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Singapore updates its transfer pricing guidelines

January 19, 2015



The Singapore revised transfer pricing (TP) guidelines, published January 6 2015, require taxpayers to prepare and maintain contemporaneous TP documentation to support TP positions and have this in place by the time the company’s tax return is filed.

The TP guidelines expand on the original 2006 Singapore TP guidelines and Section 34D of the Singapore Income Tax Act on transactions not at arm’s-length and address details that were not previously discussed.

The TP guidelines, published by the Inland Revenue Authority of Singapore (IRAS), prescribe certain exceptions for the preparation of contemporaneous documentation including the introduction of specific thresholds for types of related party transactions.

Specifically, the TP guidelines exempt taxpayers with sales, purchases or loan transactions below SGD 15 million ($ 11 million) or services and royalties transactions below SGD 1 million.

There is no requirement for Singapore taxpayers to submit TP documentation with their tax returns or other common types of disclosures/reporting. Instead the TP guidelines require that documentation should be dated when prepared and submitted to the IRAS within 30 days upon request.

Definition of contemporaneous

The IRAS definition refers to documentation and information that taxpayers have relied upon to determine the transfer price before, or at the time of, undertaking the transactions. However, for ease of compliance, IRAS will also accept as contemporaneous TP documentation any documentation prepared at any time no later than the time of completing and filing the tax return for the financial year in which the transaction takes place.

In a release, after the guidelines were issued, the IRAS clarified that the contemporaneous requirement is not intended to be prescriptive and that taxpayers should “exercise their best judgment to determine the most appropriate time for preparing TP documentation within the above timeframe”.

The IRAS also clarified that the TP guidelines provide examples where taxpayers may use the latest available information for comparability analysis and allows information available up to the time the income tax returns are due for the financial year.

This also means that if the IRAS requests TP documentation six months after the time tax returns are due, taxpayers need not update the documentation prepared in the event further updated information becomes available in the interim.

Consequences of incomplete documentation

In absence of complete documentation, IRAS may not be as supportive of the TP positions taken by the taxpayer.

In the case of double taxation, the IRAS may not support the taxpayer’s request for a mutual agreement procedure (MAP). Similarly for an advance pricing agreement (APA), the IRAS may not accept an APA application if the taxpayer did not meet TP documentation requirements.

Lastly, should taxpayers make self-initiated TP adjustments, the IRAS may not accept such adjustments in the absence of contemporaneous TP documentation.

With regards to a Singapore taxpayer earning interest income abroad which is not remitted into Singapore (and hence not taxed locally), the IRAS cautions taxpayers to be mindful of TP risks in jurisdictions where the interest income is held. In the absence of TP documentation substantiating that the interest is determined at arm’s-length, IRAS clarified in the same release, after issuing the TP guidelines, that it would not support taxpayers in MAP discussions to resolve double taxation should the foreign jurisdiction make an adjustment.

TP adjustments

Four types of TP adjustments are provided in the TP guidelines. The most common type of TP adjustments for taxpayers are year-end adjustments, which refer to adjustments made before closure of accounts. The IRAS will tax upward adjustments and allow downward adjustments (provided certain conditions are met).

Compensating adjustments and corresponding adjustments are those that relate to APA and MAP respectively. For these two types of adjustments, the IRAS will tax upward adjustments and allow downward adjustments based on the negotiated APA or MAP pricing outcome.

The last type of adjustment - self-initiated retrospective adjustments - is one of the distinguishing features of Singapore’s approach and encourages taxpayers to look proactively at their TP positions.

These are self-initiated adjustments arising from taxpayers’ review of their past TP practices. In this case, the IRAS will tax upward self-initiated adjustments and allow downward self-initiated adjustments (provided contemporaneous TP documentation is available for downward adjustments).

By: Luis Coronado and Henry Syrett, Transfer Pricing Services Partners at Ernst & Young Solutions LLP