Transfer Pricing Singapore

Transfer Pricing authority and tax law

Inland Revenue Authority of Singapore (IRAS). Singapore does not have specific transfer pricing legislation. General income tax provisions cover transfer pricing. These are § 53 (2A) of the Income Tax Act, which concerns related-party business dealings between a non-resident and a resident, and § 33 of the Income Tax Act, which is a general anti-avoidance provision.

Transfer Pricing regulations and rulings

The IRAS issued Transfer Pricing Guidelines on 23 February 2006 (Singapore Transfer Pricing Guidelines).

OECD guidelines of Transfer Pricing

The Singapore Transfer Pricing Guidelines are consistent with the OECD Transfer Pricing Guidelines. The principles and transfer pricing methods set out in the OECD guidelines are acceptable in Singapore.

Transfer Pricing methods

The IRAS does not have a specific preference for any of the five prescribed methods outlined in the OECD guidelines. The transfer pricing method that produces the most reliable results should be selected and applied.

Penalties in Transfer Pricing

There are no specific penalties regarding transfer pricing. Under general tax provisions relating to understatements of income, the penalty range is from 100% to 400% of the tax underpaid. In practice, where a transfer pricing adjustment is made, penalties wil most likely be applied if the taxpayer has no or insufficient transfer pricing documentation.

Penalty relief in Transfer Pricing

In general, tax penalties can be mitigated if there is reasonable cause for the understatement of income. Good-quality transfer pricing documentation is important in mitigating penalties.

Transfer Pricing Documentation requirements

Singapore tax law and the Singapore Transfer Pricing Guidelines do not explicitly impose a formal requirement to prepare transfer pricing documentation. The IRAS expects taxpayers to assess their transfer pricing risk and prepare transfer pricing documentation commensurate with that risk. As a minimum, Singapore taxpayers should perform and document a transfer pricing risk assessment regarding their related-party dealings. Based on the assessment, the taxpayer should determine whether more detailed transfer pricing documentation should be prepared.

A transfer pricing risk assessment should cover at least the following information:

  • A description of the taxpayer’s related-party transactions, including the amount of the transactions and their contractual terms
  • A high-level functional analysis that describes the key contributors to the relevant transactions in terms of functions performed, assets developed, assets used and risks assumed
  • An outline of the taxpayer’s assessment of its tax risk

If a Singapore taxpayer has complex or large transactions, preparation of more detailed transfer pricing documentation may be necessary to substantiate compliance with the arm’s length principle. More detailed transfer pricing documentation would usually include:

  • Detailed factual information regarding the related-party transactions, including the functions performed, assets developed, assets used and risks assumed in relation to the transaction
  • An analysis of the applicable industry in which the taxpayer operates
  • Selection and application of one of the transfer pricing methods specified in the Singapore Transfer Pricing Guidelines
  • An economic analysis that supports the use of the selected method using appropriate benchmarking data and analysis

Documentation deadlines for Transfer Pricing

There is no deadline for the preparation of documentation. However, when a taxpayer believes that it has potential transfer pricing risk, then transfer pricing documentation should be prepared contemporaneously. There is also no submission requirement or deadline. However, documentation should be made available if requested by the IRAS.

Statute of limitations of transfer pricing assessments

The statute of limitations for transfer pricing adjustments is six years from the end of the year of assessment to which the transfer pricing issue relates (if the year of assessment is 2007 or a preceding year of assessment) or four years (if the year of assessment is 2008 or a subsequent year of assessment).

Return disclosures/related-party disclosures

No specified disclosures are required on Form C, Singapore income tax return.

Transfer Pricing Audit risk/transfer pricing scrutiny

The purpose of the Singapore Transfer Pricing Guidelines is to create an awareness of transfer pricing issues. Given the IRAS’s desire to create awareness about transfer pricing, it is likely that over time there wil be an increase in the number of tax audits that involve transfer pricing. Hence, the risk of a transfer pricing audit is currently moderate.

Advance Pricing Agreements of tansfer pricing

Unilateral, bilateral and multilateral APAs are available. However, for bilateral and multilateral APAs, there must be a double tax agreement between Singapore and the other involved country or countries. The Singapore Transfer Pricing Guidelines outline the procedures for applying for an APA.

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