Guide to Singapore Transfer Pricing Rules: Key Insights for Businesses

Singapore's transfer pricing rules play a pivotal role in ensuring that related-party transactions are conducted at arm's length and reflect fair market value. These regulations are designed to prevent profit shifting and ensure that Singapore's tax base is not eroded. For businesses operating in Singapore, understanding and adhering to transfer pricing rules is essential to maintain compliance and avoid penalties. This guide provides an in-depth overview of Singapore's transfer pricing framework and practical steps for compliance.

What Are Transfer Pricing Rules?

Transfer pricing rules govern the pricing of transactions between related parties. These include:

• Sale or purchase of goods.
• Provision of services.
• Licensing of intangible assets (e.g., trademarks, patents).
• Intra-group financing arrangements.

Key Principle: The Arm's Length Principle

Singapore's transfer pricing rules are based on the arm's length principle, which requires that related-party transactions be conducted under terms that would apply between independent parties in similar circumstances.

Why Are Transfer Pricing Rules Important?

• Ensure Tax Compliance: Transfer pricing rules ensure that profits are accurately reported and taxed in the correct jurisdictions.
• Avoid Double Taxation: Proper documentation and pricing reduce the risk of disputes and double taxation.
• Mitigate Audit Risks: Adherence to transfer pricing rules minimizes the likelihood of audits and penalties from the Inland Revenue Authority of Singapore (IRAS).

Overview of Singapore's Transfer Pricing Rules

1. Transfer Pricing Documentation (TPD)

Businesses engaging in related-party transactions must prepare and maintain contemporaneous Transfer Pricing Documentation (TPD). This documentation demonstrates compliance with the arm's length principle.

Thresholds for TPD Preparation:

Transfer pricing documentation is required if:

• The gross revenue of the company exceeds S$10 million.
• Related-party transactions exceed the following thresholds:
• S$15 million for purchase or sale of goods.
• S$1 million for other types of transactions.

Content of TPD:

• Organizational structure and group overview.
• Description of related-party transactions.
• Functional, asset, and risk (FAR) analysis.
• Transfer pricing methodology and benchmarking analysis.

2. Transfer Pricing Methods

IRAS recognizes five methods for determining arm's length pricing:

• Comparable Uncontrolled Price (CUP) Method.
• Resale Price Method.
• Cost Plus Method.
• Transactional Net Margin Method (TNMM).
• Profit Split Method.

3. Related-Party Transaction Disclosure

Companies must disclose their related-party transactions in their annual Form C or Form C-S submissions.

4. Advance Pricing Arrangements (APAs)

For businesses engaged in complex transactions, Advance Pricing Arrangements (APAs) provide certainty by pre-approving transfer pricing methodologies with IRAS.

Penalties for Non-Compliance

• Transfer Pricing Adjustments: IRAS may adjust profits to reflect arm's length pricing.
• Surcharge: A surcharge of 5% on the transfer pricing adjustment amount, regardless of whether additional tax is payable.
• Penalties for Non-Disclosure: Failure to submit accurate related-party transaction disclosures can lead to additional penalties.

Best Practices for Transfer Pricing Compliance

• Maintain Accurate Documentation: Ensure that transfer pricing documentation is updated annually and complies with IRAS guidelines.
• Conduct Regular Reviews: Periodically review related-party transactions to identify and address compliance risks.
• Benchmarking Analysis: Use robust benchmarking studies to justify pricing policies and ensure adherence to the arm's length principle.
• Leverage Advance Pricing Arrangements (APAs): Apply for APAs to reduce uncertainty in complex transfer pricing arrangements.

How Apexia Corporate Advisory Can Help

Navigating Singapore's transfer pricing rules requires expertise and a thorough understanding of local and international tax laws. At Apexia Corporate Advisory, we provide:

• Transfer Pricing Documentation Support: Assist in preparing and maintaining compliant TPD to meet IRAS requirements.
• Risk Assessments and Reviews: Conduct detailed reviews of related-party transactions to identify potential risks.
• APA Applications: Guide businesses through the APA application process to secure transfer pricing certainty.
• Audit Support: Provide expert representation during IRAS audits and assist in resolving disputes.

Contact us today to learn more about our services.