What are Transfer Pricing Rules in Singapore?
What is Transfer Pricing?
The principles and methods of pricing transactions between related parties (including head offices and branches), such as the sale or purchase of products, the provision of services, and the payment for the use or transfer of intangible assets, are referred to as transfer pricing. Pricing between related parties is assessed using arm’s length pricing.
Transfer Pricing documentation requirement:
IRAS made it mandatory for certain Singapore Companies to prepare Transfer Pricing Documentation in accordance with Section 34F of the Income Tax Act (“TP Documentation Rules”), effective from Year of Assessment 2019.
Who must prepare transfer pricing documents?
Exemptions from preparing Transfer Pricing documents-
B. Where the taxpayer transacts with a related party in Singapore, such local transactions (excluding related party loans) are subject to the same Singapore tax rates for both parties;
C. When a related domestic loan is provided between the taxpayer and a related party in Singapore, and the lender is not in the business of borrowing and lending;
D. Where a taxpayer applies the indicative margin for a related party loan not exceeding S$15 million;
E. The taxpayer applies a 5% cost mark-up for routine services to the related party transactions concerned;
F. Where the related party transactions are covered by an agreement under an Advance Pricing Agreement Arrangement;
G. The value or amount of the related party transactions (excluding the value or amount in sub-paragraphs (b) to (f) above) that have been disclosed in the current year’s financial accounts do not exceed the thresholds specified in the following table:
Deadline for preparation of transfer pricing documentation
Transfer pricing documentation should be prepared by the filing due date of the tax return of the company to be accepted by IRAS as contemporaneous. Transfer pricing documentation for the financial year should be completed latest by the time of lodgement of the tax return, i.e. 30 November.
What is the penalty for not preparing or retaining Transfer Pricing Documentation?
5% Non-compliance with arm’s length principle surcharge on TP adjustments regardless of whether there is tax payable.
Non-compliance with transfer pricing documentation of S$10,000.
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Frequently Asked Questions
Transfer pricing refers to rules and methods for pricing transactions like sale or purchase of goods,provision of services and payments for the use or transfer of intangible assets between related parties.In order to assess pricing between related parties the concept of arm’s length pricing is used.
Taxpayers in Singapore are required to prepare transfer pricing documentation under Section 34F of the Income Tax Act. In other words, transfer pricing documentation is mandatory in Singapore.
Taxpayers who do not prepare Transfer Pricing documents shall be liable to a penalty up to $10,000.The IRAS will make upward transfer pricing adjustment if it is found that taxpayers have understated their profits through improper transfer pricing.