Transfer Pricing Updates

Published on July 29, 2024

To better understand how the TP requirements can impact your business, please do not hesitate to contact our team or email us at [email protected].

On 2 October 2017, the Income Tax (Amendment) Bill 2017 (“ITB 2017”) was passed by the Parliament. The ITB 2017 included specific transfer pricing (“TP”) related changes to strengthen Singapore’s TP regime, such as the introduction of a new Section 34F which imposes a mandatory requirement for contemporaneous and adequate TP documentation (“TPD”), and penalties for non-compliance from the basis year for the Year of Assessment (“YA 2019”). The Income Tax (Transfer Pricing Documentation) Rules 2018 (“TPD Rules”) was subsequently gazetted to provide guidance on TPD preparation.

As the Inland Revenue Authority of Singapore (“IRAS”) continues to adopt a progressive firmer attitude towards enforcement of TP compliance requirements, the TP landscape has evolved through the years. The latest significant developments were in June 2024 with the gazetting of the Income Tax (Transfer Pricing Documentation) (Amendment) Rules 2024 (“TPD Amendment Rules”) and issuance of the IRAS 7th edition of the Singapore Transfer Pricing Guidelines (“7th Ed TPG”).

Details about the current TPD requirements are as follows:

Transfer pricing documentation requirements

Scope	Details
Who must prepare	Taxpayers fulfilling either of the two conditions below must prepare TPD: a. Taxpayers with gross revenue from their trade or business¹ for the basis period of more than SGD 10 million. b. Taxpayers who were required to prepare TPD under Section 34F for the previous basis period will continue to be required to do so for the subsequent basis period².
Exemptions available	Taxpayers are exempt from preparing TPD where either: Gross revenue of taxpayer is consistently below SGD 10 million; or Transactions undertaken with their related parties come within a basis period in any of the following cases: Related party domestic transaction (other than a loan) subject to the same tax rate. Related party domestic loan entered into prior to 1 Jan 2025 and the lender is not in the business of borrowing or lending money. Related party domestic loan entered into on or after 1 Jan 2025 and the indicative margin is applied, where neither the lender nor the borrower is in the business of borrowing and lending money. Related party loan on which indicative margin is applied. Routine support services on which 5% cost mark-up is applied. Related party transaction covered by advance pricing arrangement. Related party transaction not exceeding certain thresholds. (SGD15 million for purchase or sale of goods, SGD15 million for loans owed to, or by, related parties, or SGD1 million for all other categories of transactions for YA 2025 and before; SGD 2 million for all other categories of transactions for YA 2026 and onwards)
Format of report	Must be in English and must specify the date on which the TPD was completed.
Content of report	As prescribed in the Second Schedule of the TPD Rules.
When to prepare	Not later than the filing due date of the tax return.
When to submit	IRAS does not require taxpayers to submit the TPD when they file their tax returns. Taxpayers should keep their TPD and submit it to IRAS within 30 days upon request.
When to refresh	Taxpayers are to review and refresh their TPD. This will result in taxpayers having to prepare a TPD for each basis period.
How long to retain	5 years.
Penalty for non-compliance	Fine not exceeding SGD 10,000.
Surcharge for non-compliance with arm’s length principle	Once a transfer pricing adjustment is made by IRAS, this adjustment is subject to a surcharge of 5% regardless of whether there is tax payable on the adjustment. Notwithstanding any objection to or an appeal lodged against an assessment on the transfer pricing adjustments, the surcharge must be paid within one month starting from the date of a written notice of the surcharge or such time the Comptroller may extend. Taxpayers may voluntarily make upward adjustments for past financial years on their related party transactions. Such self-initiated retrospective upward adjustments are similarly subject to a surcharge of 5% regardless of whether there is tax payable on the adjustments unless remission is granted.

Scope

Details

Who must prepare

Taxpayers fulfilling either of the two conditions below must prepare TPD:

a. Taxpayers with gross revenue from their trade or business¹ for the basis period of more than SGD 10 million.

b. Taxpayers who were required to prepare TPD under Section 34F for the previous basis period will continue to be required to do so for the subsequent basis period².

Exemptions available

Taxpayers are exempt from preparing TPD where either:

Gross revenue of taxpayer is consistently below SGD 10 million; or
Transactions undertaken with their related parties come within a basis period in any of the following cases:

Related party domestic transaction (other than a loan) subject to the same tax rate.
Related party domestic loan entered into prior to 1 Jan 2025 and the lender is not in the business of borrowing or lending money.
Related party domestic loan entered into on or after 1 Jan 2025 and the indicative margin is applied, where neither the lender nor the borrower is in the business of borrowing and lending money.
Related party loan on which indicative margin is applied.
Routine support services on which 5% cost mark-up is applied.
Related party transaction covered by advance pricing arrangement.
Related party transaction not exceeding certain thresholds. (SGD15 million for purchase or sale of goods, SGD15 million for loans owed to, or by, related parties, or SGD1 million for all other categories of transactions for YA 2025 and before; SGD 2 million for all other categories of transactions for YA 2026 and onwards)

Format of report

Must be in English and must specify the date on which the TPD was completed.

Content of report

As prescribed in the Second Schedule of the TPD Rules.

When to prepare

Not later than the filing due date of the tax return.

When to submit

IRAS does not require taxpayers to submit the TPD when they file their tax returns. Taxpayers should keep their TPD and submit it to IRAS within 30 days upon request.

When to refresh

Taxpayers are to review and refresh their TPD. This will result in taxpayers having to prepare a TPD for each basis period.

How long to retain

5 years.

Penalty for non-compliance

Fine not exceeding SGD 10,000.

Surcharge for non-compliance with arm’s length principle

Once a transfer pricing adjustment is made by IRAS, this adjustment is subject to a surcharge of 5% regardless of whether there is tax payable on the adjustment.

Notwithstanding any objection to or an appeal lodged against an assessment on the transfer pricing adjustments, the surcharge must be paid within one month starting from the date of a written notice of the surcharge or such time the Comptroller may extend.

Taxpayers may voluntarily make upward adjustments for past financial years on their related party transactions. Such self-initiated retrospective upward adjustments are similarly subject to a surcharge of 5% regardless of whether there is tax payable on the adjustments unless remission is granted.

¹Gross revenue derived from a trade or business excludes passive source income such as dividends, capital gains and losses. Taxpayer that only has passive source income will not come within TPD requirements of Section 34F.

²Condition (b) is put in place to ensure that taxpayers continue to prepare TPD once they are required to do it under condition (a). This provides certainty to taxpayers on their compliance efforts, especially where any decline in their gross revenue below SGD 10 million is temporary.

For more details, you are welcome to contact our expert team.