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Transfer Pricing

Updated: Feb 23


Transfer Pricing | Bestar
Transfer Pricing | Bestar

Transfer pricing is the process of determining the appropriate price for transactions between related parties, such as a parent company and its subsidiary. The arm's length principle is the fundamental principle of transfer pricing, which requires that the price of a transaction between related parties should be the same as the price that would be charged between unrelated parties in a comparable transaction.


In Singapore, the transfer pricing rules are set out in the Income Tax Act (ITA). The ITA defines related parties as persons who are connected with each other in any of the following ways:


  • They are members of the same group of companies.

  • They are under common control.

  • They are associated in business.


The ITA requires taxpayers to comply with the arm's length principle in all of their related party transactions. If the IRAS (Inland Revenue Authority of Singapore) determines that a taxpayer has not complied with the arm's length principle, it may make a transfer pricing adjustment. This is an adjustment to the taxpayer's taxable income, which may result in additional tax being payable.


The IRAS has issued transfer pricing guidelines to provide taxpayers with guidance on how to comply with the arm's length principle. The guidelines set out a number of methods that taxpayers can use to determine the arm's length price of a transaction, including:


  • The comparable uncontrolled price method (CUP method)

  • The resale price method (RPM method)

  • The cost plus method (CPM method)

  • The profit split method (PSM method)


The IRAS may also accept other methods that are more appropriate in the circumstances.


Taxpayers are required to maintain transfer pricing documentation for all of their related party transactions. The documentation should be sufficient to demonstrate that the taxpayer has complied with the arm's length principle.


The penalties for non-compliance with the transfer pricing rules in Singapore are severe. A taxpayer may be subject to a fine of up to SG$10,000 and a surcharge of 5% of the amount of the transfer pricing adjustment.


Here are some additional things to know about transfer pricing in Singapore:


  • The IRAS has a transfer pricing unit that is responsible for enforcing the transfer pricing rules.

  • The IRAS has entered into a number of mutual agreement procedures (MAPs) with other countries. This allows taxpayers to resolve transfer pricing disputes with the IRAS through a process of negotiation with the tax authorities of the other country.

  • The IRAS has a number of resources available to taxpayers to help them comply with the transfer pricing rules, including its transfer pricing guidelines and its transfer pricing website.


If you have any questions about transfer pricing in Singapore, you should consult with a tax advisor.


Introduction to Transfer Pricing


Transfer pricing is the process of determining the appropriate price for transactions between related parties, such as a parent company and its subsidiary. The arm's length principle is the fundamental principle of transfer pricing, which requires that the price of a transaction between related parties should be the same as the price that would be charged between unrelated parties in a comparable transaction.


The IRAS has issued transfer pricing guidelines to provide taxpayers with guidance on how to comply with the arm's length principle. The guidelines set out a number of methods that taxpayers can use to determine the arm's length price of a transaction, including:


  • The comparable uncontrolled price method (CUP method)

  • The resale price method (RPM method)

  • The cost plus method (CPM method)

  • The profit split method (PSM method)


The IRAS may also accept other methods that are more appropriate in the circumstances.


Taxpayers are required to maintain transfer pricing documentation for all of their related party transactions. The documentation should be sufficient to demonstrate that the taxpayer has complied with the arm's length principle.


The penalties for non-compliance with the transfer pricing rules in Singapore are severe. A taxpayer may be subject to a fine of up to SG$10,000 and a surcharge of 5% of the amount of the transfer pricing adjustment.


Here are some specific examples of transfer pricing transactions in Singapore:


  • A parent company sells goods to its subsidiary at a price that is lower than the arm's length price. This is known as a transfer pricing underpayment.

  • A subsidiary charges its parent company for royalties that are higher than the arm's length price. This is known as a transfer pricing overpayment.

  • A parent company lends money to its subsidiary at a lower interest rate than the arm's length rate. This is known as a transfer pricing loan.


These are just a few examples of transfer pricing transactions. The specific rules and regulations governing transfer pricing in Singapore can be complex, so it is important to consult with a tax advisor if you have any questions.


The Arm’s Length Principle


The arm's length principle is the fundamental principle of transfer pricing. It requires that the price of a transaction between related parties should be the same as the price that would be charged between unrelated parties in a comparable transaction.


The arm's length principle is based on the idea that transactions between related parties should be conducted on an arm's length basis, meaning that they should be conducted as if the parties were unrelated. This is important to ensure that profits are taxed in the right jurisdiction and that taxpayers do not use related party transactions to artificially shift profits to low-tax jurisdictions.


In Singapore, the arm's length principle is set out in the Income Tax Act (ITA). The ITA defines related parties as persons who are connected with each other in any of the following ways:


  • They are members of the same group of companies.

  • They are under common control.

  • They are associated in business.


The ITA requires taxpayers to comply with the arm's length principle in all of their related party transactions. If the IRAS (Inland Revenue Authority of Singapore) determines that a taxpayer has not complied with the arm's length principle, it may make a transfer pricing adjustment. This is an adjustment to the taxpayer's taxable income, which may result in additional tax being payable.


The IRAS has issued transfer pricing guidelines to provide taxpayers with guidance on how to comply with the arm's length principle. The guidelines set out a number of methods that taxpayers can use to determine the arm's length price of a transaction, including:


  • The comparable uncontrolled price method (CUP method)

  • The resale price method (RPM method)

  • The cost plus method (CPM method)

  • The profit split method (PSM method)


The IRAS may also accept other methods that are more appropriate in the circumstances.


Taxpayers are required to maintain transfer pricing documentation for all of their related party transactions. The documentation should be sufficient to demonstrate that the taxpayer has complied with the arm's length principle.


The penalties for non-compliance with the transfer pricing rules in Singapore are severe. A taxpayer may be subject to a fine of up to SG$10,000 and a surcharge of 5% of the amount of the transfer pricing adjustment.


Here are some additional things to know about the arm's length principle in Singapore:


  • The IRAS has a transfer pricing unit that is responsible for enforcing the transfer pricing rules.

  • The IRAS has entered into a number of mutual agreement procedures (MAPs) with other countries. This allows taxpayers to resolve transfer pricing disputes with the IRAS through a process of negotiation with the tax authorities of the other country.

  • The IRAS has a number of resources available to taxpayers to help them comply with the transfer pricing rules, including its transfer pricing guidelines and its transfer pricing website.


If you have any questions about the arm's length principle in Singapore, you should consult with a tax advisor.


Transfer Pricing Documentation


Transfer pricing documentation is the documentation that taxpayers in Singapore are required to maintain to demonstrate that they have complied with the arm's length principle in their related party transactions.

The transfer pricing documentation requirements in Singapore are set out in Section 34F of the Income Tax Act (ITA). The requirements apply to taxpayers with gross revenue from their trade or business exceeding SGD 10 million for the tax basis period.

The transfer pricing documentation must include the following:

  • A description of the related party transactions.

  • The methodologies used to determine the arm's length prices of the related party transactions.

  • The data used to support the arm's length prices.

  • A discussion of the comparability factors between the related party transactions and the comparable uncontrolled transactions.

  • A conclusion on whether the arm's length prices have been met.


The transfer pricing documentation must be prepared in English and must be kept for at least five years from the end of the basis period in which the transaction took place. The IRAS may request to see the transfer pricing documentation at any time.

The penalties for non-compliance with the transfer pricing documentation requirements in Singapore are severe. A taxpayer may be subject to a fine of up to SG$10,000 and a surcharge of 5% of the amount of the transfer pricing adjustment.

Here are some additional things to know about transfer pricing documentation in Singapore:


  • The IRAS has a transfer pricing unit that is responsible for enforcing the transfer pricing rules.

  • The IRAS has entered into a number of mutual agreement procedures (MAPs) with other countries. This allows taxpayers to resolve transfer pricing disputes with the IRAS through a process of negotiation with the tax authorities of the other country.

  • The IRAS has a number of resources available to taxpayers to help them comply with the transfer pricing rules, including its transfer pricing guidelines and its transfer pricing website.


If you have any questions about transfer pricing documentation in Singapore, you should consult with a tax advisor.

Here are some tips for preparing transfer pricing documentation in Singapore:


  • Start early. The transfer pricing documentation requirements are complex and time-consuming to prepare. It is important to start early so that you have enough time to gather all of the necessary information and to get the documentation reviewed by a tax advisor.

  • Be thorough. The transfer pricing documentation must be comprehensive and must provide the IRAS with all of the information it needs to assess whether the arm's length principle has been met.

  • Be accurate. The transfer pricing documentation must be accurate and must be based on sound data and analysis.

  • Be up-to-date. The transfer pricing documentation must be kept up-to-date to reflect changes in the taxpayer's business and in the relevant tax laws.


By following these tips, you can help to ensure that your transfer pricing documentation is compliant with the requirements in Singapore and that it will withstand scrutiny by the IRAS.

FAQS

Here are some FAQs about transfer pricing in Singapore:

  • What are related parties?

In Singapore, related parties are persons who are connected with each other in any of the following ways:

  • They are members of the same group of companies.

  • They are under common control.

  • They are associated in business.


  • What is the arm's length principle?

The arm's length principle is the fundamental principle of transfer pricing. It requires that the price of a transaction between related parties should be the same as the price that would be charged between unrelated parties in a comparable transaction.

  • What are the transfer pricing documentation requirements in Singapore?

The transfer pricing documentation requirements in Singapore are set out in Section 34F of the Income Tax Act (ITA). The requirements apply to taxpayers with gross revenue from their trade or business exceeding SGD 10 million for the tax basis period.

The transfer pricing documentation must include the following:

  • A description of the related party transactions.

  • The methodologies used to determine the arm's length prices of the related party transactions.

  • The data used to support the arm's length prices.

  • A discussion of the comparability factors between the related party transactions and the comparable uncontrolled transactions.

  • A conclusion on whether the arm's length prices have been met.


  • What are the penalties for non-compliance with the transfer pricing rules in Singapore?

The penalties for non-compliance with the transfer pricing rules in Singapore are severe. A taxpayer may be subject to a fine of up to SG$10,000 and a surcharge of 5% of the amount of the transfer pricing adjustment.

  • What are the resources available to taxpayers to help them comply with the transfer pricing rules in Singapore?

The IRAS has a number of resources available to taxpayers to help them comply with the transfer pricing rules, including its transfer pricing guidelines and its transfer pricing website.


Transfer Pricing Compliance


Transfer pricing compliance in Singapore is important for businesses that have related party transactions. The arm's length principle requires that the price of a transaction between related parties should be the same as the price that would be charged between unrelated parties in a comparable transaction.


The IRAS (Inland Revenue Authority of Singapore) has a number of resources available to taxpayers to help them comply with the transfer pricing rules, including its transfer pricing guidelines and its transfer pricing website.


Here are some key things to know about transfer pricing compliance in Singapore:


  • Taxpayers with gross revenue from their trade or business exceeding SGD 10 million for the tax basis period are required to prepare transfer pricing documentation.

  • The transfer pricing documentation must be prepared in English and must be kept for at least five years from the end of the basis period in which the transaction took place.

  • The IRAS may request to see the transfer pricing documentation at any time.

  • Taxpayers who fail to comply with the transfer pricing documentation requirements may be subject to penalties, including a fine of up to SG$10,000 and a surcharge of 5% of the amount of the transfer pricing adjustment.


If you have any questions about transfer pricing compliance in Singapore, you should consult with a tax advisor.


Here are some tips for ensuring transfer pricing compliance in Singapore:


  • Start early. The transfer pricing documentation requirements are complex and time-consuming to prepare. It is important to start early so that you have enough time to gather all of the necessary information and to get the documentation reviewed by a tax advisor.

  • Be thorough. The transfer pricing documentation must be comprehensive and must provide the IRAS with all of the information it needs to assess whether the arm's length principle has been met.

  • Be accurate. The transfer pricing documentation must be accurate and must be based on sound data and analysis.

  • Be up-to-date. The transfer pricing documentation must be kept up-to-date to reflect changes in the taxpayer's business and in the relevant tax laws.


By following these tips, you can help to ensure that your transfer pricing documentation is compliant with the requirements in Singapore and that it will withstand scrutiny by the IRAS.


Reporting Related Party Transactions (RPT)


Businesses in Singapore with related party transactions are required to report these transactions to the Inland Revenue Authority of Singapore (IRAS). The reporting requirements apply to businesses with gross revenue from their trade or business exceeding SGD 15 million for the tax basis period.


The RPT reporting requirement is designed to help the IRAS better understand the nature and extent of related party transactions, and to assess whether the arm's length principle has been met. The RPT report must be submitted with the taxpayer's annual income tax return.


The RPT report must include the following information:


  • The names and addresses of the related parties involved in the transactions.

  • The nature of the transactions.

  • The value of the transactions.

  • The arm's length prices of the transactions.

  • Any other relevant information.


The IRAS may request to see additional information about the related party transactions, such as contracts, invoices, and supporting documentation.


Taxpayers who fail to comply with the RPT reporting requirements may be subject to penalties, including a fine of up to SG$10,000.


Here are some tips for ensuring compliance with the RPT reporting requirements in Singapore:


  • Start early. The RPT reporting requirements are complex and time-consuming to prepare. It is important to start early so that you have enough time to gather all of the necessary information and to get the report reviewed by a tax advisor.

  • Be thorough. The RPT report must be comprehensive and must provide the IRAS with all of the information it needs to assess whether the arm's length principle has been met.

  • Be accurate. The RPT report must be accurate and must be based on sound data and analysis.

  • Be up-to-date. The RPT report must be kept up-to-date to reflect changes in the taxpayer's business and in the relevant tax laws.


By following these tips, you can help to ensure that your RPT report is compliant with the requirements in Singapore and that it will withstand scrutiny by the IRAS.

How Bestar can Help


Bestar is a leading transfer pricing consultancy firm in Singapore. We have a team of experienced transfer pricing professionals who can help you with all aspects of transfer pricing compliance in Singapore, including:


  • Transfer pricing documentation. We can help you prepare the necessary transfer pricing documentation to demonstrate that your related party transactions have been conducted on an arm's length basis.

  • RPT reporting. We can help you prepare and submit the required RPT reports to the IRAS.

  • Transfer pricing audits. We can represent you in transfer pricing audits conducted by the IRAS.

  • Transfer pricing disputes. We can help you resolve transfer pricing disputes with the IRAS.


We also offer a range of other transfer pricing services, such as:


  • Transfer pricing training. We offer training courses on transfer pricing for businesses of all sizes.

  • Transfer pricing advisory services. We can provide you with advice on transfer pricing matters, such as the selection of transfer pricing methods and the identification of comparable uncontrolled transactions.

  • Transfer pricing software. We offer a range of transfer pricing software solutions to help you manage your transfer pricing compliance.

I

f you are a business in Singapore with related party transactions, we can help you with all aspects of transfer pricing compliance. Contact us today to learn more about how we can help you.


Here are some of the benefits of working with Bestar for your transfer pricing needs in Singapore:


  • We have a team of experienced transfer pricing professionals who are up-to-date on the latest transfer pricing developments in Singapore and around the world.

  • We have a proven track record of success in helping businesses with their transfer pricing compliance.

  • We offer a comprehensive range of transfer pricing services to meet your needs.

  • We are committed to providing our clients with the highest quality service.


If you are looking for a reliable and experienced transfer pricing consultancy firm in Singapore, then Bestar is the right choice for you. Contact us today to learn more about how we can help you with your transfer pricing needs.



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