Singapore is ready for Transfer Pricing. Are you?
Transfer pricing has been a hot-button issue in the Asia Pacific region for the past several years, in view of significant intra-group transactions. As cross-border economic activity rises, tax authorities are sharpening their focus on transfer pricing issues, with new compliance initiatives and growing budgets for investigations. Most of our readers may have an impact of the new transfer pricing regulations in Singapore. So, we thought of sharing an update on the latest developments in Singapore transfer pricing.
Over the years, the groundwork for Singapore transfer pricing legislation was already undertaken through the issuance of the Transfer Pricing Guidelines. In February 2018, the Inland Revenue Authority of Singapore (“IRAS”) adopted the more formal, rule-based regime, by the introduction of formal Transfer Pricing Documentation Rules (“TPD Rules”) and revised Transfer Pricing Guidelines (“2018 TP Guidelines”). In a nutshell, taxpayers should be mindful of the following key changes that may have an impact on their dealings with the intra-group transactions, effective from Year of Assessment (“YA”) 2019.
- The most important requirement is the introduction of Mandatory Transfer Pricing Documentation (“TPD”). Unless certain exemption criteria are met, taxpayers are required to prepare and maintain contemporaneous TPD for each of the related party transaction (“RPT”) in accordance with the TPD Rules.
- IRAS allows taxpayers to use the TPD that has been prepared previously i.e. TPD prepared for the past two YAs that immediately precede the year of preparation, as a qualifying past TPD for the current basis period if the specified conditions are met.
- IRAS has also introduced a 5% surcharge on the amount of TP adjustment made by IRAS. The important point to note is that the surcharge will be levied upon the quantum of adjustment regardless of whether there is tax payable on the adjustments e.g. tax loss position.
- Penalties up to $10,000 can also be levied for non-compliance with the transfer pricing regulations.
Predominantly, in order to satisfy the IRAS and other tax authorities, transfer pricing must generally meet an “arm’s length” standard. In other words, the prices charged in an inter-company transaction must yield results that are similar to what would have occurred if two unrelated parties had engaged in the same transaction under the same circumstances.
Despite the increased scrutiny of transfer pricing, with careful planning, there may be opportunities to manage your company’s tax risks in the event of a TP audit by the IRAS by complying with the TPD rules and preparing the contemporaneous TPD.
This article summarises general guidelines that apply to transfer pricing. The details of the 2018 TP Guidelines can be complicated and extensive. In addition, exemptions and other rules may apply to your business. Taxpayers are encouraged to proactively manage transfer pricing risk to avoid future pitfalls.
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