Income Tax – Transfer Pricing Guidelines (4th Edition)


IRAS issued the fourth edition of the Transfer Pricing Guidelines (TPG) on 12 January 2017.   The following amendments to the TPG  have been made in this edition:

Enhancement on arm’s length principle and functional analysis

  • Profits should be taxed where the real economic activities generating the profits are performed and where value is created. IRAS has provided guidance on the functional analysis of functions performed, assets used and risks assumed  (FAR) in this guideline with examples.

Enhancement on guidance on TP documentation

  • Amendment to make reference to the e-Tax Guide on Country-by-Country Reporting
  • Amendment to include APAs and other tax rulings in the TP documentation at Group Level and Entity Level.
  • Where taxpayer applies the indicative margin for related party loans.

Enhancement on the guidance on MAP and APA

Indicative margin for related party loan obtained or provided from 1 Jan 2017 onwards

  • The indicative margin is published on IRAS’ website and will be updated at the beginning of each year.
  • The indicative margin is not mandatory. It gives taxpayers an alternative to performing detailed transfer pricing analysis on their related party loans.
  • Taxpayers may adopt a margin that is different from the indicative margin. This should be supported based on the guidance provided in this section to determine the arm’s length interest rates.
  • Taxpayers can choose to apply the indicative margin to each related party loan that does not exceed S$15 million at the time the loan is obtained or provided. The threshold is based on the loan committed and not the loan utilised.
  • The indicative margin is applicable to both Singapore-dollar denominated and foreign currency denominated related party loans. For related party loans denominated in foreign currencies, the threshold (in Singapore dollars) is to be determined based on the prevailing exchange rate at the time the loans are obtained or provided.
  • For fixed rate related party loans, taxpayers can apply an appropriate swap rate as the base reference rate. For fixed rate related party loans denominated in Singapore dollars, besides an appropriate Singapore dollar swap rate, taxpayers can consider applying an appropriate Singapore Government Securities (“SGS”) yield17 as the base reference rate.
  • For floating rate loans, some examples of base reference rates include the SIBOR and LIBOR.
  • If taxpayers choose to apply the indicative margin for their related party loans, they are not expected to prepare TP documentation under section 6 for such loans. Such loans will also be excluded from the loan threshold of S$15 million under paragraph 6.19(f).

If you have any questions regarding the above, please contact support@whm-consulting.com.

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