On 4 January 2022, the Singaporean Inland Revenue Authority updated transfer pricing guidelines to set the 2022 indicative margin at 1.8% for related-party loans. The indicative margins are applied on each related party loan not exceeding S$15 million. Taxpayers may choose to apply either:
- the indicative margin to price the interest on qualified related-party loans; or
- an interest rate compliant with the arm’s length principle.
However, the indicative margin is not mandatory. It offers taxpayers an alternative to performing detailed transfer pricing analysis to comply with the arm’s length principle for their loans to related parties. If taxpayers choose not to apply the indicative margin, or if it is not applicable to them, they must apply an arm’s length interest rate and maintain contemporaneous transfer pricing documentation.
Details of the 3-step approach to determining the arm’s length interest charge for loans to related parties and guidance on applying administrative practice for indicative margins on loans to related parties are set out in Part III, Section 13 of the TP Guidelines.
