1. Art and Diseño

Guidance on Transfer Pricing Documentation
Ms Chan May Ling
M
Ch M Li
Tax Specialist
Corporate Tax Division
Corporate Tax Division
Mr Ng Songhua
p
(
)
Tax Specialist (International Tax)
Tax Policy & International Tax Division
09 February 2015 (Monday)
www.iras.gov.sg
Twitter.com/IRAS_SG
Facebook.com/irassg
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Agenda
Singapore Transfer Pricing Regime Transfer Pricing (TP) Documentation





What is TP documentation
Why prepare TP documentation
When to prepare TP documentation
How to prepare TP documentation
Compliance matters relating to TP documentation
What you need to know about transfer pricing audit and adjustments
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Si
Singapore Transfer Pricing Regime T
f Pi i R i
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Singapore TP Regime
Singapore TP Regime
Conducts MAP & APA
under DTAs
MAP & APA
Legislation Legislation
in Income Tax Act (
(2009)
)
Enacted S34D on
S34D on “Transactions not at arm’s length”
Provides guidance P
id
id
via e‐Tax guides, information at
information at TP guidance IRAS website
(2006)
TP consultation
(2008)
Conducts TP consultation
(e‐Tax guide)
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Singapore TP Regime
Singapore TP Regime
IRAS published an updated e‐Tax guide on Transfer Pricing Guidelines (second edition) on 6 Jan 2015
Pricing Guidelines (second edition) on 6 Jan 2015
It consolidated four previous e‐Tax guides to provide p
g
p
more comprehensive guidance:
Previous e
Previous
e‐Tax
Tax guides
guides
Transfer pricing guidelines
Transfer pricing consultation
Transfer pricing consultation Supplementary administrative guidance on advance pricing arrangements
advance pricing arrangements
Transfer pricing guidelines for related party loans and related party services
loans and related party services Date
23 Feb 2006
30 Jul 2008
30 Jul 2008
20 Oct 2008
23 Feb 2009
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
What is Transfer Pricing
What is Transfer Pricing
It concerns prices charged in transactions between p
g
related parties
Transaction between unrelated parties
Transaction between unrelated parties
 Conducted at a price approximating to the market price
T
Transaction between related parties
ti b t
l t d
ti
May not be reflective of market prices
h
f
d
 Tax authorities may impose transfer pricing adjustments when pricing is not reflective of market prices  Taxpayers should apply the arm
Taxpayers should apply the arm’ss length principle to length principle to
manage transfer pricing risks

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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Arm’ss Length Principle
Arm
Length Principle
IRAS endorses the arm
IRAS
endorses the arm’ss length principle as the length principle as the
standard to guide transfer pricing

Market forces of supply & demand are the best way to Market
forces of supply & demand are the best way to
allocate resources & reward effort

TTaxpayers & tax authorities will have a common basis to &t
th iti
ill h
b i t
deal with related party transactions & the incidence of transfer pricing adjustments will be reduced
transfer pricing adjustments will be reduced
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How to apply arm’ss length principle
How to apply arm
length principle
Three‐step approach to apply arm’s length principle
Step 1: Conduct comparability analysis
Step 1: Conduct comparability analysis
Step 2: Identify the most appropriate TP method & tested party
Step 3: Determine the arm’s length Step 3: Determine the arm’s length
results
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Step 1 – Conduct comparability analysis
Step 1 Conduct comparability analysis
Step 1 – Conduct comparability analysis
To identify & compare characteristics of transactions between related parties & those between independent parties
l d
i & h
b
i d
d
i
• Characteristics of goods, services or intangible properties
Functions performed assets used & risks assumed
• Functions performed, assets used & risks assumed
• Commercial and economic circumstances
To obtain a comprehensive assessment & identification of significant similarities & differences between taxpayers & entities to be b h
benchmarked against.
k d
i t
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Step 1 – Conduct comparability analysis
Step 1 Conduct comparability analysis
Updates:
Evaluating transactions on a separate or aggregate basis
Generally apply arm’s length principle on a transaction‐
by‐transaction basis for most precise approximation of arm’ss length conditions
arm
length conditions
 Aggregate basis for highly inter‐related transactions if independent parties also do likewise

Using multiple year data

Examine multiple year data instead of single year data to Examine
multiple year data instead of single year data to
enhance reliability of comparability analysis
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Step 1 – Conduct comparability analysis
Step 1 Conduct comparability analysis
Updates:
Considering losses
Generally businesses’ objective is to generate profits
 Transacting with related party at a loss may indicate compensation not at arm’s length
 Claim that the loss is genuine for various reasons must be Claim that the loss is genuine for various reasons must be
supported with evidence that independent party would likewise incur loss

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Step 1 – Conduct comparability analysis
Step 1 Conduct comparability analysis
Updates
Selecting external comparables

Commercial databases
– No preference so long as it provides reliable information for comparability analysis

Comparables with publicly available information
Comparables with publicly available information – More reliable as information readily available and verifiable

Non‐local comparables
– Use local comparables because of higher degree of comparability
– Use regional comparables if limited reliable local comparables

L
Loss‐generating comparables
ti
bl
– May not be reflective of normal business conditions
– To exclude comparable if it has weighted average loss for tested To exclude comparable if it has weighted average loss for tested
period or losses for more than half of the tested period
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Step 2 – Identify the most appropriate TP
TP method & tested party
th d & t t d
t
Step 2 – Identify the most appropriate TP method & tested party
Step 2 the most appropriate TP method & tested party
Traditional transaction methods
Transactional profits methods
• CUP method
• Transactional profit split method
• Resale price method
o Residual analysis approach
• Cost plus method
Cost plus method
o Contribution
Contribution analysis approach
analysis approach
• Transactional net margin method (TNMM) using indicators like: o Operating
O
ti profit margin (Operating profit / Sales)
fit
i (O
ti
fit / S l )
o Full cost mark‐up (Operating profit / Total costs)
o Value‐added cost mark‐up (Operating profit / Operating costs)
o Return on asset (Operating profit / operating assets) o Berry ratio (Ratio of gross profit to operating expenses)
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Step 2 – Identify the most appropriate TP
TP method & tested party
th d & t t d
t
Updates:
Berry ratio
Ratio of gross profit to operating expenses
Ratio
of gross profit to operating expenses
 Should only be used in limited cases as sensitive to classification of costs
 May be used when these circumstances are present: 
– Acts as intermediary purchasing goods from related parties and –
–
–
–
on selling them to other related parties;
on‐selling them to other related parties;
Does not perform any value‐add functions other than distribution;
Value of functions is not affected by value of products distributed; Direct link between operating expenses & gross profits; and
Does not employ any intangibles
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Step 3 – Determine arm
Step 3 Determine arm’ss length results
length results
Step 3 – Determine the arm’s length results
Apply the selected TP method on the data of the comparable i d
independent party transactions to arrive at the arm’s length result
d
i
i
h
’ l
h
l
To enhance reliability of the comparability analysis, taxpayers could apply the interquartile range to determine the arm’s length l th i t
til
t d t
i th
’ l th
remuneration
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
T
Transfer Pricing Documentation
f Pi i D
i
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Updated TP Documentation guidelines
Updated TP Documentation guidelines
First set of guidelines on TP documentation published First
set of guidelines on TP documentation published
on 23 Feb 2006
2006 id li
2006 guidelines introduced more than 8 years ago:
i t d d
th 8
Business models have evolved
 Related party transactions have become more complex
 Some tax authorities appear to have increased their enforcement activities & imposed stricter penalties and
enforcement activities & imposed stricter penalties and requirements

Timely to review the 2006 guidelines –
Timely
to review the 2006 guidelines – part of IRAS
part of IRAS’ regular review and updates of its e‐Tax guides
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Updated TP Documentation guidelines
Updated TP Documentation guidelines
Public consultation in Sep 2014
Public consultation in Sep 2014
Received comments from 16 respondents
 IRAS published its response on 16 Jan 2015
IRAS published its response on 16 Jan 2015

Updated guidelines:
Set out the types of TP documentation & compliance matters which IRAS expects its taxpayers to observe
Reflected various comments from the public consultation
 Reflected various comments from the public consultation to ease compliance costs. Examples:
– To introduce materiality thresholds for TP documentation
To introduce materiality thresholds for TP documentation
– To exclude domestic transactions from TP documentation requirement

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What is TP Documentation?
What is TP Documentation?
Taxpayers transacting with related parties should:
Taxpayers transacting with related parties should:
Apply the arm’s length principle
 Prepare records as evidence that the pricing of these Prepare records as evidence that the pricing of these
transactions is arm’s length

Such records are known as TP documentation
Such records
are known as TP documentation
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Why prepare TP Documentation?
Why prepare TP Documentation?
Taxpayers achieve the following objectives
Taxpayers achieve the following objectives





To evaluate their compliance with the transfer pricing rules before or at the time of filing their tax returns
To readily demonstrate that their transfer prices are determined in accordance with the arm’s length principle to manage domestic & cross‐border transfer pricing risks
g
p
g
To defend their transfer pricing in event of a transfer pricing audit by the tax authorities
TTo help tax authorities resolve transfer pricing issues h l
h ii
l
f
i i i
under the MAP
To facilitate tax authorities in the discussion & conclusion
To facilitate tax authorities in the discussion & conclusion of APA agreements
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Why prepare TP Documentation?
Why prepare TP Documentation?
If taxpayers are unable to provide TP If
taxpayers are unable to provide TP
documentation to substantiate their transfer prices, they may suffer adverse consequences.
they may suffer adverse consequences.
For example, IRAS may 
Make an upward transfer pricing adjustment if it is established that taxpayers have understated their profits

Decline MAP discussions with foreign tax authorities to resolve double taxation suffered by taxpayers

Decline APA application by taxpayers
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
When to prepare TP Documentation?
When to prepare TP Documentation?
Taxpayers should prepare & keep TP documentation Taxpayers
should prepare & keep TP documentation
on a contemporaneous basis
Contemporaneous TP documentation refers to:
Contemporaneous TP documentation refers to: a) Documentation & information relied upon to determine p
p
g
the transfer price prior to or at the time of undertaking the transactions; and b) For ease of compliance, documentation prepared at any time no later than the time of completing & filing the tax return for the financial year in which the transaction takes place
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When to prepare TP Documentation?
When to prepare TP Documentation?
Example on contemporaneous TP documentation
Example on contemporaneous TP documentation Taxpayer’s financial year (FY)
Latest available comparable il bl
bl
data for the benchmarking study to set prices for the FY
study to set prices for the FY 1 Jan 2015 to 31 Dec 2015
Data up to FY 2013 **
When to prepare & complete Any time before due date for filing TP documentation
TP documentation
tax return for YA 2016 although
tax return for YA 2016 although such documentation should ideally be done before the start of the FY, i.e. prior to 1 Jan 2015
g
p
p
* TP documentation using data up to FY 2013 is acceptable as contemporaneous
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When to prepare TP Documentation?
When to prepare TP Documentation?
IRAS is mindful of compliance & administrative costs
IRAS is mindful of compliance & administrative costs
Taxpayers are not expected to incur compliance costs disproportionate to the amount of tax revenue at risk or
disproportionate to the amount of tax revenue at risk or complexity of transactions
 Taxpayers assess the adequacy & extent of their TP d
documentation by evaluating i b
l i
– Whether TP risks in respect of their transactions or arrangements are high
arrangements are high
– Whether they are able to demonstrate compliance with arm’s length principle to avoid adverse consequences
 IRAS has provided some administrative rules where taxpayers are not expected to prepare TP documentation
taxpayers are not expected to prepare TP documentation

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When to prepare TP Documentation?
When to prepare TP Documentation?
Administrative rules – Taxpayers are not expected to prepare TP documentation for such transactions:
prepare TP documentation for such transactions:
Type
Description
a)) LLocall
transactions
TTransactions
ti
b t
between taxpayer and its Singapore t
d it Si
related party subject to same Singapore tax rates for both parties
p
b) Related domestic loan
Loan provided between taxpayer and its Singapore related party and the lender is not in the business of borrowing or lending
Service with 5% cost mark‐up under IRAS’ c) Routine support service administrative practice for routine support service
administrative practice for routine support service
d) APA agreement Transactions covered by APA agreement. Only keep relevant documents for annual compliance report.
relevant documents for annual compliance report.
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
When to prepare TP Documentation?
When to prepare TP Documentation?
Administrative rules (continue):
Type
Description
e) Transactions not exceeding exceeding
thresholds
Related party transactions, excluding (a) to (d), which value or amount disclosed in current year’ss which value or amount disclosed in current year
financial accounts does not exceed thresholds
Category of related party
Category
of related party transaction
Threshold (S$) per
Threshold
(S$) per FY
Purchase of goods from all related parties
15 mil
Sale of goods to all related parties
15 mil
Loans owed to all related parties
15 mil
Loans owed by all related parties
15 mil
All h
All other categories of related party
i
f l d
transactions *
i
*
1 mil per category
il
* Examples ‐ service income, service payment, royalty income, royalty expense rental income rental expense For purpose of
royalty expense, rental income, rental expense. For purpose of applying the threshold, aggregate amount for each category.
© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
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When to prepare TP Documentation?
When to prepare TP Documentation?
Administrative rules (continue):
Administrative rules (continue):

Despite administrative rules to simplify requirement for TP documentation taxpayers have to evaluate & decide
TP documentation, taxpayers have to evaluate & decide whether TP documentation is necessary for the purpose of complying with different TP documentation rules of py g
other tax authorities, e.g. arising from
– Different simplification rules p
– Different thresholds for waiver of TP documentation
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
When to prepare TP Documentation?
When to prepare TP Documentation?
Example:
SingCo has 2 principal activities: h
l
 Re‐sells electrical appliances
 Procures components & assembles them into &
bl h
i
office equipment for sale
It also provides accounting services to related l
id
i
i
l d
parties
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When to prepare TP Documentation?
When to prepare TP Documentation?
Example: (continue)
Details of electrical appliances business
Details of electrical appliances business
Purchases from a related party in Japan (covered by an APA agreement between Japan & Singapore)
Purchases from unrelated parties
Sales to a related party in Singapore subject to the to a related party in Singapore subject to the
same tax rate as SingCo
p
Sales to unrelated parties
TP documentation not expected as transaction is covered by APA agreement. It has to keep relevant p p
documents to prepare APA annual compliance report.
S$85 mil
S$85 mil
S$25 mil
S$30 mil
S$90
$ mil
TP documentation not expected as transaction is
expected as transaction is a local transaction subject to the same tax rate as SingCo
SingCo.
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
When to prepare TP Documentation?
When to prepare TP Documentation?
Example: (continue)
Details of components procurement & assembly
Details of components procurement & assembly business
Purchases of components
P
h
f
t from unrelated parties
f
l t d
ti
Sales of office equipment to related company in Malaysia
Royalty paid to holding company in UK for branding of office equipment
TP documentation expected as transaction does not fall
as transaction does not fall within the administrative rules & the amount exceeds the threshold of S$15 mil.
the threshold of S$15 mil.
S$55 il
S$55 mil
S$70 mil
S$0.8 mil
TP documentation not expected as the amount
expected as the amount of royalty payment does not exceed the threshold of S$1 mil.
of S$1 mil.
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When to prepare TP Documentation?
When to prepare TP Documentation?
Example: (continue)
SingCo received fees of S$6 mil from related parties for accounting services

TP documentation is not expected if SingCo applied the 5% cost mark‐up according to the administrative practice for routine support services
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How to prepare TP Documentation?
How to prepare TP Documentation?
TP documentation should be prepared at Group & Entity level
l l
Level Description
p
Group Group’s global businesses relevant to the business operations in Singapore which include:
• Overview
• Organisation structure
• Nature of the global business operations N t
f th l b l b i
ti
• Overall transfer pricing policies Entity Details of
Details of the Singapore taxpayer’s business the Singapore taxpayer’s business
operations & its specific related party transactions
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
How to prepare TP Documentation?
How to prepare TP Documentation?
Group Level
General information on the Group as at the end of the FY
General information on the Group as at the end of the FY

Details (include a chart) on the worldwide organisational structure, showing location & ownership linkages among all related parties transacting with the Singapore taxpayer
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
How to prepare TP Documentation?
How to prepare TP Documentation?
Group Level
Description of Group
Description
of Group’ss business relevant to Singapore taxpayer business relevant to Singapore taxpayer
for the FY






Group’s lines of business, products & services, geographic markets & key competitors
Industry dynamics, market, regulatory & economic conditions in which the group operates
Group’s business models & strategies (include important changes in recent years such as restructuring, acquisition or divestiture)
Important drivers of business profits (include intangibles & the legal p
p
(
g
g
owners)
Principal business activities & functions of each party in the group (
(include charts showing the supply chains of products & services)
g
pp y
p
)
Business relationships (services provided, goods sold, financing arrangements, development/ownership/exploitation of intangibles, etc)
Group s financial position (relating to lines of business Group’s
financial position (relating to lines of business
involving the Singapore taxpayer) for the FY
© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
34
How to prepare TP Documentation?
How to prepare TP Documentation?
Entity Level
General information on the Singapore taxpayer as at the end G
li f
i
h Si
h
d
of the FY
Description of management structure of the Singapore taxpayer (include Description
of management structure of the Singapore taxpayer (include
description of related parties to whom the Singapore management reports for its operations)
 Organisational chart of the Singapore taxpayer, showing the number of l h
f h
h
h
b
f
employees in each department

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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
How to prepare TP Documentation?
How to prepare TP Documentation?
Entity Level
D
Description of the Singapore taxpayer’s business for the FY
i i
f h Si
’ b i
f h FY
Singapore taxpayer’s lines of business, products & services, geographic markets & key competitors
markets & key competitors
 Industry dynamics, market, regulatory & economic conditions in which the Singapore taxpayer operates
 Singapore taxpayer’s business models & strategies (include important (
changes in recent years such as restructuring, acquisition or divestiture involving the Singapore taxpayer)

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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
How to prepare TP Documentation?
How to prepare TP Documentation?
Entity Level
TTransactions between the Singapore taxpayer & related i
b
h Si
& l d
parties subject to TP doc for the FY
Details on transactions between the Singapore taxpayer & its related Details
on transactions between the Singapore taxpayer & its related
parties (include identities of the related parties, the relationship, amounts & countries involved)
 Contracts or agreements showing the terms of the transactions
h
h
f h
 Detailed functional analysis (functions performed, assets including intangibles used &/or contributed & risks borne) of the Singapore g
/
)
g p
taxpayer & relevant related parties with respect to the transactions (include any changes compared to prior years)

37
© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
How to prepare TP Documentation?
How to prepare TP Documentation?
Entity Level
T
Transfer pricing analysis/benchmarking
f
i i
l i /b h
ki








Choice of transfer pricing method & reasons to substantiate method is most appropriate
most appropriate Choice of tested party & reasons to support the choice
Details on comparables & screening criteria for choosing the comparables
Comparability analysis of related party transaction/tested party & the
Comparability analysis of related party transaction/tested party & the comparables
Details of (& reasons for) any adjustments made to achieve comparability
A ’ l th i /
i h d t il d
t ti &
l i
Arm’s length price/margin, show detailed computation & explain any assumption made
Details/reasons to support the determination & use of the range (if an arm’s length range is used)
Segmented financial accounts with respect to the transactions to show operating results of the tested party & explain any assumption made to derive the segmented information
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How to prepare TP Documentation?
How to prepare TP Documentation?
If the group has prepared similar TP documentation If
the group has prepared similar TP documentation
for purposes of complying with the requirements of other tax jurisdictions, such documentation may
other tax jurisdictions, such documentation may form part of the TP documentation for Singapore tax purposes if it is relevant
tax purposes if it is relevant
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Compliance matters relating to TP D
Documentation
t ti
Contemporaneous TP documentation
Contemporaneous TP documentation
TP documentation to be prepared on a contemporaneous basis
 Date of creation or update of each document should be stated

Submission of TP documentation
Not required to be submitted with tax returns
q
 To be submitted to IRAS within 30 days upon request
 Taxpayers may be penalised for not complying with Taxpayers may be penalised for not complying with
record keeping requirements if they are unable to provide the TP documentation upon IRAS’ request

40
© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Compliance matters relating to TP D
Documentation
t ti
Periodic review of TP documentation
Periodic review of TP documentation
To ensure:
 Accuracy of financial & economic analysis
 Relevance of applied transfer pricing method
 Transfer prices are still arm
Transfer prices are still arm’ss length
length
To update:
p
 When there are material changes to operating conditions that impact functional or transfer pricing analysis, or
 At least once every three years
At least once every three years
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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Compliance matters relating to TP D
Documentation
t ti
Retention period of TP documentation
Retention period of TP documentation
To retain TP documentation for 5 years from the relevant YA as required under S67 of the ITA
 May have to retain the TP documentation for longer h
h
d
f l
periods if involved in audit or MAP

Form of TP documentation
Form of TP documentation
Store in any medium, whether paper, electronic form or any other system
 Must be able to promptly provide the TP documentation to IRAS in hardcopy or softcopy upon request

Translation of TP documentation not in English
l i
f d
i
i
li h

IRAS may request for translation of TP documentation not written in English
written in English 42
© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
What you need to know about What
you need to know about
transfer pricing audit & adjustments
43
© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Transfer pricing audit and adjustments
Transfer pricing audit and adjustments
Transactions between related parties may not Transactions
between related parties may not
reflect market price To prevent price distortion, tax authorities may:
Audit the prices of transactions between related parties; and
 Make transfer pricing adjustments bringing about double taxation

What is IRAS’ audit programme? What can taxpayers do to eliminate double taxation or avoid
taxpayers do to eliminate double taxation or avoid transfer pricing disputes?
44
© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
What is Transfer Pricing Consultation?
What is Transfer Pricing Consultation?
What is Transfer Pricing Consultation (TPC)
What is Transfer Pricing Consultation (TPC) 
A programme through which IRAS reviews & audits the transfer pricing methods & documentation of selected taxpayers Objectives of TPC
TTo ensure taxpayers comply with transfer pricing t
l ith t
f
i i
guidelines
 To identify areas in which IRAS can advise taxpayers on y
p y
good practices in transfer pricing

45
© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Who may be selected for TPC?
Who may be selected for TPC?
Taxpayers are selected for TPC based on risk Taxpayers
are selected for TPC based on risk
indicators such as:
Value of related party transactions
Value
of related party transactions
 Performance of business over time
 Likelihood of taxable profits being understated through Likelihood of taxable profits being understated through
inappropriate transfer pricing

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© 2015 Inland Revenue Authority of Singapore. All Rights Reserved.
Who may be selected for TPC?
Who may be selected for TPC?
Taxpayers with high transfer pricing risks, e.g.
Taxpayers with high transfer pricing risks, e.g.







Transactions with cross‐border related parties that are of large value relative to other transactions
Transactions with related parties subject to a more favourable tax treatment
Unusual recurring losses or large swings in operating results
Unusual recurring losses or large swings in operating results
Operating results that are not in line with businesses in comparable circumstances
Use of intellectual property, proprietary knowledge or other intangibles in the business
Transactions involving R&D or marketing activities which could
Transactions involving R&D or marketing activities which could lead to development or enhancement of intangibles
Indications that the transactions are likely to be subject to t
transfer pricing audit by tax authorities
f
i i
dit b t
th iti
47
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TPC process
48
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What if suffered double taxation?
What if suffered double taxation?
Taxpayers can choose to resolve double taxation Taxpayers
can choose to resolve double taxation
through:
Taking legal remedies in the jurisdiction in which the Taking
legal remedies in the jurisdiction in which the
adjustments are made; and / or
 Requesting IRAS to resolve the issue through Mutual Agreement Procedure (MAP)
Agreement Procedure (MAP)

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What is MAP?
What is MAP?
MAP is a dispute resolution facility
MAP is a dispute resolution facility
Provided under the MAP Article in the Singapore’s tax treaties.
 Through which IRAS and the relevant foreign competent authority agree on the transfer pricing for their taxpayers to eliminate double taxation.

50
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How to apply for MAP?
How to apply for MAP?
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How to avoid transfer pricing disputes?
How to avoid transfer pricing disputes?
Taxpayers can avoid transfer pricing disputes for its Taxpayers
can avoid transfer pricing disputes for its
related party transactions for future years through applying for Advance Pricing Arrangements (APAs)
applying for Advance Pricing Arrangements (APAs) 52
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What is APA?
What is APA?
APA is a dispute prevention facility
APA is a dispute prevention facility
Provided under the MAP Article in the Singapore’s tax treaties and domestic tax law.
 Through which IRAS and the taxpayer or the relevant foreign competent authority agree in advance a set of criteria to ascertain the transfer pricing for a specific p
g
p
period of time. 
There are 3 types of APA:
There are 3 types of APA:
Type
Description
Unilateral
An agreement
An agreement between IRAS and a taxpayer.
between IRAS and a taxpayer
Bilateral
An agreement between IRAS and one of its tax treaty partners.
Multilateral
g
or more of its tax treaty y
An agreement between IRAS and two
partners.
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How to apply for APA?
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At a glance: Characteristics of MAP/APA
At a glance: Characteristics of MAP/APA
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At a glance: Characteristics of MAP/APA
At a glance: Characteristics of MAP/APA
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MAP/APA – Expectations & obligations
MAP/APA Expectations & obligations
Acceptance of MAP or APA is at the discretion of the Acceptance
of MAP or APA is at the discretion of the
competent authorities
IRAS will apply best efforts to conclude every case in a prompt, efficient and effective manner

Complexity of issues will determine the actual time needed to resolve the case
Negotiation is between competent authorities

Taxpayers do not participate
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MAP/APA – Expectations & obligations
MAP/APA Expectations & obligations
MAP and APA do not prevent taxpayers from using MAP
and APA do not prevent taxpayers from using
other remedies under domestic tax law

Taxpayers should inform the competent authorities if Taxpayers
should inform the competent authorities if
MAP or APA matter is under legal or judicial proceedings
Taxpayers are not obliged to accept the outcome Taxpayers
are not obliged to accept the outcome
agreed between the competent authorities
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MAP/APA – Expectations & obligations
MAP/APA Expectations & obligations
Success of MAP and APA process depends on Success
of MAP and APA process depends on
cooperation from taxpayers. Taxpayers should:







Act in good faith
Act
in good faith
Comply with all process requirements
Provide access to TP documentation
Be forthcoming in providing complete and reliable information and analysis
Adhere to stipulated timelines
Adhere to stipulated timelines
Update IRAS on all information provided/received from the competent authorities
Provide the same set of information to IRAS and relevant competent authorities
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MAP/APA – Expectations & obligations
MAP/APA Expectations & obligations
Lack of cooperation may result in:
Lack of cooperation may result in:
Rejected applications
 Discontinued MAP and APA processes
p
 No consensus reached

If such an event happens, taxpayers will have to If
such an event happens taxpayers will have to
consider other options to eliminate double taxation or manage transfer pricing risks
or manage transfer pricing risks
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MAP/APA – Expectations & obligations
MAP/APA Expectations & obligations
MAP and APA can be time
MAP
and APA can be time‐consuming
consuming and resource and resource
intensive

Taxpayers should evaluate and apply for MAP or APA only Taxpayers
should evaluate and apply for MAP or APA only
if:
– Incidence of double taxation is certain or highly probable
– They have robust basis and TP documentation
– They have necessary resources to support the process
y
y
pp
p
– They have conducted an in‐depth cost‐benefit analysis to determine suitability of MAP and APA
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What are transfer pricing adjustments?
What are transfer pricing adjustments?
Adjustments made in tax returns or after filing of tax Adjustments
made in tax returns or after filing of tax
returns:
Year‐end adjustments at year‐end closing of accounts
Year‐end
adjustments at year‐end closing of accounts
 Compensating adjustments
 Self‐initiated retrospective adjustments
Self initiated retrospective adjustments
 Corresponding adjustments

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What are transfer pricing adjustments?
What are transfer pricing adjustments?
Year end adjustments at year
Year‐end
adjustments at year‐end
end closing of closing of
accounts
Taxpayers actual results at year
Taxpayers’
actual results at year‐end
end closing of accounts closing of accounts
different from arm’s length prices in their transfer pricing analyses
 Adjustments to bring actual results to arm
Adjustments to bring actual results to arm’ss length prices
length prices
 Adjustments taxable or allowable for tax purpose if
– Taxpayers have transfer pricing analyses & Taxpayers have transfer pricing analyses &
contemporaneous TP documentation;
– Adjustments are made symmetrically in affected related parties’ accounts to avoid double taxation / double non parties
accounts to avoid double taxation / double non
taxation; and
– Adjustments made before filing tax returns

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What are transfer pricing adjustments?
What are transfer pricing adjustments?
Compensating adjustments
Compensating adjustments
Taxpayers’ actual results different from arm’s length prices provided in the APA agreements
 Adjustments to bring actual results to arm’s length prices in accordance with the APA agreements
 Adjustments taxable or allowable for tax purpose 
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What are transfer pricing adjustments?
What are transfer pricing adjustments?
Self‐initiated
Self
initiated retrospective adjustments
retrospective adjustments
Adjustments arose from taxpayers’ review of past transfer prices due to subsequent changes in circumstances:
– Comply with global transfer pricing policy
– Reflect revisions in transfer pricing analyses
– Avoid potential transfer pricing adjustments by a tax Avoid potential transfer pricing adjustments by a tax
authority
– Account for the arm’s length charge for a transaction h h
l
l k d
which was previously overlooked
 Downward adjustments not allowable for tax purpose in the absence of contemporaneous TP documentation
the absence of contemporaneous TP documentation
 Upward adjustment is taxable if doing so is in accordance with arm’s length price

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What are transfer pricing adjustments?
What are transfer pricing adjustments?
Corresponding adjustments
Corresponding adjustments

Adjustments to eliminate double taxation arising from transfer pricing adjustments by tax authorities
IRAS will only consider making corresponding adjustments when:
adjustments when:
There is a tax treaty between Singapore and the foreign jurisdiction of the tax authority that made the transfer i i
dj
d
pricing adjustments; and
 Taxpayers have applied for MAP and is accepted by IRAS and the foreign tax authority.
and the foreign tax authority.

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Thank you!
This information aims to provide a better general understanding
of IRAS
IRAS’ practices and is not intended to comprehensively
address all possible tax issues that may arise.
This information is correct as at 28 Jan 2015. While every effort
has been made to ensure that this information is consistent with
existing law and practice, should there be any changes, IRAS
reserves the right to vary our position accordingly.
www.iras.gov.sg
Twitter.com/IRAS_SG
Facebook.com/irassg
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