Transfer pricing involves setting the price for goods and services sold between controlled or related legal entities within an enterprise. For example, if a subsidiary company sells goods to its parent company, the cost of those goods is the transfer price.
Singapore has implemented comprehensive transfer pricing guidelines to ensure that transactions between related entities are based on the “arm’s length principle.” This principle requires that the transfer price between related entities should be the same as if the entities were not related, preventing profit shifting and tax evasion.
In 2018, Singapore introduced new transfer pricing legislation. As per these rules, companies are required to:
- Prepare and maintain contemporaneous transfer pricing documentation: This means that if your company’s gross revenue exceeds SGD 10 million, and transactions with related parties meet certain thresholds, you’re required to prepare transfer pricing documentation at the time of undertaking these transactions.
- Submit a transfer pricing documentation declaration form in the annual tax return: This is to declare whether the company has prepared the transfer pricing documentation.
- Comply with the arm’s length principle for related party transactions: Prices should be similar to what unrelated parties would charge under similar circumstances.
- Keep transfer pricing documentation for at least five years: The Inland Revenue Authority of Singapore (IRAS) may ask to see this documentation as proof that transactions are priced at arm’s length.
- File Country-by-Country (CbC) report: If the ultimate parent entity of the group is in Singapore and consolidated group revenue is at least SGD 1.125 billion, a CbC report must be filed. This report provides a breakdown of the amount of revenue, profits, taxes, and other indicators of economic activities for each tax jurisdiction in which the group does business.
Penalties can apply for non-compliance with these requirements, including financial penalties and adjustment to the taxable income.
Please note that these rules are as of my last training data in September 2021, and it is advisable to check for the latest regulations or consult a tax professional for advice.
