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In their ongoing effort to streamline compliance and enhance clarity for taxpayers, the Singapore Ministry of Finance has recently announced updates to the existing Transfer Pricing Documentation rules. These amendments reflect their commitment to adapting and improving regulatory frameworks, ensuring they remain relevant and effective in facilitating transparent and compliant transfer pricing practices.

These updates shall be known as Income Tax (Transfer Pricing Documentation) (Amendment) Rules 2024 and would come into operation on 10 June 2024. 

A summary of the updates is as follows:

Working capital adjustment

 The updated TP Guidelines added a Frequently Asked Question (‘FAQ”) regarding the making of working capital adjustment as below:
 

FAQ: When should I make working capital adjustment and which interest rate should I use when making such adjustment?

IRAS view: 

Working capital adjustment ensures comparability by addressing differences in trade receivables, inventory, and trade payables between a tested party and independent comparables. It is applicable in TNMM, resale price, or cost plus methods to enhance comparability, provided it’s reasonably accurate and improves reliability. Guidance can be found in OECD TPG Chapter III Annex. Use an interest rate aligned with commercial enterprises in the tested party’s market, such as actual incurred rates, bank rates, bond yields, industrial yield curves or International Monetary Fund where appropriate or adjusted base rates with margins.

Related party domestic loans

There is a new exemption rule for related party domestic loans entered into on or after 1 January 2025.

With respect to a loan transaction between Singapore entities, the rules have been amended wherein there shall be an exemption from preparation of a TP Documentation, provided all of the following conditions are satisfied:

(i) The loan agreement is executed before 1 January 2025;
(ii) Each party to the transaction is either incorporated or registered in Singapore or carried on a trade or business in Singapore;
(iii) The lender is not in the business of borrowing and lending money; and
(iv) The parties have agreed to apply the indicative margin for the year in which the loan is granted.

The updated TP Guidelines also provided guidance on base reference rates with interbank offered rates (IBOR) reform.

Revised threshold on related party transactions

The amended provision on related party transaction thresholds now stipulates that the individual quantum for each of the following types of transactions will be SGD2 million, up from the previous threshold of SGD1 million:

(a) Services provided by the Singapore entity or received by it.
(b) Grant of a right to use movable property by the Singapore entity to its related party, or vice versa.
(c) Lease of any property by the Singapore entity to its related party, or vice versa.
(d) Grant of a guarantee by the Singapore entity to its related party, or vice versa.
(e) Any other transaction.

Completion date for simplified TP Documentation

The updated TP Guidelines made clarification on the date of completing a simplified TP Documentation in the declaration.

An example is provided below:

The tax return for YA 2024 is due by 30 November 2024. The taxpayer completed the simplified TP documentation for the financial year ending 31 December 2023 on 1 October 2024. This documentation includes a declaration dated 1 October 2024 and references previous TP documentation from 15 November 2023. The completion date of the simplified TP documentation is 1 October 2024, and this date should be clearly stated on the declaration to prove contemporaneous preparation.

New FAQs

FAQ: Does the requirement to review and refresh TP documentation annually apply to my long term loan with my related party?

IRAS view:  Yes

FAQ: IRAS is conducting an audit on my transaction with my related party for FY2022. I had prepared TP documentation for FY2022 under Section 34F of the ITA. Will IRAS consider the details and analysis submitted in 2024 during the audit as contemporaneous to supplement the TP documentation?

IRAS reply: Yes

Transfer Pricing Audit process

IRAS has updated the Transfer Pricing Audit process. Details of the audit process is illustrated in Section 7 of the updated TP Guidelines.

Situations where IRAS will disregard actual related party transactions

IRAS enhanced the example in paragraph 8.8 of the updated TP Guidelines relating to situations when IRAS will disregard an actual related party transaction.

Transfer pricing adjustment relating to capital transaction

The IRAS provided guidance on situations when IRAS will make transfer pricing adjustment relating to capital transaction in paragraphs 8.10 & 8.11 of the updated TP Guidelines.

Remission of the surcharge

The TP Guidelines is updated regarding the circumstances under which partial or full remission of the surcharge under Section 34E of the ITA will be given.

Transfer pricing adjustments are subject to a surcharge of 5%. However, the Comptroller may, for a good cause, remit the surcharge wholly or in part. For that, taxpayers must meet the following three conditions:

(i) They have been cooperative and have provided responses and required documentation within the timeline set by IRAS;
(ii) They have maintained proper TP documentation in accordance with Section 34F of the ITA and the TP Documentation Rules; and
(iii) They have good compliance record for the current YA and immediate two preceding YAs in terms of:
      – Prompt submission of tax returns and payment of taxes by the due dates; and
      – No history of surcharges and penalties being imposed or remitted/compounded.

Taxpayers who voluntarily disclose non-arm’s length related party transactions may receive a full surcharge remission if adjustments are made within two years of the tax return filing due date, without prior IRAS queries, audits, or investigations on related parties for the relevant year of assessment. Taxpayers must also meet the three conditions mentioned in (i), (ii) and (iii) above.

Requirement for pre-filing meeting for MAP application removed

The TP Guidelines has also been updated to remove the requirement for pre-filing meeting for MAP application.

Strict pass-thru costs

The IRAS has revised its guidance on strict pass-through costs, providing clear illustrations of when the cost of a service will qualify under this category.

Treatment of government assistance

The updated TP Guidelines have introduced a new section addressing the treatment of government assistance in transfer pricing considerations.

Feel any transfer pricing assistance or questions, please free to reach out to us.

 

  Gina Soh  

     Transfer Pricing Partner

suanlin.soh@swgroup.sg

panda7402

  Yong Xiu Wei

     Transfer Pricing Director

xiuwei.yong@swgroup.sg

 lxl15092022

This content is for general information purposes only and cannot be used as a substitute for professional advice from appropriate professional consultants.