The Inland Revenue Authority of Singapore published the 4^th version of transfer pricing guidelines on 12 January 2017, demonstrating compliance with international transfer pricing standards.

The published guidelines explicitly refer to the Base Erosion and Profit Shifting (BEPS) Action Plans 8 – 10, supporting transfer pricing outcomes with value creation. According to the new guidance, profits will have to be taxed on that region where the real economic activities generating the profits are performed and the value is generated.

The IRAS provided more clarification to the risk element within the functional analysis in the application of the arm’s length principle. A more robust risk analysis is now needed to be performed for demonstrating that the entity has both the capacity and capability to assume and manage the specific economically significant risks from both a financial and operational perspective

The TP documentation requirements have been modified to adopt the BEPS Action Plan 13- Transfer Pricing Documentation. Accordingly, when the taxpayer is the ultimate parent company of a Singapore multinational enterprise (MNE), county-by-Country reporting(CbCR) will have to be filled in addition to the TP documentation.

Consistent with BEPS Action 5, there will be automatic exchange of Information on Unilateral APA (UAPA) by the IRAS with authorities of residence of all related parties with whom the taxpayer enters into transactions that are included by the UAPAs and the authorities of residence of the taxpayer’s ultimate parent entity and the immediate parent entity. The exchange of information will depend on certain conditions like having in place tax treaties or an exchange of information instrument.

The exchange of information will apply from December 2017 for UAPAs which are issued on or after 1 January 2012 and still in effect on 1 January 2015 and also for those treaties which are issued on or after 1 January 2015 but before 1 April 2017. The exchange of information will take place within three months after the date of agreement for UAPAs which are issued on or after 1 April 2017.

The IRAS has established the application of indicative margins for related party loans which are obtained or provided on or after 1 January 2017.

To facilitate compliance with the arm’s length principle and maintain a high level of adherence to the arm’s length principle, IRAS has put in place an indicative margin which taxpayers can apply on their related party loans obtained or provided from 1 January 2017. If taxpayers choose to apply the indicative margin for their related party loans, they are not expected to prepare TP documentation for related party loans below S$15 million (US$10.6 million). The indicative margin is 2.50% which is applicable for the period between 1 January 2017 and 31 December 2017.