Updates On Singapore Transfer Pricing Guidelines
The Inland Revenue Authority of Singapore (“IRAS”) has published the 7th edition of its Transfer Pricing Guidelines (referred to as “TPG6” and “TPG7” for the 6th and 7th edition, respectively) on 14 June 2024. The new edition provides updates and additional transfer pricing (“TP”) guidance in several areas, including TP documentation, TP enforcement and audit, as well as additional guidance in other areas. Singapore’s Transfer Pricing Documentation (“TPD”) Rules have also been amended to reflect the changes in the TPG7.
We have highlighted the key considerations that companies should keep in mind and prepare for in the upcoming financial year.
1. Increased threshold for exemption from mandatory TPD
[Updated Para 6.18(g), Table 2 and Appendix A (Illustration 4)]
The threshold for exemption from TP documentation has been updated as follows:
2. New exemption rules for related party domestic loans
[Updated Para 6.18 (c) and Paras 15.15, 15.18 and 15.63)]
Loans between related parties in Singapore (domestic loans) entered into or re-financed on or after 1 January 2025 will require arm’s length interest rates, even where the lender and the borrower are not in the business of borrowing and lending. IRAS will discontinue the practice of limiting lenders’ interest deductions as a proxy for the arm’s-length principle for any related-party domestic loan entered on or after 1 January 2025.
For any related-party domestic loan entered on or after 1 January 2025 (where neither party to the loan is in the business of borrowing and lending), the parties to the loan may choose to either apply the IRAS indicative margin to derive the interest rate or determine the interest rate based on the arm’s-length principle. To ease compliance burden for such taxpayers, the IRAS indicative margin can be used even where the domestic loans exceed S$15 million.
3. TP Documentation for long term loans
[Updated Section 6, Appendix B (new FAQ 7)]
The IRAS clarifies that the need to review and refresh TP documentation applies to long term loans with related party, just like any other related party transactions. This is because the facts and circumstances relating to tax payer and the related party in relation to the long-term loan may change over time. To ease compliance, the taxpayer may consider preparing simplified TP documentation if the conditions are met.
4. Declaration date required for simplified TPD
[Updated Paras 6.35 and 6.40(b) and Appendix B (FAQ 1)]
IRAS generally allows taxpayers to leverage on the TPD report prepared for the first year as Qualifying Past TPD (“QTPD”) to prepare Simplified TPD for the next two years, subject to certain conditions being met. Taxpayers must date the Simplified TPD prepared (i.e. specify the date on which the declaration for QTPD is made) as part of the conditions for using the first year’s TPD as QTPD.
5. Contemporaneous TP documentation
[Updated Section 6, Appendix B (new FAQ 8)]
In the TPG6, the IRAS indicated that taxpayers may make adjustments if they consider their taxable profit to be understated.
In the TPG7, a newly added FAQ 8 explains that IRAS considers the additional details or analysis that you submitted in 2024 to support or further explain the position covered in your TP Documentation for FY 2022 as contemporaneous unless those details are relating to subsequent developments or the analysis is conducted with hindsight.
6. Government assistance
[New Section 18]
The additional guidance aligns with previous guidance from the IRAS and provides insight into how the IRAS would consider:
- the receipt of government assistance in a related-party transaction; and
- the relevant comparability analysis for arriving at the arm’s-length price.
With the introduction of refundable investment credit, the additional guidance is a timely clarification. It also illustrates how a comparability analysis should be conducted when government assistance is received.
7. Guidance on base reference rates with IBOR reform
[Updated Section 15, Paras 15.40 to 15.47, 15.58 and 15.59]
The TPG7 additionally includes high-level guidance on the transition from interbank offered rates (“IBORs”) loans into risk-free rates (“RFRs”) loans. Specifically, IRAS clarifies that when taxpayers make changes to their existing related party IBORs-based loans in response to the IBOR reform and in accordance with the relevant guidance, IRAS will consider such changes at arm’s length. However, where the changes went beyond those expected under the IBOR reform and the relevant guidance, IRAS may consider if any refinancing is involved such that a new loan has been issued.
In addition, since RFRs are not economically the same as IBORs, taxpayers with related party loans using RFR as the base rate may need to consider if a spread adjustment is necessary to factor in any economic difference between the RFRs and the corresponding IBORs.
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