Singapore: Singapore Transfer Pricing Overview

Transfer pricing (TP) has become a key focus for tax authorities and governments across the globe as businesses expand internationally with increasing related party cross-border transactions. Over the past decade, the Inland Revenue Authority of Singapore (IRAS) has provided clearer TP guidelines for businesses in Singapore in respect of related party transactions. In 2009, Section 34D of the Income Tax Act 1947 on the Arm’s Length Principle (ALP) was introduced for avoidance of doubt on the applicability of ALP in Singapore.

With these changes in the TP landscape in Singapore, it has made it critical for businesses to be aware of developments which impact their dealings with related parties in Singapore. Singapore TP guidance can be found in the IRAS e-Tax Guide on Transfer Pricing Guidelines.

TP refers to the rules and methods for pricing 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. Generally, a transfer price is acceptable if all transactions between related parties are conducted at ALP. The ALP requires a transaction with a related party to be made under comparable conditions and circumstances as a transaction with an independent party.

Taxpayers should prepare and keep records to show that the pricing of transactions with related parties is at arm’s length. Such records are referred to as Transfer Pricing Documentation (TPD).

Below is an overview of the Singapore TP guidelines:

Requirement for the Preparation of TPD

Taxpayers should prepare and keep adequate TPD for related party transactions relating to sales, purchases, loan, provision of services and royalties. Effective from Year of Assessment (YA) 2019, mandatory TPD are required if either one of the following conditions are met:

• Gross revenue derived from trade or business is more than S$10 million for the basis period concerned; or

• TPD was required to be prepared for the basis period immediately before the basis period concerned.

Exemption from the requirement to prepare TPD

The exemptions are prescribed in the Income Tax (Transfer Pricing Documentation) Rules 2018. Such exemptions include related party domestic transactions subject to the same tax rate and related party transactions (RPT) where the value of each transaction does not exceed certain thresholds (i.e. S$15 million for RPT sales and purchases and S$1 million for RPT loan, provision of services and royalties). Despite the exemptions, taxpayers should decide whether TPD is necessary for the purpose of complying with different TPD rules of other tax authorities.

Compliance matters relating to TPD

TPD is to be prepared on a contemporaneous basis with the date of completion stated on the TPD. TPD should be completed by the filing due date of the Income Tax Return Form (ITRF) and submitted to IRAS within 30 days upon request.

Period of retention of TPD

Taxpayers must retain TPD for at least 5 years from the end of the basis period in which the transaction took place.

IRAS advises taxpayers to retain TPD for a longer period if taxpayers are involved in an audit or a Mutual Agreement Procedures (MAP).

TP audit

IRAS carries out TP audit to review the TP policies and TPD of taxpayers to ensure compliance with the ALP and TPD requirements.

TP adjustment

IRAS will make TP adjustment to increase the profits if taxpayers do not comply with the ALP and have understated profits.

Surcharge and penalty

With effect from YA 2019, IRAS has taken a more proactive approach to curb non-compliance by imposing surcharge and penalty:

• 5% surcharge to be imposed on TP adjustment made by IRAS regardless of whether there is tax payable on the adjustment.

• A fine not exceeding S$10,000 for non-compliance with TPD requirement.

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Reference/ Citation

Income Tax: Transfer Pricing Guidelines (Sixth Edition) dated 10 August 2021

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