Transfer pricing (TP) is the pricing of goods, services and intangibles between related parties. IRAS endorses the arm’s length principle as the standard to guide transfer pricing.
While taxpayers apply the arm’s length principle when processing transactions with their related parties, they should also prepare records as evidence that the pricing is at arm’s length; such records are known as TP documentation. In Singapore, it is a must to maintain TP documentation for transactions which exceed certain thresholds. With the adoption of the arm’s length principle, taxpayers and tax authorities will have a common basis to deal with related party transactions.
Though not an Organisation for Economic Cooperation and Development (OECD) member state, Singapore government representatives have in different occasions stated that it will follow the developments and will implement the outcomes of the recently issued OECD report/Base Erosion and Profit Shifting (BEPS) action plans. Singapore will join the inclusive framework for the global implementation of the BEPS project, particularly which profits should be taxed where the real economic activities generating the profits are performed and where value is created. Being a supporter of the key principle underlying the BEPS Project, Singapore does not condone activities aimed at base erosion and profit shifting. Also, Singapore will work with other jurisdictions to help develop the implementation and monitoring phase of the BEPS project.
Under the BEPS project, there are 4 minimum standards, namely: the standards on countering harmful tax practices, preventing treaty abuse, transfer pricing documentation, and enhancing dispute resolution. Singapore is committed to the implementation of these standards. Furthermore, Singapore intends to implement Country-by-Country Reporting (CbCR) for multinational enterprises, for financial years beginning on or after the 1 January 2017.
Singapore’s first Transfer Pricing Guidelines were issued in February 2006. Additional Guidelines on related party loans were issued three years later in February 2009.
Since 2010, Transfer Pricing found its place in (S340) of the Singapore Income Tax Act. Singapore endorses and adopts the OECD principles. The Singapore Transfer Pricing rules include the application of the arm’s length principle for related party transactions.
The IRAS issues regularly updated guidelines as to provide guidance in having contemporaneous records/transfer pricing documentation in place as to provide evidence that the arm’s length principle has been applied on their related party transactions. The latest edition was updated on 12 January 2017.
As commented by our Deputy Prime Minister, Mr Tharman Shanmugaratnam, on the implementation of the BEPS measures, “Singapore is committed to working with the international community to counter artificial shifting of profits, and continues to welcome substantive economic activities. We will be actively involved with the OECD and G20 in ensuring the consistent implementation of the BEPS standards across all jurisdictions, so as to ensure a level playing field.”
Based on the recent announcement in the Singapore Budget Speech on 20 February 2017, Singapore will refine the schemes and implement relevant standards to support the Base Erosion and Profit Shifting project.
To promote your understanding of TP within the region, we have prepared a guide to Transfer Pricing Services in Asia Pacific for download below.