IRAS has updated its transfer pricing guidance, requiring employee stock option and compensation costs to be included in the cost base under the Transactional Net Margin Method from the Year of Assessment 2026.
The Inland Revenue Authority of Singapore (IRAS) updated its Transfer Pricing guidance page on 25 September 2026 with additional guidance on transfer pricing adjustments relating to share-based compensation.
The update sets out a revised treatment for applying the arm’s length principle to share-based compensation. It takes effect from the Year of Assessment (YA) 2026. Under the revised treatment, employee stock option or compensation costs must be included in the cost base when taxpayers apply the full-cost mark-up under the Transactional Net Margin Method (TNMM).
As a one-off measure, taxpayers may also apply the revised treatment to YA 2022 through YA 2025. The source text available for this report was cut off before the conditions for this option were stated, so taxpayers should check the IRAS page for the full terms.
Arm’s length principle and three-step approach
IRAS requires transactions between related parties to reflect pricing that independent entities would agree under comparable circumstances. These include the sale or purchase of goods, provision of services, transfer of intangibles, intercompany loans, and dealings between head offices and branches.
IRAS describes a three-step approach:
- Comparability analysis: identify comparable transactions or situations between unrelated parties.
- Select the transfer pricing method and tested party: choose the most appropriate method and tested party.
- Determine results: calculate the arm’s length outcome based on the analysis.
Adjustments and surcharge
Where non-arm’s length pricing understates profits or overstates losses in Singapore, IRAS makes a transfer pricing adjustment under Section 34D of the Income Tax Act. A mandatory 5% surcharge applies to the amount of any transfer pricing adjustment from YA 2019, regardless of whether additional tax is payable.
Documentation requirements
Under Section 34F, taxpayers must prepare transfer pricing documentation (TPD) if gross trade or business revenue exceeds SGD 10 million for the basis period, or if TPD was required in the preceding basis period.
- TPD must be completed by the income tax return filing due date and retained for at least five years from the end of the basis period.
- It does not have to be submitted with the tax return, but must be provided within 30 days of a request by IRAS.
- Documentation may be refreshed once every three years using a simplified document, provided the underlying business facts and details remain accurate.
- Failure to prepare, retain or submit TPD on time, or providing false or misleading documents, carries a fine of up to SGD 10,000 per offence.
Related party transaction reporting
Companies must complete and submit the Form for Reporting Related Party Transactions (RPT) as part of Form C if the aggregate value of related party transactions disclosed in the financial statements exceeds SGD 15 million.
Specific related party transactions
- Intra-group services: IRAS accepts a 5% cost mark-up for qualifying routine support services listed in its guidelines. It accepts a 5% profit mark-up under the OECD simplified approach for low value-adding intra-group services. Cost-pooling and pass-through arrangements are allowed with zero mark-up for pure cost-sharing arrangements or strict pass-through expenses, under specified conditions.
- Domestic loans: For loans entered into on or after 1 January 2025 where neither party is in the lending business, taxpayers may apply the IRAS indicative margin or the arm’s length principle. IRAS will not make Section 34D adjustments for these loans.
- Cross-border loans: These must follow the arm’s length principle. For loans not exceeding SGD 15 million, taxpayers may apply the IRAS published indicative margin over base rates, which is 1.80% over Risk-Free Rates for 2026.
- Baseline marketing and distribution activities: IRAS is implementing the OECD Simplified and Streamlined Approach (SSA) on a pilot basis from 1 January 2026 to 31 December 2028.
Dispute prevention and resolution
Taxpayers can manage transfer pricing risks and resolve double taxation issues through Advance Pricing Arrangements (APAs), Mutual Agreement Procedures (MAPs) and arbitration. Country-by-Country Reporting (CbCR) applies to eligible Singapore-headquartered multinational enterprise groups.
Taxpayers with share-based compensation arrangements will need to review their TNMM cost bases for YA 2026 onwards. They should also consider whether the one-off option for earlier years applies to them.
