Guide to Singapore Transfer Pricing

As a mandatory requirement by IRAS under section 34F of the Singapore Income Tax Act, the Transfer Pricing Documentation is significant for taxpayers.

Taxpayers are required to keep records to prove that their related party transactions are always conducted at arm’s length.

Applicable from Year of Assessment (YA) 2019 onwards, here’s everything you need to know about the mandatory Transfer Pricing Documentation in Singapore.

What is Transfer Pricing?

Transfer pricing refers to the pricing of goods, services and intangibles between related parties. The arm’s length principle has to be adopted for determining the pricing of transactions between related parties. Taxpayers should prepare and keep contemporaneous Transfer Pricing Documentation to show that their related party transactions are conducted at arm’s length.

What is contemporaneous Transfer Pricing Documentation?

Contemporaneous Transfer Pricing Documentation refers to documentation and information that taxpayers have relied upon to determine the pricing of a related party transaction, prior to or at the time of undertaking the transactions with related parties.

The IRAS also accepts Transfer Pricing Documentation as contemporaneous when it has been prepared not later than the due date of filing of the annual tax return for the financial year in which the transactions took place.

Is it mandatory to prepare Transfer Pricing Documentation for a Singapore Company from Year of Assessment 2019?

In 2018, the IRAS made it mandatory for a Singapore Company to prepare Transfer Pricing Documentation. A new section i.e. Section 34F was inserted in the Income Tax Act and is applicable from YA 2019 and every subsequent year of assessment.

What is the threshold to prepare Transfer Pricing Documentation for a Singapore Company?

As per Section 34F, a Singapore entity is required to prepare Transfer Pricing Documentation for a particular financial year, if either of the following conditions are met:

• Gross revenue of the Singapore entity exceeds SG$10million; or
• The Singapore entity was required to prepare Transfer Pricing Documentation in the previous financial year.

What is the penalty for not preparing or retaining Transfer Pricing Documentation?

Taxpayers who do not prepare Transfer Pricing Documentation in accordance with section 34F of the Income Tax Act shall be liable to a penalty up to SG$10,000.

What is the threshold for related party transactions to be exempt from Transfer Pricing Documentation?

• Where the taxpayer transacts with a related party in Singapore, and such local transactions (excluding related party loans) are subject to the same Singapore tax rates for both parties;
• Where a related domestic loan is provided between the taxpayer and a related party in Singapore, and the lender is not in the business of borrowing and lending;
• Where a taxpayer applies the indicative margin for a related party loan not exceeding SG$ 15 million;
• Where the taxpayer applies a 5% cost mark-up for routine services in relation to the related party transactions concerned;

Transfer Pricing audit by the IRAS.

As per Section 34D of the Singapore Income Tax Act, the Comptroller may make adjustment to the income of the Singapore taxpayer if the arm’s length principle has not been followed. In other words, the IRAS, based on the audit of the taxpayer, may make an adjustment to the income of the taxpayer by any of the following ways:

• increase the amount of the income for the year of assessment;
• reduce the amount of the deduction that may be allowed for the year of assessment;
• reduce the amount of the loss for the year of assessment.

Read more about Singapore transfer pricing at Rikvin.com.

A business writer since 1998. He holds a master's degree from Columbia University and a Bachelor of Arts from the University of Alberta.