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.