What are Transfer Pricing Rules in Singapore?

What is Transfer Pricing?

The principles and methods of pricing transactions between related parties (including head offices and branches), such as the sale or purchase of products, the provision of services, and the payment for the use or transfer of intangible assets, are referred to as transfer pricing. Pricing between related parties is assessed using arm’s length pricing.

When independent parties transact, the prices are usually close to market price, but this isn’t always the case with related parties. As a result, it is essential for the integrity of the tax system to ensure that the transaction price between related parties approximates the market price.

To reduce the risk of audits and double taxation, taxpayers should ensure that when transacting with their related parties, the transfer price between them is at arm’s length, as if they were unrelated parties negotiating freely. Taxpayers should also maintain proper transfer pricing documentation to demonstrate that the pricing is at arm’s length.

Transfer Pricing documentation requirement:

Tax payer who entered into related party transactions is expected to prepare transfer pricing documentations to show evidence that the transacted price is in line with the arm’s length principle.

IRAS made it mandatory for certain Singapore Companies to prepare Transfer Pricing Documentation in accordance with Section 34F of the Income Tax Act (“TP Documentation Rules”), effective from Year of Assessment 2019.

 

Who must prepare transfer pricing documents?

Taxpayers who meet either of the following conditions must prepare Transfer Pricing documentation for their related party transactions undertaken in a financial year
The tax withheld is a percentage of the gross payment made to the non-resident. The percentage varies depending on the type of payment.

Exemptions from preparing Transfer Pricing documents-

A. Their gross revenue is not more than S$10 million for that basis period and immediate two preceding basis periods and they were required to prepare TP documentation for the two preceding basis periods.

B. Where the taxpayer transacts with a related party in Singapore, such local transactions (excluding related party loans) are subject to the same Singapore tax rates for both parties;

C. When 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;

D. Where a taxpayer applies the indicative margin for a related party loan not exceeding S$15 million;

E. The taxpayer applies a 5% cost mark-up for routine services to the related party transactions concerned;

F. Where the related party transactions are covered by an agreement under an Advance Pricing Agreement Arrangement;

G. The value or amount of the related party transactions (excluding the value or amount in sub-paragraphs (b) to (f) above) that have been disclosed in the current year’s financial accounts do not exceed the thresholds specified in the following table:

Category of Transactions Value ( $ million)
Purchase/sale of goods 15
Loan given/availed 15
All other related party transactions 1
Deadline for preparation of transfer pricing documentation

Transfer pricing documentation should be prepared by the filing due date of the tax return of the company to be accepted by IRAS as contemporaneous. Transfer pricing documentation for the financial year should be completed latest by the time of lodgement of the tax return, i.e. 30 November.

Get Expert Assistance in Transfer Pricing Documents

 

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

IRAS imposes penalties for (1) non-compliance with arm’s length principle and (2) non-compliance with transfer pricing documentation requirements.

5% Non-compliance with arm’s length principle surcharge on TP adjustments regardless of whether there is tax payable.

Non-compliance with transfer pricing documentation of S$10,000.
Transfer Pricing specialists at Nexia Singapore PAC can walk you through the procedure step-by-step and ensure you comply with transfer pricing rules.

Want assistance in preparing Transfer Pricing documents?

Frequently Asked Questions

Transfer pricing refers to rules and methods for pricing transactions like sale or purchase of goods,provision of services and payments for the use or transfer of intangible assets between related parties.In order to assess pricing between related parties the concept of arm’s length pricing is used.

Taxpayers in Singapore are required to prepare transfer pricing documentation under Section 34F of the Income Tax Act. In other words, transfer pricing documentation is mandatory in Singapore.

Taxpayers who do not prepare Transfer Pricing documents shall be liable to a penalty up to $10,000.The IRAS will make upward transfer pricing adjustment if it is found that taxpayers have understated their profits through improper transfer pricing.

If a company fails to file and pay withholding tax by the due date, IRAS will issue a Demand Note and assess a 5 per cent penalty. Penalties apply if the withholding tax is not paid within 30 days of the due date on the Demand Note. If you do not pay the tax and penalty by the due date specified in the Demand Note, you will incur an additional penalty of 1 per cent for each month you are late (subject to a maximum of 15 per cent).

Companies in such sectors may shift their operations to countries with less stringent carbon prices, resulting in job losses without benefitting the climate. To avoid such a scenario, the Government has rolled over a transition framework wherein allowances are provided for part of companies’ emissions, based on efficiency standards and decarbonization targets.

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