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.
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.
Tax Executives Institute, Inc. (TEI) has provided excellent comments to the transfer pricing documentation paper by the Inland Revenue Authority of Singapore (IRAS). TEI responds to five questions of the Consultation Paper. A link to their comments, and the Singapore Consultation Paper, are included for reference:
The proposed rules for documentation by December elevate Singapore’s transfer pricing documentation requirements to a higher level than the current OECD guidelines, prior to its final recommendations, including how the Master File should be filed and transition thereto.
The Consultation sets forth guidelines for non-related Singapore entities including the provision of a functional analysis for contributions to value creation by each related group member, consolidated financial statements of the group, and transfer pricing policies re: all types of transactions between group members.
Confidentiality concerns arise with respect to the proposed rules, accordingly appeals for exemption should be appropriately provided.
Adverse consequences for not providing “adequate documentation” (term not defined), including withdrawal of MAP support set forth in the relevant treaty.
TEI has proposed de minims thresholds to exclude immaterial transactions and excluding documentation for intra-country transactions.
TEI has suggested an approach to implementing new documentation guidance tracking OECD BEPS developments, with lead time to adjust processes accordingly.
TEI has provided a valuable contribution in their well-written and thoughtful comments to significant issues posed by countries unilaterally adopting new transfer pricing documentation rules prior to finalization of the OECD BEPS initiatives.
Most importantly, Singapore has suggested using domestic legislation to override the MAP process in treaties as well as introducing overly comprehensive documentation that has no relevance to the domestic entity and its intercompany transactions or transfer pricing methodologies.
This initiative by IRAS is indicative of a parade with an OECD banner, although each member has a different drummer and leader with distinct initiatives and its concept for application of the “arm’s-length principle” to determine its fiscal fair share of tax to be collected from multinationals that will be determined prior to official OECD guidelines. It is imperative that all interested parties follow this initiative by Singapore, in addition to correlative initiatives by other countries.
The Inland Revenue Authority of Singapore (IRAS) has issued a consultation paper requesting comments on a revision to their transfer pricing (TP) guidelines. The particular questions for which comments are requested, no later than 24 September, consist of the following:
Challenges in preparing TP documentation contemporaneously
Difficulties in obtaining group and entity information in Annex A of the paper
Examples of low-risk documentation areas
Frequency of documentation updates
A link is provided for reference to the consultation paper:
TP documentation to be organized in alignment with the OECD master file and local entity reporting methodology.
TP documentation not applicable for routine services with a 5% safe harbour mark-up
Inadequate TP documentation will lose the support of IRAS in MAP discussions to resolve double taxation.
Annex A provides additional requests for group information that may be the source of requested comments, including:
Worldwide organization chart
Group’s business models and strategies
Profit drivers, including a list of legal ownership for intangibles
Supply chain activities and functions
Business relationships among all related parties
Group’s transfer pricing policies for all types of transactions between related parties
Consolidated group financial statements
Singapore is a jurisdiction (and there may be many more) that is reviewing the OECD’s Action Plan country-by-country reporting template and forthcoming comments as a base upon which to expand TP reporting.
Multinationals will need to capture every country’s additional legislative requirements arising from the OECD’s Action Plan. The additional complexity, cost and time will place a further constraint upon the ability to provide information perceived to be directly relevant for every jurisdiction around the world. Additionally, the threat of lack of support for the MAP process via a determination of inadequate TP documentation (if legislated into law) will increase the risk of double taxation and TP appeals worldwide.
All interested parties should take time to submit comments prior to the 24 September deadline.