Changes to Transfer Pricing (TP) Guidelines

IRAS has issued an updated Transfer Pricing (TP) Guidelines (fifth edition) on 23 February 2018 which enhanced the TP documentation requirements. There are few changes in the updated TP guidelines.

There are two different obligations under transfer pricing rules

The new legislation imposes mandatory TP documentation for companies with gross revenue greater than SGD10 million. However, taxpayers are exempt from preparing TP documentation for the transactions undertaken with their related parties in a basis period when those transactions come within any of the cases specified in Rule 4 of the TP Documentation Rules:

Related party domestic transactions subject to same tax rate

Related party domestic loan

Related party loan not exceeding SGD15million of which indicative margin is applied

Routine support services of which 5% cost mark-up is applied

Related party transactions not exceeding the following threshold:

Type of Transactions	Total Value SGD
Purchase of goods from a related party	15 million
Sale of goods to a related party	15 million
Loan to a related party	15 million
Loan from a related party	15 million
Services rendered by a related party	1 million
Service rendered to a related party	1 million
Royalty payment - grant of a right to use movable property by a related party	1 million
Royalty income - grant of a right to use movable property to a related party	1 million
Rental expenses payable or paid to related party	1 million
Rental income receivable or received from related party	1 million
Grant of a guarantee by a related party	1 million
Grant of a guarantee to a related part	1 million
Any other transaction	1 million

The TP documentation needs to be fully completed and ready by the time that the company lodges the income tax return ie 15 Dec. IRAS expectation is that the TP Documentation needs to be dated to proof that it was completed before the lodgement of the income tax return.

For taxpayers that are not compelled to prepare TP documentation, IRAS expects that they are following the arm's length principle for transactions with related parties when audit or queries are raised. TP documentation requirements have been incorporated into law and therefore it is a clear obligation from a compliance point of view

Therefore, we strongly recommend that the company prepare TP documentation and in the event of IRAS queries or challenge, the company will be able to stand scrutiny.