Singapore Transfer Pricing Guidelines
The IRAS conceptualizes the presence of “independent commercial prices.” Transfer pricing provisions in Singapore depend on “common control of a common entity.” The IRAS speaks of “market forces” driving the “term and conditions” that would reflect the “true economic value” of the contributions made by each party in the transaction. The IRAS put the taxpayer as having the best position to perform “a robust and comprehensive transfer pricing analysis.” The IRAS expects the taxpayer to “exert reasonable efforts” to undertake a “sound transfer pricing analysis,” and to demonstrate that the taxpayer has performed that analysis. The IRAS expects the taxpayer to apply “an element on judgment” in the transfer pricing analysis. For comparative purposes, the taxpayer is to reflect government policies and regulations, including price controls and national insurance costs. The IRAS provides for market penetration separately.
The IRAS issued Transfer Pricing Guidelines for Related Party Loans and Related Party Services on February 23, 2009 that address:
- Interest-free loans direct charge method, indirect charge method
- The 5 percent mark-up on costs applied in the services context
- No-markup services provided by one service provider to another service provider, routine services and the 5 percent markup.
- Cost-pooling contracts
An IRAS “Consultation” can result in a full-fledged tax audit. The issue is whether the taxpayer can readily demonstrate that it has “exerted reasonable efforts” to ensure that its transfer prices are consistent with the arm’s length principle. The IRAS is sending questionnaires to taxpayers to ascertain the taxpayer’s compliance.
The IRAS warns that the taxpayer needs to dedicate resources to the APA process. In addition to having those dedicated resources, the taxpayer should “take appropriate active steps” beginning with the commencement of its APA preparation. The IRAS discourages “anonymous” involvement on the part of tax professionals. The taxpayer should undertake “active steps” to submit its APA application. The IRAS warns that the taxpayer’s “full cooperation and proactive support” in providing the requisite information to the IRAS is critical to the success of the APA process. The supplementary circular provides that the IRAS is “committed to do its best” to expedite the APA review and the negotiation process.