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IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Singapore
Transfer Pricing
What do I need to
know?
SINGAPORE | HONGKONG
20 YEARS IN PRACTICE
September
2015
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Evolving Singapore TP Regime
2
Prior to
2006
•Requires arm’s length principle (ALP)
•Provisions in Singapore Income Tax Act may cover application of ALP
2006
•TP Guidelines published which recommend the maintenance of TP documentation
2008
•TP audits commence (under Transfer Pricing Consultation process)
2009
•ALP legislated under new Section 34D
•TP Guidelines for Related Party Loans and Related Party Services
2015
•Consolidates all circulars on TP, requires contemporaneous documentation and
additional information disclosure
•Provides clarification on additional guidelines
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
When is Documentation
required?
• Taxpayers must prepare contemporaneous TP
documentation for all of its related party transactions, unless
exempted
• The Guidelines define contemporaneous TP documentation
as:
“documentation and information that taxpayers have relied
upon to determine the transfer price prior to or at the time
of undertaking the transactions”
• For ease of compliance, the IRAS will also accept as
contemporaneous transfer pricing documentation any
documentation prepared at any time no later than the time of
completing and filing tax return for the financial year in
which the transaction takes place.
TP BA
SIC
S
4
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
What is a related party?
“any other person who, directly or indirectly, controls that
person, or is controlled, directly or indirectly, by that person, or
where he and that other person, directly or indirectly, are under
the control of a common person”
TP BA
SIC
S
5
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
When is documentation not
required?
TP BA
SIC
S
6
• Related domestic transaction 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.
• Related domestic loans where the lender is not in the business
of borrowing and lending
• Companies using the safe harbour provisions of 5% cost mark-
up for routine services
• Transactions covered by an APA
• Where the transaction falls below certain quantitative
thresholds (see next slide)
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Transaction thresholds
TP BA
SIC
S
7
Category of related party transactions Threshold
(S$) per FYE
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.
E.g. Service income, service payment, royalty
income, royalty expense, 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. Eg. All service income
received from related parties is to be aggregated.
1 million per
category of
transactions
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Where documentation is not
required, what happens?
TP BA
SIC
S
8
Even though there is no formal requirement to prepare
TP documentation, there are still expectations from IRAS:
• Can IRAS ask you ALP related questions, consult you on TP
or audit you on TP?
Yes
• Will IRAS insist on submission of contemporaneous TP
documentation when it reviews related party transactions,
or conducts TP consultation or audit on you?
No expectation to prepare such documentation so IRAS should
not insist on being provided with these. Taxpayers still need to
prove to IRAS using other records that transactions with related
parties reflect arm’s length conditions.
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Where documentation is not
required, what happens?
TP BA
SIC
S
9
• Are record keeping penalties applicable if contemporaneous
TP documentation is not prepared or submitted upon
request?
No expectation to prepare such documentation so IRAS should
not seek to penalize taxpayers for not having contemporaneous
TP documentation. Taxpayers still have to maintain business
records to demonstrate compliance with ALP. If IRAS
determines inadequate business records are maintained to
demonstrate compliance with ALP, IRAS can still impose record
keeping penalties.
• Can IRAS make TP adjustments?
Yes, if found not to be ALP
• Are penalties applicable on TP adjustments made?
Possibly, if taxpayers are considered by IRAS to have
understated profits through improper transfer pricing. Penalties
may not be limited to section 94(2). May be section 95, 96.
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Group and Entity requirements
IRAS has introduced a new 2-tier approach to preparation of TP
documentation and specified that the TP documentation should
be organised at the Group level and Entity level (similar to OECD
approach).
Group level:
• General information about the group
– management structure with reporting lines and organisational
structure
• Description of Group’s business relevant to the Singapore taxpayer
for the financial year
– global business, nature of global business operations, supply
chain, profit drivers, business models and strategies, business
relationships (service provided, goods sold, development, ownership
or exploitation of intangibles, financial arrangements) among related
parties
• Group’s financial position for the financial year
– financial statements of the group relating to the lines of business
DO
CU
MEN
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IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
IRAS 2-tier approach
Entity level:
• General information on the Singapore taxpayer as at the end of the
financial year
- management structure and organization structure
• Description of the Singapore taxpayers business for the financial
year
- business operations details including related party transactions
information, functional analysis and economic analysis,
contract/agreement showing terms of transaction, global business,
nature of global business operations, business models and
strategies including any changes compared to previous years
• TP analysis/benchmarking
- choice of TP methods and reasons for choice, segment financial
accounts
DO
CU
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IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Related Party Loans
SPEC
IFIC
TR
AN
SA
CTIO
NS
14
Types of Loans Status of taxpayer
which is a lender
Application of arm’s
length principle
Related
Domestic Loans
Where taxpayer is not in
the business of
borrowing and lending
To restrict interest
deduction as a proxy to
the arm’s length
principle
Where taxpayer is in the
business of borrowing
and lending (e.g. Banks
or other financial
institutions, finance and
treasury centres)
To determine the
interest rate based on
arm’s length principle
Related Cross-
Border Loans
Where or not taxpayer is
in the business of
borrowing and lending
To determine the
interest rate based on
arm’s length principle
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Related Party Services
The Guidelines states that a 5% profit is accepted where:
a. prescribed routine services in Guidelines are provided;
b. such services are not also rendered to unrelated parties; and
c. all costs relating to the services performed are taken into
account in computing the 5% mark-up.
A higher profit is generally expected in the case of services not
provided in the list of prescribed routine services, unless
otherwise supported by TP studies.
SPEC
IFIC
TR
AN
SA
CTIO
NS
15
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Prescribed routine services
Accounting and auditing
Accounts receivable and accounts payable
Budgeting
Computer support
Database administration
Employee benefits
General administration
Legal services
Payroll
Corporate communications
Staffing and recruiting
Tax
Training and employee development
SPEC
IFIC
TR
AN
SA
CTIO
NS
16
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Related Party Services
IRAS recommends the following approach to determine an
appropriate charge for the services:
a. Comparability analysis
b. Determine the appropriate transfer pricing method
c. Determine the relevant cost base (direct or indirect)
Conditions to be satisfied in order to pass on costs of acquired
services to related party without a mark-up are provided.
Other guidance / concession
- List of factors that the “benefits test” needs to consider
- Administrative concession relating to cost pooling
SPEC
IFIC
TR
AN
SA
CTIO
NS
17
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Attribution of profits to
Permanent Establishments (PEs)
No further attribution to profits to PE is required when the
following conditions are met:
a. Taxpayer receives an arm’s length remuneration from its
related party that is commensurate with the functions
performed, assets used and risk assumed by the taxpayer.
b. The remuneration paid by the foreign related party to the
taxpayer is supported by adequate transfer pricing
documentation to demonstrate compliance with the arm’s
length principle; and
c. The foreign related party does not perform any functions,
used any assets or assumed any risks in Singapore, other than
those arising from activities carried out by the taxpayer.
SPEC
IFIC
TR
AN
SA
CTIO
NS
18
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
When do these rules take effect?
WH
AT TO
D
O N
EXT?
20
• New guidelines do not vary significantly from the 2006 edition,
hence no effective date for new guidelines.
• Requirements to prepare TP documentation for all open tax
years without delay. For financial year 2014, the documentation
should be completed by 30 November 2015.
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Why should you care?
WH
AT TO
D
O N
EXT?
21
• IRAS might make a large, unanticipated TP adjustment that has
material impact on profitability
• IRAS may impose a penalty for missing or inadequate
contemporaneous TP documentation, thereby raising internal
questions about adequacy of tax controls
• IRAS may impose 100%/200% penalties for negligence on TP
adjustment
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
How can we help?
WH
AT TO
D
O N
EXT?
22
• Prepare contemporaneous TP documentation before return filed
(30 November 2015)
• Use documentation preparation as opportunity to critically
review TP methods
• Improve TP methods and reduce TP risk as appropriate
• Quantify TP risk and advise management as appropriate
• Put in place TP review process to periodically track business
changes that affect validity of TP methods
• Update comparables on a regular basis
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Services:
• International & Domestic Tax
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The insight
to be your
trusted
adviser
23
IYER PRACTICE Singapore Transfer Pricing: What do I need to know?
Disclaimer: This presentation of slides is intended as a general guide only, and the application of its contents to specific situations will depend on the particular circumstances
involved. Accordingly, readers should seek appropriate professional advice regarding any particular problems that they encounter, and this presentation should not be relied on as
a substitute for this advice. While all reasonable attempts have been made to ensure that the information contained in this presentation is accurate, Iyer Practice accepts no
responsibility for any errors or omissions it may contain, whether caused by negligence or otherwise, or for any losses, however caused, sustained by any person that relies on it.
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Sanjay Iyer
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Mobile +852 9355 3495
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Singapore 048624
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