Singapore Taxpayers Must Be Proactive on Transfer Pricing Rules

The Inland Revenue Authority of Singapore published the seventh edition of its Transfer Pricing Guidelines in June, reflecting legislative changes to transfer pricing documentation and expanding existing guidance on transfer pricing.

The changes show that IRAS is continuing its focus and scrutiny on transfer pricing compliance. Taxpayers should note the stronger position taken by IRAS in transfer pricing audits and take proactive steps to comply with transfer pricing requirements, ensure they are cooperative during the transfer pricing audit, and have good compliance records. This will increase their chances for a partial or full remission of any transfer pricing surcharge arising from an audit.

Taxpayers should also take advantage of the new measures introduced by IRAS to reduce compliance burdens, such as allowing higher thresholds for aggregated related party transactions.

Transfer Pricing Analysis

Dating simplified transfer pricing documentation. Taxpayers are allowed to use transfer pricing documentation they have prepared previously—provided it is qualifying documentation—to support the transfer price in a basis period.

Taxpayers using qualifying past transfer pricing documentation must prepare simplified transfer pricing documentation. This is essentially a declaration that the past transfer pricing documentation meets the required criteria, and it should include a copy of the qualifying past documentation.

For related party transactions undertaken in the basis period for the year of assessment 2026 or a subsequent YA, taxpayers must specify the date the declaration is made. The purpose of this is to substantiate that the taxpayer has prepared the simplified transfer pricing documentation on a contemporaneous basis, and not based on hindsight.

Taking a stronger position during transfer pricing audits. From June 14, if during a transfer pricing audit IRAS considers the taxpayer’s taxable profit to be understated, or their loss overstated due to non-arm’s length transfer pricing, IRAS will make a transfer pricing adjustment, impose a surcharge on the adjustment, and issue the closing letter to the taxpayer.

If the taxpayer doesn’t agree with this adjustment, it must follow IRAS’ objection and appeal process to resolve the issue.

The opportunity for taxpayers to respond to IRAS’ proposal to make a transfer pricing adjustment and to discuss how to resolve the issue before IRAS made the adjustment has been withdrawn.

IRAS will only consider fully or partially remitting the transfer pricing surcharge for taxpayers who are cooperative during the transfer pricing audit and have good compliance records. From June 14, to qualify for partial or full remission of the surcharge, the taxpayer must have no history of surcharges and penalties being imposed, remitted or compounded for the current YA and immediate two preceding YAs.

Supplementing existing transfer pricing documentation. IRAS will consider additional details or analysis submitted by taxpayers in subsequent years to support or further explain the position covered in their past transfer pricing documentation as contemporaneous, unless those details relate to subsequent developments or the analysis is conducted with hindsight.

Details or analysis based on events that take place in subsequent years to describe the functions performed or risks assumed in previous years won’t be considered contemporaneous.

These updates to the transfer pricing guidelines emphasize the importance for taxpayers to ensure that their transfer pricing documentation is adequate and contemporaneous. The principle that any transfer pricing analysis shouldn’t be conducted with hindsight has been reinforced.

Reducing Compliance Burden

Exempting certain transactions from transfer pricing documentation. It isn’t necessary to prepare transfer pricing documentation if the related party transaction comes within a certain category of transactions and the total value of the aggregated related party transactions in that category in the basis period doesn’t exceed the category threshold.

The threshold for certain categories of transactions, such as service fees, royalty, rent, guarantee fees, undertaken in the basis period for YA 2026 or a subsequent YA has been increased from $1 million to $2 million.

Allowing a higher value of related party transactions in certain categories to be aggregated before transfer pricing documentation must be prepared will ease compliance for taxpayers.

Meeting the conditions for strict pass-through costs. One of the conditions for a group service provider to pass on the costs of the acquired services to its related parties without a markup is that the costs of the acquired services must be the legal or contractual liabilities of the related parties.

IRAS will accept email correspondence between the group service provider and its related parties—a single email with all the related parties or separate emails with each related party—as evidence that the related parties will assume the liabilities relating to the acquired services. This makes it administratively easier for taxpayers to meet the conditions for strict pass-through costs.

Exempting capital transactions from transfer pricing documentation. Transfer pricing documentation isn’t required for capital transactions between related parties if the gain, loss, or deduction isn’t taxable or deductible under the domestic tax law.

Where fixed assets sold or transferred between related parties aren’t at arm’s length, IRAS is empowered to use the open-market price to determine the capital allowances or writing-down allowances due on the assets, or to claw back such allowances upon disposal of the assets. This includes intellectual property rights, machinery, plant, and indefeasible rights of use that qualify for capital or writing-down allowances.

Hence, IRAS has indicated that taxpayers aren’t required to prepare transfer pricing documentation for the sale or transfer of such fixed assets between related parties.

These measures to streamline transfer pricing processes signal IRAS’ acknowledgment that transfer pricing compliance may pose significant costs and practical challenges for taxpayers. It appears that IRAS doesn’t expect taxpayers to incur compliance costs disproportionate to the amount of tax revenue at risk.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Sivakumar Saravan is senior partner and head of tax at Crowe Singapore.

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