Category Archives: Transfer Pricing

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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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

Income Tax – Mutual Agreement Procedure

On 12 January 2017, IRAS has updated the content on Mutual Agreement Procedure (MAP) on its website and provided the following information:

  1.  What is MAP?
  2. Who can apply for MAP?
  3. When to apply for MAP?
  4. How to apply for MAP?

In summary, MAP is a dispute resolution mechanism provided under the MAP Article in our Double Taxation Agreements (DTA), in which to allow IRAS and the competent authority (CA)  of another contracting state to resolve disputes regarding the DTA application.

If you are a Singapore tax resident who suffers double taxation due to the transfer pricing adjustments effected by IRAS or a foreign CA, it is possible to request IRAS to resolve the dispute through a MAP. MAP is also available to a Singapore branch of a foreign company provided the MAP application is made in the jurisdiction in which the foreign company resides and it has concluded a DTA with Singapore.

If you have any questions regarding the above, please contact




Income Tax – New Related Party Transaction Reporting Requirement (Effective from YA 2018)

With effect from Year of Assessment (“YA“) 2018, IRAS will be introducing a new Related Party Transaction (“RPT“) reporting requirement for companies which would assist IRAS in better assessing their transfer pricing risks and enforcing the arm’s length requirement.

New Reporting for RPT

Keeping in mind the additional compliance costs, companies are required to complete a new Form for Reporting of RPT (“RPT Form“) only if the value of RPT exceeds S$15 million.  A company which meets the reporting criterion would need to state in its Form C whether the value of RPT as disclosed in its accounts exceeds S$15 million and if so, it is required to complete and submit the RPT Form together with its income tax returns for the relevant YA.

The Basis of Determining the Threshold

The value of RPT as disclosed in the accounts is the aggregate of

a. All amounts of RPT as reported in the Income Statement but excluding compensation paid to key management personnel and dividends; and

b. Year-end balances of loans and non-trade amounts due to/ from all related parties.

What are the items to be reported in the RPT Form?

The values of the following categories of RPT are to be reported in the RPT Form:

  •  Sales and purchases of goods
  • Services income and expense
  • Royalty and license fee income and expense
  • Interest income and expense
  • Other income and expense
  • Year-end balances of loans and non-trade amounts

In the case of a company with cross-border related party sales or purchases of goods and services, it has to list the top 5 foreign related parties that it transacts with (by the value of sales or purchases respectively) and provide their entity details including entity names, countries, relationship and amounts transacted.

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Income Tax – Country-by-Country Reporting

The IRAS issued the  e-Tax Guide on Country-by-Country Reporting (“CbCR’) on 10 October 2016 to provide taxpayers with guidance on the purpose of CbCR and the obligation to provide a CbC Report; and also how to complete and submit a CbC Report to IRAS.

As previously mentioned by IRAS, CbCR is compulsory to Singapore MNE group with international operations and annual group revenue of at least S$1,125 million (i.e. EUR750m).

1 Singapore will be introducing legislation for CbCR. The public consultation on draft Income Tax (Amendment) (No. 3) Bill 2016 was carried out from 8 July to 29 July 2016. The Bill will be introduced to parliament in 2016. This e-Tax guide provides administrative guidance for the implementation of CbCR.

IRAS’ Transfer Pricing Guidelines require taxpayers to organise their transfer pricing documentation at Group level and Entity level.

4.2 CbC Reports are supplementary to such transfer pricing documentation.


4.3 A CbC Report requires aggregate tax jurisdiction-wide information relating to the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which the reporting MNE group operates. The report also requires a listing of all the entities (including permanent establishments) for which financial information is reported, including the tax jurisdiction of incorporation, where different from the tax jurisdiction of residence, as well as the nature of the main business activities carried out.

What is a CbC Report?

A CbC Report is used for high-level transfer pricing risk assessment purposes by tax authorities in evaluating other BEPS related risks and where appropriate for economic and statistical analysis.  IRAS has clarified that the information in the CbC Report

  • should not be used as a substitute for a detailed transfer pricing analysis of individual transactions and prices based on a full functional analysis and a full comparability analysis;
  • on its own does not constitute conclusive evidence that transfer prices are or are not appropriate; and
  • should not be used by tax administrations to propose transfer pricing adjustments.

What is the format of a CbC Report?

IRAS has stated that a CbC Report must be submitted in accordance with the template in the Annex to the e-Tax Guide.  It comprises three tables:

The first table

  • provides an overview of income, taxes, employees and assets of the MNE group allocated to the different tax jurisdictions that the group operates in, i.e. each line reports the aggregated numbers relating to a particular tax jurisdiction.  For example, if an MNE group has income arising from three jurisdictions, this table will show three lines – one for each jurisdiction.

The second table

  • provides an overview of the entities (including permanent establishments) of the MNE group, again organized according to the tax jurisdictions that the entities are tax resident in. The main business activities of each entity are also indicated. Dormant entities must also be included in this table.

The third table

  • allows the MNE group to provide any additional information that it feels would be relevant and useful to interpret or understand the data provided in the CbC Report.

Submission of CbC Reports

IRAS is currently developing e-services for receiving and sending CbC Reports with a sufficient level of encryption. As the first CbC Reports will be required for data for FY 2017, and a Reporting Entity will have 12 months from the end of a financial year to submit the CbC Report for that financial year, the earliest CbC Report required to be submitted to IRAS would be due by 31 December 2018 (for a financial year ending on 31 December 2017).

Based on available information, IRAS will identify taxpayers affected by CbCR and provide further information on the submission of CbC Reports in the first half of 2018.  Any taxpayer who believes that it will be required to file a CbC Report may also contact IRAS to find out more about CbCR. In the event that the taxpayers did not submit the CbC report, they may be penalized under Section 105M of the ITA.

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