BSL Bulletin

Singapore introduced legislation to transact with related parties on arm’s length basis under section 34D of the Singapore Income Tax Act (“the Act”) which stipulates the requirement to transact with related parties on conditions comparable to transactions between 2 parties that were not related and dealing with each other independently. The Comptroller of Income Tax (“the Comptroller”) will determine the substance of the related party transactions, and where the Comptroller finds such transaction to be not on arm’s length between related parties, he would make TP adjustment to increase the income or decrease the deduction and/or the loss.

When a TP adjustment is made by the Comptroller a surcharge under Section 34E of the Act will apply at 5%. This is calculated at 5% of income increased or deduction or loss reduced regardless of whether the taxpayer is taxable or not.

Following from the above, Singapore has now mandated the requirement to keep compulsory transfer pricing documentation (“TPD”) under section 34F of the Act with effect from Year of Assessment 2019.

It is important to prepare TPD in order to substantiate that the TPs are consistent with the arm’s length principle as well as to resolve any TP dispute on cross border related party transactions with the other tax jurisdictions.

Unless exemption from TPD for specified transactions applies, taxpayers must prepare TPD for their related party transactions undertaken in a basis period when either of the following two conditions is met.

i. The gross revenue from their trade or business (excludes passive source income and capital gains or losses) for the basis period concerned is more than S$10 million

ii. Transfer pricing documentation was required to be prepared for the basis period immediately before the basis period concerned

Once the above conditions are satisfied, the TP guidelines provided by the Comptroller require contemporaneous TPD to be maintained by taxpayers in respect of non-domestic related party transactions relating to and exceeding the following thresholds.

TPD is required to be put in place no later than the time in completing and filing the tax return, in other words, by 30 November of the respective year of assessment. The TPD must be in English and it is important to state the date of completion on the TPD report. Furthermore, such TPD must be retained for at least 5 years from the end of the basis period in which the related party transaction took place.

The TPD must be furnished to the Comptroller within 30 days upon the taxpayer receiving a written Notice to provide the TPD.

The current TPD prepared can be used to support the subsequent two years of assessments’ related party transactions provided such transactions remain the same. The taxpayer can prepare the simplified Qualifying Past TPD (“QPTPD”) by using its past TPD by putting in a declaration that it has prepared a QPTPD and including an attachment copy of the QPTPD.

Fines up to $10,000 may be imposed for non-compliance for the following offences which the Comptroller may compound:

• TPD not prepared by the filing due dates
• TPD not prepared based on TPD rules
• TP not retained for a period of at least five years from the end of the basis period of related party transaction
• TPD not submitted to Comptroller within 30 days from written notice
• TPD which is false or misleading

On the other hand, the taxpayer are however not required to prepare TPD for their related party transactions undertaken in a basis period if their gross revenue is not more than S$10 million for current basis period as well as the immediate two preceding basis periods and they were required to prepare TPD for the previous two preceding basis periods.

Singapore has tried to alleviate the compliance cost of preparation of TPD for small and medium sized companies whose turnover is less than S$10 million. However, taxpayers who are not required to prepare TPD must still ensure they can substantiate that their related party transactions are carried out based on the arm’s length principle.

For bigger taxpayers despite the additional compliance costs to maintain TPD, this should put them in good stead to substantiate and defend the TP with related parties from aggressive tax jurisdiction that may result in otherwise adverse tax impact of double taxation or loss.

Contact Details
BSL Tax Services Pte Ltd

N Vimala Devi
Email: devi.vimala@bsl.sg
DID: +65 6833 6322

Writers’ Caveat
These articles have merely attempted to provide a broad overview on the subject matters. They are not in any way intended to be comprehensive and no specific action should be taken on the basis of the above without consulting your professional advisors.