Income Tax – Revised Transfer Pricing Guidelines (5th Edition)

The Inland Revenue Authority of Singapore (“IRAS“)  has issued the fifth edition of the Transfer Pricing Guidelines on 23 February 2018 and we summarise below the major amendment to the e-Tax Guide as follows:

  1.  Additional guidance on related parties for the Singapore Permanent Establishment (“PE”)

The IRAS has clarified that for the purpose of attributing profits to the Singapore PE, the Singapore PE and other PEs outside Singapore of the non-resident person would be considered realted parties and therefore, the arm’s length principle applies to them when attributing profits to the SIngpaore PE.   The profits to be attributable to the Singapore PE will be based on the profits that PE would have derived if it were to be a separate and independent enterprise engaged in the same or similar activities under the same or similar conditions.

2.  Arm’s length adjustment by IRAS – Section 34D(1A) of the ITA

Paragraphs 5.117 to 5.124 have been inserted in which to explain how IRAS were to be effected the transfer pricing adjustment pursuant to Section 34D(1A) of the ITA.   Take note:

  • Once a TP adjustment is made, the amount of income increased is treated as accruing in or derived from Singapore or received in Singapore from outside Singapore.  If such an adjustment involves reducing a loss, the amount of loss reduced is treated as not having been incurred.
  • Where a taxpayer engages in a transaction with its related party that independent parties would not undertake, IRAS would not disregard the transaction merely because the transaction may not be seen between independent parties without considering if the transaction has characteristics of an arm’s length arrangement.
  • IRAS would disregard an actual related party transaction or replace it with an alternative transaction only in exceptional circumstances where: (a) the arrangements made in relation to the transaction lack the commercial rationality that would be agreed between independent parties under comparable circumstances; and (b) the arrangements prevent determination of a price that would be acceptable to both of the parties taking into account their respective perspectives and the options realistically available to them at the time of entering into the transaction.

3.  TP Documentation Requirement has been rewritten

Paragraph 6 of the Guidelines has been rewritten due to the insertion of the new provision under Section 34F of the ITA.

4.  Application of arm’s length principles for re-financing

For TP purposes, the IRAS considers a new loan from a related party will be obtained with the refinancing or extension of the tenture of the existing loan.  In such a case, the taxpayer is required to establish the arm’s length terms and interest rate for the new loan following the guidance nd prepare TP documentation accordingly.

5.   TP Surcharge and Penalty

The IRAS has provided explanations and examples of how the TP surcharge and penalty are imposed pursuant to Section 34E of the ITA.


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