Transfer pricing - Singapore

Singapore’s transfer pricing (“TP”) legislations are contained in Sections 34D, 34E and 34F of the Singapore Income Tax Act (“SITA”) and subsidiary legislation comprising the Income Tax (Transfer Pricing Documentation) Rules 2018 and the Income Tax (Transfer Pricing Documentation) (Amendment) Rules 2024 (“TPD Rules”).

These rules apply to Singapore taxpayers, including Singapore branches of overseas companies, that entered into a related party transaction. The Inland Revenue Authority of Singapore (“IRAS”) first issued its TP Guidelines (TPG) in 2006 with subsequent revisions in 2015, 2016, 2017, 2018, 2021, and most recently, 2024.

In response to Organisation for Economic Co-operation and Development’s (“OECD”) Base Erosion and Profit Shifting Project, Singapore gazette the Income Tax (International Tax Compliance Agreements) (Country-by-Country Reporting) Regulations 2018 on 5 February 2018.

The Country-by-Country Reporting (“CbCR”) rules apply to Singapore-resident ultimate parent entities with consolidated group revenue of at least S$1.125b in the preceding financial year. The IRAS released the initial CbCR guidelines in 2016, with updates issued in 2017, 2018 and 2022.

While the Singapore TPG broadly endorse the principles set out in the OECD TP Guidelines for Multinational Enterprises and Tax Administrations 2022 (“OECD TPG”), the IRAS expects taxpayers to adhere to guidance that is specifically addressed in the Singapore TPG. This includes, but not limited to, the process of advance pricing arrangement and mutual agreement procedure, the use of certain profit level indicators and handle of pass-through cost, indicative margins for related-party loans, year-end true up adjustments, etc.

The Singapore TPG requires adopting the TP method that is the most appropriate or best suited to the circumstances in ascertaining the arm’s length nature of the related party transactions.

While the arm's length principle is typically applied on a transaction-by-transaction basis, the IRAS accepts the use of an aggregated approach where transactions are highly interrelated and independent parties in comparable circumstances would typically price such transactions on an aggregate basis.

The five internationally recognised TP methods are Comparable Uncontrolled Price Method, Resale Price Method, Cost Plus method, Transactional Net Margin Method, and Profit Split Method.  Other methods or a combination thereof may be used if they are justifiable and appropriate.

Singapore operates a self-assessment regime, placing the responsibility on taxpayers to ensure compliance with TP rules.

Although submission of TP documentation with tax returns is not required, documentation must be prepared contemporaneously and dated accordingly. "Contemporaneous" means the documentation must be completed no later than the filing due date of the relevant tax return.

Additionally, Singapore taxpayers must complete the Form for Reporting Related Party Transactions as part of their corporate income tax return if the total value of related party transactions disclosed in their financial statements exceeds S$15 million for the financial year.

Under Section 34F of the SITA, taxpayers who engage in related party transactions and do not qualify for exemptions under the TPD Rules are required to prepare and maintain contemporaneous TP documentation.

Although not required to submit the documentation with their tax return, taxpayers must retain it for at least five years and provide it to the IRAS within 30 days upon request.

The Singapore TP documentation requirements align broadly with the OECD Master File and Local File structure. It should include a group and entity overview, a functional analysis (covering key functions, assets, and risks), a description of related party transactions (unless exempted), an industry analysis, and an economic analysis substantiating the arm's length nature of the transactions.

Furthermore, must review and update their TP documentation annually. To ease compliance, the TPD Rules allow taxpayers to use past TP documentation for up to two basis years, provided that all prescribed conditions are met. 

There is no requirement to prepare OECD-format Master and Local File. That being said, the content requirements for a Singapore TP documentation are broadly aligned with the content prescribed in Annexes I and II of the OECD TPG. Hence, preparing a OECD Local File does not fully satisfy the requirements under the TPD Rules. 

The IRAS adopts a risk-based approach to audit selection, often supported by data analytics and, at times, informant tip-offs. Common risk factors for TP reviews include:

• Significant cross-border or domestic transactions with related parties that enjoy preferential tax treatment.
  
  
• Recurring losses or substantial fluctuations in profitability inconsistent with the taxpayer’s risk profile.
  
  
• Inconsistent application of stated TP policies.  
  
  
• Transactions involving intangibles or intellectual property development, enhancement, maintenance, protection, or exploitation.
  
  
• Documentation or analysis that disregards guidance outlined in the Singapore TPG. 

Failure to comply with TP documentation requirements under Section 34F (8) of the SITA can result in penalties of up to S$10,000. The following are instances of non-compliance:

• Failing to complete TP documentation by the time of the making of the tax return;
  
  
• Not preparing TP documentation based on the content requirements under the TPD Rules;
  
  
• Failing to retain the TP documentation for a period of 5 years;
  
  
• Not submitting the TP documentation within 30 days of a written request by the IRAS; or
  
  
• Providing any documentation or information that the taxpayer knows to be false or misleading.

Additionally, unless certain conditions are met and at the discretion of IRAS, a 5% surcharge will be imposed under Section 34E of SITA on any TP adjustment made by IRAS under Section 34D of SITA or on a self-initiated adjustment voluntarily disclosed by taxpayer that increases the amount of income, reduces the amount of deduction/allowance or reduces the amount of loss. This surcharge is applicable regardless of whether additional tax is payable as a result of the adjustments and must be paid within one month from the issuance of the surcharge notice.

IRAS accepts economic analyses that are systematic, objective, and consistent with the OECD TPG. That being said, the IRAS outlined some of its expectations via circulars/guides in undertaking the economic analysis (not exhaustive), as follows:

• Reliance on publicly available and verifiable information.
  
  
• Use local comparable. Foreign comparable may be used when taxpayers can demonstrate no reliable local comparable.
  
  
• Conditions for the use of certain profit level indicators and handle of strict pass-through costs.  
  
  
• Use multiple-year data to establish the arm’s length range.
  
  
• Exclude comparable companies that were in a loss-making position under certain conditions.
  
  
• Expectations on comparability adjustments in the financial analysis.
  
  
• Application of annual testing to ascertain the arm’s length outcome.
  
  
• Use the interquartile range (i.e., 25th percentile to 75th percentile) as an indication of the arm’s length range. A full range should only be used restrictively and cautiously when taxpayers can demonstrate that all the data points in the range are equally reliable. 

• Dispute prevention
  
  Singapore offers an APA program and actively engages in bilateral APA discussions with treaty partners. Bilateral APAs typically cover three to five future financial years, and rollback of up to two prior years may be allowed.
  Unilateral APAs are generally discouraged due to lower assurance levels. Where Singapore lacks a treaty with the counterparty jurisdiction, such applications are handled under the Advance Ruling System and are subject to charges. No rollback is available in these cases.
  
  
• Dispute resolution
   
  Taxpayers may pursue domestic remedies or initiate a Mutual Agreement Procedure (“MAP”) if the counterparty is a treaty partner. Requests for MAP are evaluated on a case-by-case basis, considering whether double taxation has occurred and whether sufficient documentation is available. MAP requests must be submitted within the time limit stipulated in the relevant tax treaty.
  
  Please note that if the matter has been subjected to litigation and determination by the Singapore tribunals and courts, IRAS is unlikely to make adjustments that will be at odds with the determination by the Singapore tribunals and courts.

While Section 34F of SITA requires TP documentation for related party transactions, the TPD Rules provide exemptions under specific conditions:

• General exception
  • Annual gross revenue from trade or business for the basis period concerned does not exceed S$10 million; and
    
    
  • The entity was not required to prepare TP documentation under Section 34F for the immediate preceding year.
• Specific exception
  
  An entity is required to prepare TP documentation if it fails the general exception mentioned above. However, such entities may avail certain specific/transaction exemption thresholds specifically codified as follows:
  • Related party domestic transactions (excluding related party loan) that are subject to the same tax rate or are both exempt from tax ;
    
    
  • Related party domestic loans that were entered into before 1 January 2025. Thereafter, the application of IRAS’ indicative margin will be required as part of the qualifying condition. This condition is not applicable to taxpayers who are engaged in the business of borrowing and lending money;
    
    
  • Related party loans, each not exceeding S$15 million, to which the IRAS’ indicative margin is applied;
    
    
  • Routine support services on which a 5% cost mark-up on fully loaded costs is applied. The TPD Rules list out the specific services that can be considered “routine support services";
    
    
  • Related party transaction covered by an APA; or
    
    
  • Related party transactions not exceeding the thresholds in following table:
    
    Type of transaction
    
    • Purchase of goods from related parties
      • Threshold per financial year (S$)
        • YA 2025 and before: 15 million
        • YA 2026 and onwards: 15 million
    • Sale of goods to related parties
      • Threshold per financial year (S$)
        • YA 2025 and before: 15 million
        • YA 2026 and onwards: 15 million
    • Loan granted to related parties
      • Threshold per financial year (S$)
        • YA 2025 and before: 15 million
        • YA 2026 and onwards: 15 million
    • Loan granted from related parties
      • Threshold per financial year (S$)
        • YA 2025 and before: 15 million
        • YA 2026 and onwards: 15 million
    • All other categories of related party transactions
      Examples: 
      •    Provision of service
      •    Receipt of service
      •    Grant of right to use property or lease
      •    Receipt of right to use property or lease
      •    Guarantee provided
      •    Guarantee received
      •    Any other transaction.
      
      • Threshold per financial year (S$)
        • YA 2025 and before: 1 million per category of transaction on an aggregated basis
        • YA 2026 and onwards: 2 million per category of transaction on an aggregated basis.

It is important to note that an exemption from preparing TP documentation under Section 34F of SITA or the TPD Rules does not shield taxpayers from scrutiny by the IRAS. IRAS retains the right to request supporting information to assess the arm’s length nature of related party transactions and may impose TP adjustments where appropriate.

Accordingly, all related party transactions, irrespective of the transaction value, must be defensible and demonstrably conducted on an arm’s length basis. Taxpayers should carefully assess their TP risks before opting for the administrative convenience of relying on the TP documentation exemption.

IRAS continues to place strong emphasis on compliance through targeted TP audits and routine corporate income tax audits. In recent years, we have observed that many TP audits are initiated in the course of routine corporate income tax audits and often involve transactions that fall within the thresholds for documentation exemption. This underscores the importance of maintaining robust internal justifications and being prepared to demonstrate that related party transactions are conducted in accordance with the arm’s length principle, even where taxpayers qualify for an exemption from preparing TP documentation under Section 34F of the SITA or the TPD Rules.

Beyond the Singapore TPG, IRAS has also issued supplementary circulars and guidance on specific areas of focus. These include:

• 24 May 2019 - Commodity marketing and trading activities;
  
  
• 19 March 2021 – Centralised activities in Multinational Enterprise Groups.