Transfer Pricing in Singapore
On 23 February 2006, Singapore introduced its first comprehensive guidance on transfer pricing. This came more than a decade after the OECD had published its guidelines in 1995. Although the Inland Revenue Authority of Singapore (IRAS) insists it applied the arm’s length principle (ALP) the entire time through Singapore’s tax treaties, the guidance was the country’s first attempt to create a TP culture of its own.
Indeed, IRAS had previously handled numerous transfer pricing cases before 2006, arising from the treaty obligations – this was especially relevant to cases filed under the Mutual Agreement Procedure (MAP) Article of the relevant tax treaty. IRAS can be seen to have started building up its transfer pricing expertise from these cases.
During the height of BEPS and intensification of global TP audit activity, IRAS released revised guidelines on 6 January 2015. The 2015 Transfer Pricing Guidelines consolidated previous TP guidance, providing clarification on aspects of transfer pricing.
A significant requirement of the 2015 guidelines was for contemporaneous transfer pricing, defined as transfer pricing documentation prepared no later than the date of filing the tax return for the relevant financial year. This puts a clear obligation that Singapore taxpayers should no longer think of TP documentation as a “nice to have” but rather a “must have”. This stemmed from the observation that TP documentation was inadequate for around 73% of Transfer Pricing Consultation cases.
Since Singapore’s first encounters with transfer pricing, its regulations and customs have evolved significantly - IRAS has conducted over 50, largely bilateral, APAs.
In October 2017, Section 34 of the Singapore Income Tax Act (SITA) saw legislative requirements concerning TP being reinforced and expanded.
Additionally, in February 2018, the government published a document called “Income Tax Rules” 2018 under the Singapore Income Tax Act (ITA). This publication covered Transfer Pricing Documentation (TDP) rules. The rules came into effect on the 23rd of February 2018 and apply for the 2019 Year of Assessment (YA) 2019 and thereafter.
On 23 February 2018, IRAS released the 5th edition of TP guidelines (2018 Singapore TP Guidelines). The changes incorporate TPD Rules into the guidelines and provides examples and explanations on certain aspects of the TPD Rules. The 2018 Singapore TP Guidelines also provide clearer guidance on the transactional profit split method and comparability analysis.
Why is Singapore concerned with Transfer Pricing
Many industrialised nations have launched far-reaching audits on MNCs. When found guilty of aggressive profit shifting, many countries have dished out heavy fines. Occasionally multi-national corporations have disputed these rulings, taking legal actions against national tax authorities.
Yet many MNCs have been affected by the threat of such wide-ranging audits and some have considered reeling back profits from lower tax jurisdictions, such as Singapore. In doing so they hope to placate tax authorities and avoid audits. This will eventually lead to MNE’s entirely rethinking their presence in Singapore.
IRAS is concerned with many potential fallouts from this. Firstly, there is a deep concern over pressure to Singapore’s tax revenues if companies pull back too much profit out of the country. It is also concerned with the longer-term impact to Singapore as a business location, as unresolved transfer pricing controversies can be very costly and time-consuming for businesses.
IRAS subsequently began reviewing the transfer pricing of Singapore taxpayers to ensure compliance with the Arms Length Principle (ALP) , highlights a commitment to be a good treaty partner (Singapore has signed double tax treaties with over 70 countries) and a responsible member of the international tax community, one that upholds international tax and TP principles.
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