Strategizing Multinational Tax Risks

The Inland Revenue Authority of Singapore (IRAS) has published an expanded Transfer Pricing (TP) e-Tax Guide (linked herein for reference) that consolidates the four previous TP guides.  The Guidance adheres to the TP arm’s length principle, while expanding required disclosures in alignment with the OECD BEPS objectives.

Click to access etaxguide_Transfer_Pricing_Guidelines_(Second_Edition)_2015_01_06.pdf

Key observations:

• IRAS will adjust profits upwards for understated profits, although no mention is made of downward adjustments.
• IRAS welcomes discussions to discuss difficulties in applying the arm’s length principle.
• Contemporaneous TP documentation = on or before the tax return due date.
• Group level TP documentation includes an organization chart of all related parties transacting with the Singapore taxpayer, the group’s business models and strategies, profit drivers including a list of intangibles and legal owners, business activities and functions of each group member with relevant supply chains, business relationships among related parties and group financial statements for the lines of business involving the Singapore taxpayer.
• Entity level documentation includes a list of related parties to whom the local management reports for its operations, number of employees in each department, business models and strategies, contracts/agreements apart from detailed functional and benchmark analyses.
• TP documentation exceptions include in-country related party transactions, routine services charged at cost + 5%, APA agreements or de-minimis stated thresholds for transactions and services between related parties.
• Collaborative engagement methodologies are outlined for the Transfer Pricing Consultation program, by which TP methods and documentation of selected taxpayers will be reviewed.  Examples of high risk transactions are included in Section 7.5
• Unilateral APAs are not accepted.
• APA rollback years are acceptable, generally limited to 2 years.
• MAP and APA methodologies are stated, including factors when IRAS will discontinue the MAP or APA process.
• Section 16 summarizes updates and amendments of the TP Guidelines.

These guidelines should be reviewed, especially the new TP documentation guidelines as other countries in the APAC region and elsewhere will monitor and possibly adopt similar guidelines.