrations with high-level global information regarding the overall global business and transfer pricing policies of the Multinational Enterprises (MNEs) that are adopted by the Group for each category of related party transaction.
- A Local file – akin to transactional transfer pricing documentation where information on related party transactions, the transfer pricing method and third party transactions are included.
- Country-by–country report (CbCR) – requiring tax jurisdiction’s allocation of income, taxes paid, economic activity and taxes accrued on an annual basis, in a previously set format, for each tax jurisdiction in which they conduct business.
Although all MNEs are to prepare the Master and Local files, the CbCR is only required provided the Group’s revenue meets the revenue threshold.
In line with these changes, IRAS has committed to the implementation of CbCR for financial years beginning on or after 1 January 2017 for MNEs whose ultimate parent entities are in Singapore and whose group turnover exceeds S$1,125m.
These enterprises are required to file the CbCRs with the IRAS within 12 months from the last day of their financial year. IRAS will then exchange these CbCRs with jurisdictions that Singapore has entered into bilateral agreements with for automatic exchange of CbCR information, having established that they meet the following conditions:
- These jurisdictions have a strong rule of law and can ensure the confidentiality of the information exchanged and prevent its unauthorised use.
- There must be reciprocity in terms of the information exchanged.
IRAS will be consulting the MNEs and releasing implementation details of CbCR processes by September 2016.