Singapore
Eddie Lee
by Eddie Lee
Transfer Pricing (“TP”) is an essential aspect of the regulatory requirements in Singapore for companies which have intra-group transactions or related party transactions (“RPTs”) in Singapore and if they expand their businesses outside Singapore.
TP rules require that those RPTs are conducted at arm's length prices, which refers to prices that would be agreed upon by unrelated parties in similar situations.
Please note that there are two major compliance requirements under the Income Tax Act.
a) Section 34D – Arm’s Length Principle
Under Section 34D, all Singapore businesses are required to adhere to the arms’ length basis of pricing for its RPTs except for certain transactions for which exemptions apply. The exemptions are summarised separately under Exemption from TPD Preparation (page 4). This RPTs can be the purchase of goods, provision of services, borrowing or lending of money, use or transfer of intangibles and etc where the pricing should reflect the arm’s length principle.
In relation to the above, the arm’s length principle is the international standard to guide the transfer pricing between related parties. All companies in Singapore which have RPTs must adopt the arm’s length principle by charging the related party same as the third party.
b) Section 34F – Transfer Pricing Documentation
Under Section 34F, all Singapore businesses have to prepare a contemporaneous (i.e. requiring real-time data) Transfer Pricing Documentation (“TPD”) for submission to IRAS if their annual revenue/turnover is more than SGD 10 million and they did not meet the annual exemption threshold for the specific RPTs.
The TPD is a report to substantiate that all RPTs within a group of companies are finalised on arm’s length basis, meaning that the prices or margins of these intercompany transactions are comparable to what would have been entered into between outside or unrelated parties.
As long as the details in the TPD remain accurate, it should be refreshed once every three years.
The TPD must be kept for at least 5 years from the end of the basis period in which the RPT took place.
c) Summary of major requirements for preparing TPD under Section 34F
Scope
TPD requirements
When it takes effect
From YA 2019
Who must prepare
Companies who derived gross revenue from their trade or business with more than SGD 10 million
What to prepare
The details are prescribed in the TPD Rules and in IRAS tax guidelines. Data/Information should be prepared at entity and group level.
When to prepare
Not later than the filing due date of the tax return.
When to submit
Within 30 days from date of request by IRAS to submit the TPD to IRAS.
How long to retain TPD
At least 5 years from the end of the basis period in which the RPTs took place.
When to refresh TPD
Companies may refresh TPD every three years.
Contemporaneous basis
Should be prepared on a contemporaneous basis.
Exemption from preparing
See below in section d)
Penalty for non-compliance
A fine not exceeding SGD 10,000
d) Exemption from TPD Preparation
In situations where the gross annual revenue from trade or business is consistently below SGD 10 million, an exemption from TPD is applicable. It is also applicable where the gross annual revenue from trade or business is NOT more than SGD 10 million for the period but where TPD was mandatory in the immediate two preceding basis periods.
List of Specific Transactions Qualifying for TPD Exemption
Value per annum (SGD)
Related party domestic transactions subject to the same Singapore tax rate
No limit
Related party domestic loan
Related party loan with indicative margin applied above base loan interest rates
Loan below SGD 15 million
Routine support services on which a 5% cost plus is applied
Related party transactions covered by an Advance Pricing Agreement with IRAS
Purchase of goods from a related party
Below SDG 15 million
Sale of goods to a related party
Below SGD 15 million
Loan by a related party
Loan to a related party
Provision of services to a related party
Below SGD 1 million
Provision of services from a related party
Royalties or license fees from a related party
Royalties or license fees to a related party
Lease or rental received from a related party
Lease or rental payable to a related party
Any other related party transaction not covered by the above
The primary objective of the IRAS guidelines serves to provide companies with an understanding of the TP laws and regulations which cover the following areas:
Application of the arm’s length principle when transacting with their related parties and for specific RPTs such as related party services and loans,
Preparation and maintenance of contemporaneous TPD for submission to IRAS,
Procedure and process for avoidance and resolution of TP disputes under the double taxation agreements (“DTA”) between Singapore and treaty countries,
Clarification on non-compliance with transfer pricing requirements, and
Overview of transfer pricing compliance programme.
IRAS recommends that taxpayers adopt the Transfer Pricing Analysis which is the 3-step approach to apply the arm’s length principle in their related party transactions:
Step 1 – Comparability analysisStep 2 – Choice of transfer pricing methodsStep 3 – Testing the arm’s length results
Comparable Uncontrolled Price (“CUP”) Method
Resale Price (“RP”) Method
Cost-Plus (“CP”) Method
Transactional Profit Split (“PS”) Method
Transactional Net Margin Method (“TNMM”)
IRAS provides specific guidance on certain RPT services such as the followings.
Provision of related party services
Strict Pass-Through Costs
Markup Price Other Than 5%
Routine Support Services (RSS)
Cost Pooling Arrangement (there is no markup in the cost pooling)
Related Party Loans
OECD 5% Markup
APAs are agreements made in advance with IRAS and foreign tax authorities regarding the pricing of a RPT upon taxpayer’s application relating to a specific time-period. Upon successful application, IRAS may grant exemption for the preparation of the TPD where the RPTs are covered by the APA. The successful applicant must keep relevant documents for the purpose of preparing the annual compliance report to demonstrate compliance with the terms the APA, with essential assumptions unchanged.
You can read a more detailed version of this article HERE.
ROBERT YAM & CO PAC, with a history of more than 40 years, was established in Singapore on 01 July 1977 as a firm of Chartered Accountants and Certified Public Accountants. Apart from the core business of auditing & assurance, accounting, and tax services, the firm also undertakes other professional work such as general business consultancy and advisory, regulatory compliances, risks assessments, tax planning, company liquidation & audit investigation.
GGI member firmRobert Yam & Co PACSingaporeT: +65 6338 1133
Auditing & Accounting, Tax, Advisory, Fiduciary & Estate Planning
Eddie Lee is an accredited tax advisor with more than 30 years of experience in the Singapore taxation industry. He is a senior tax director of Robert Yam & Co PAC. Contact Eddie.
