Is your firm is doing business in Singapore? Then it is important to understand the details of transfer pricing in Singapore.
After reading this article, you will understand exactly what transfer pricing requirements there are, the risks for your firm, and how you can make sure you stay compliant with the rules.
What you need to know about transfer pricing in Singapore
Low taxation, flexible rules and ease of doing business have turned Singapore into one of the richest countries in the world in one generation. The Singaporean tax office, the Inland Revenue Authority of Singapore (IRAS), has always been mindful of this position.
Compared to other developed nations, there wasn’t much focus on transfer pricing rules. However, this is changing, mainly because of BEPS developments.
The attitude of Singapore towards transfer pricing
Overall, there is a low to moderate risk of a transfer pricing audit in Singapore. Especially, when compared to some other Asian countries.
However, the level of scrutiny by the IRAS is increasing. By introducing new transfer pricing regulations in January 2015, and releasing updates just one later year in January 2016, the IRAS signals a commitment to global transfer pricing standards.
As an indication of the seriousness of the IRAS, there have been cases where the IRAS reminded taxpayers to submit transfer pricing documentation one day after the deadline for doing so.
In short, if your firms’ multinational activities involve Singapore, not having a transfer pricing policy is no longer an option.
When are you at risk?
To understand which activities are likely to attract an audit, you just need to look at the bigger picture. Singapore is one of the largest financial centres in the world. In addition, it is a prime location for regional and head offices of large multinationals. Next to that, there is no large scale manufacturing taking place.
It is therefore logical that the focus is on financial transactions and the invoicing of management fees and other inter-company services (like accounting). The IRAS may review transfer pricing as part of a general tax audit or in a separate transfer pricing consulting program.
For the IRAS to accepts a transfer price for management services performed in Singapore, it has to be made clear that the service is performed for the benefit of the payer. Next to that, the transfer pricing has to reflect at least a 5% profit of the total cost of services.
Financial transaction scrutiny focusses in particular on the funding of regional related parties and subsidiaries by Singaporean headquarters or holding companies. Therefore, it is important that the interest rates and terms and conditions agreed upon are set on an arm’s length basis and the paperwork is fully in order.
What are your obligations in Singapore?
The 2016 Singapore Transfer Pricing Guidelines indicate that taxpayers should prepare and maintain contemporaneous transfer pricing documentation. The goal is, just like in other countries, that you implement an ongoing transfer pricing strategy. You have to calculate the prices when they happen, not at the end of the year or at the time of an audit.
Taxpayers are not required to submit their transfer pricing documentation when they file their tax returns. However, taxpayers should keep their transfer pricing documentation on file and provide it to the IRAS within 30 days upon request.
If you have prepared transfer pricing documentation, do note that the documentation needs to be updated at least once every three years. A financial update of benchmarks should be done annually.
There are Singapore dollar value thresholds for related-party transactions that require the preparation of transfer pricing documentation.
These thresholds are:
- 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 have a threshold of 1 million SGD. Examples:
- Service income
- Service payment
- Royalty income
- Royalty expense
- Rental income
- Rental expense
In addition, documentation is not required for standard domestic transactions or standard mark-ups of services.
Transfer Pricing Documentation
In Singapore, transfer pricing documentation has to be organised at both group and entity level.
The group level documentation should include:
- General information on the group as at the end of the financial year.
- Description of the groups business relevant to the Singapore taxpayer for the financial year
- The groups financial position for the financial year
The entity level documentation should include:
- General information on the Singapore taxpayer as at the end of the financial year
- Description of the Singapore taxpayer’s business for the financial year
- Transactions between the Singapore taxpayer and related parties subject to transfer pricing documentation for the financial year
- Transfer pricing analysis / benchmarking
The language for documents is English.
What penalties do you risk when not complying with the rules?
Singapore does not have specific transfer pricing penalties. However, in case of record keeping requirements the IRAS can invoke penalty provisions under Sections 65, 65A and 65B of the SITA. This can result in a fine of up to SGD 1.000.
In addition, under section 95 of the SITA, penalties of up to 100% to 200% of the tax underpaid may be imposed. In addition, a fine of up to SGD 5,000 or imprisonment of up to 3 years is part of the arsenal. Cases of tax evasion attract more severe penalties.
Penalties may also apply if taxpayers fail to provide transfer pricing documentation upon request.
Do you want to be sure about your transfer pricing in Singapore?
Do you want to be sure that your transfer pricing policy is compliant with regulations in Singapore? Does your firm have inter-company transactions and do you want to be sure you charge the right prices?
…Then you have come to the right place.
We are Transfer Pricing Asia, a boutique transfer pricing firm based in Asia. We assist multi-nationals en medium sized businesses with all matters related to transfer pricing.
Relevant regulations and rulings
Taxing authority: Inland Revenue Authority of Singapore (IRAS)
Tax law: Singapore Income Tax Act
On 16 June 2016, the Ministry of Finance (Singapore) announced that it will join the framework for the global implementation of the OECD BEPS project. As part of the proposed implementation of Action 13, Singapore will implement Country by Country Reporting for financial years beginning on 1 January 2017 for Singapore-headquartered multinational enterprises with revenues exceeding SGD1.125 billion (EUR 750 million).
On 4 January 2016, the IRAS issued the third edition of its transfer pricing guidelines to provide further clarity of the cost-plus method, MAPs and APAs.
On 6 January 2015, the IRAS issued the second edition of its transfer pricing guidelines (2015 Singapore Transfer Pricing Guidelines). It consolidates four previous e-tax guides.
Section 34 D of the 2009 Singapore Income Tax Act relates to transfer pricing and empowers the IRAS to make transfer pricing adjustments in cases where a Singapore taxpayer’s transfer pricing practices are not consistent with the arm’s-length principle.
Transfer pricing guidelines for related-party loans and related-party services, published 23 February 2009
Transfer pricing consultation, published 30 July 2008
Supplementary administrative guidance on APAs, published 20 October 2008
Transfer pricing guidelines, published 23 February 2006
The 2016 Singapore Transfer Pricing Guidelines are generally consistent with the OECD Guidelines. The principles and transfer pricing methods set out in the OECD Guidelines are acceptable in Singapore.
However, there are a few differences between the OECD Guidelines and the 2016 Singapore Transfer Pricing Guidelines. In particular, if related parties have a cost-pooling arrangement.