Tag: Transfer pricing documentation

New reporting of related party transactions required from YA 2018

On By taxsgIn Corporate Tax, Latest Tax News

7 November 2016

For better assessment of companies’ transfer pricing risks and to improve on enforcement, companies must report certain details of related party transactions wef Year of Assessment (YA) 2018 to the Inland Revenue Authority of Singapore (IRAS).

Should the value of related party transactions (RPT) in the audited accounts for the financial year exceed S$15mil, a Form for Reporting Related Party Transactions (RPT Form) is to be submitted together with the submission of Form C. 

The value of RPT as disclosed in the audited accounts is the aggregate of:

  • All amounts of RPT as reported in the Income Statement but excluding compensation paid to key management personnel and dividends, and
  • Year-end balances of loans and non-trade amounts due to/ from all related parties.

For companies with cross-border related party sales or purchases of goods and services, the top five foreign related parties that it transacts with (by value of sales or purchases respectively) has to be listed together with entity details including entity names, countries, relationship and amounts transacted.

A sample copy of the RPT Form and a set of FAQs can also be found on the IRAS website. The actual RPT Form will be made available together with the YA 2018 Form C.

Source: IRAS

 

IRAS issues the e-Tax Guide on “Country-by-country reporting”

On By taxsgIn Latest Tax News

21 October 2016

On 10 October 2016, the Inland Revenue Authority of Singapore (IRAS) issued a new e-Tax Guide, “Country-by-Country Reporting (CbCR)”.

In the Final Report on BEPS Action 13 “Transfer Pricing Documentation and Country-by-Country Reporting” published by the OECD in October 2015, a new form of reporting, namely CbCR, was introduced to form part of the transfer pricing documentation to be maintained by MNEs. By issuing this e-tax guide, the IRAS has once again confirmed and moved one step towards adherence to the OECD’s Base Erosion and Profit Shifting (“BEPS”) Action Plan 13.

The e-Tax Guide outlines the purpose and obligation to provide a Country-by-Country Report (CbC Report), the format required and submission process to IRAS. It is relevant to any Singapore multinational enterprise (MNE) group with international operations and an annual group revenue of at least S$1,125 mil.

CbC Reports are supplementary to IRAS’ Transfer Pricing Guidelines which require taxpayers to organise their transfer pricing documentation at Group level and Entity level. The IRAS has stated that the CbC Reports should not be used by taxpayers as a substitute for a detailed transfer pricing analysis of individual transactions and prices based on a full functional analysis and a full comparability analysis.

A CbC Report requires aggregate tax jurisdiction-wide information relating to the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which the reporting MNE group operates. The Report also requires a listing of all the entities (including permanent establishments) for which financial information is reported, including the tax jurisdiction of incorporation, where different from the tax jurisdiction of residence, as well as the nature of the main business activities carried out.

Singapore will implement CbCR for Singapore MNE groups from FY 2017 onwards.

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

Source: The contents of this article is based on information from the Inland Revenue Authority of Singapore’s (IRAS) website. Visit http://www.iras.gov.sg/ for more information.

Singapore to incorporate BEPS framework for tax reporting

On By taxsgIn Corporate Tax, Latest Tax News

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.

Source: IRAS

Transfer pricing documentation – basic rules defined

On By taxsgIn Corporate Tax, General News

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.

Results of public consultation on transfer pricing documentation

On By taxsgIn Latest Tax News

20 January 2015

The Inland Revenue Authority of Singapore (IRAS) received 16 responses on its transfer pricing documentation released for public feedback from 1 to 24 September 2014.

The consultation paper had set out the revised guidance on transfer pricing documentation in the areas of:

  • Objectives of preparing TP documentation
  • Contemporaneous TP documentation
  • Types, extent and compliance matters of TP documentation

A summary of the comments and the IRAS’s responses are as follows:

  1. IRAS to specify the effective date of the guidance and provide taxpayers with adequate time to prepare documentation based on the new standard.

Response: Updated guidelines for TP documentation under section 6 of the Transfer Pricing Guidelines published on 6 January 2015 (2015 guidelines) do not vary significantly from the 2006 guidelines and would not have a significant impact on the taxpayers who have been maintaining TP documentation based on the 2006 guidelines.

  1. IRAS to clarify the interaction between its updated documentation rules and OECD’s proposed three-tier documentation approach (particularly with respect to the OECD’s country-by-country reporting template).

Response: The guidelines set out the types of TP documentation and compliance matters that IRAS expects its taxpayers to observe.

  1. Suggestions received to ease compliance costs such as to restrict information requests to those which are relevant to the Singapore taxpayers’ transactions with their related parties and business activities and to provide explicit guidelines on the frequency of the updating or review of TP guidelines.

Response: Incorporated in the 2015 guidelines.

  1. IRAS to clarify definition and timing of contemporaneous TP documentation

Response: Contemporaneous TP documentation refers to documentation and information that taxpayers have relied upon to determine the transfer price prior to or at the time of undertaking the transactions. IRAS will also accept as contemporaneous TP documentation any documentation prepared at any time no later than the time of completing and filing the tax return for the financial year in which the transaction takes place. Taxpayers are to exercise their best judgment to determine the most appropriate time for preparing TP documentation within the timeframe.

  1. Transactions pertaining to interest payable to / receivable from an overseas related party do not require full contemporaneous TP documentation as they are considered low risk transactions.

Response: Taxpayers should be mindful of the transfer pricing risks in other tax jurisdictions. IRAS also requires relevant information to determine if taxability of the income has arisen or whether deduction should be given as well to support the taxpayers in MAP discussions for the resolution of double taxation arising from any transfer pricing adjustments made by IRAS or foreign tax authorities.

For full details, please refer to the IRAS website.

Source: IRAS