Singapore increases focus on transfer pricing
Transfer pricing regulations are gaining momentum among big and small economies around the globe and Singapore is no exception. Last year, Singapore introduced revised transfer pricing guidelines to provide guidance on transfer pricing provisions and to ensure better compliance. Notably, the globally prevalent compulsory ‘contemporaneous documentation’ requirements were also introduced in Singapore by these guidelines with some exemptions for small taxpayers.
This year, the authorities have introduced Country-by-Country (CbC) reporting requirements for Singapore domiciled multinationals, in line with transfer pricing documentation recommendations under Action 13 of G20/Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Project.
New disclosure requirement and its applicability
Recently, the Inland Revenue Authority of Singapore (IRAS) introduced new disclosure requirements for reporting of related party transactions. The given disclosure requirement (RPT Form) will be applicable from financial year 2017 (i.e. assessment year 2018) onwards, whereby taxpayers are now required to file the RPT Form along with their yearly income tax return (Form C).
The new disclosure requirements are applicable to companies that have aggregate related party transactions above SGD 15 million in a financial year. In this regards, the guidelines require the taxpayer to consider both local as well as cross-border related party transactions while deriving the aggregate of the related party transactions.
While computing aggregate related party transactions, taxpayers need to consider all amounts received/receivable from related parties and all amounts paid/payable to related parties as reported in the companies’ audited accounts for the year. Apart from this, for aggregation, year-end balances of loans and non-trade amounts due to/from related parties also need to be considered. However, compensations paid to key management personnel and dividends need to be excluded.
Ultimate holding company details
The disclosure form requires mandatory reporting of the name along with the country code of the ultimate holding company of the taxpayer.
Transaction wise disclosure
All transactions with related parties during the year should be disclosed under the five categories below:
Additional disclosure for purchase and sale transactions
- Sale and purchase of goods;
- Services income and expenses;
- Royalty, licence fee and other income or expenses for intellectual property rights;
- Interest income and expenses; and
- Other income and expenses.
For cross-border related party transactions pertaining to the purchase or sale of goods/services, the taxpayer needs to separately disclose its entity details including the country code, relationship and amount of transactions for the top five foreign related parties in terms of the value of such transactions.
Related party definition
Section 34D of Singapore Income Tax Act, 1948 (Act) provides for the applicability of transfer pricing provisions in the case of transactions between related parties as defined under sub-section 16 of section 13 of the Act.
However, the guidelines issued for related party disclosure specifically provide that reporting of related party transactions will be consistent with the transactions disclosed in companies’ audited accounts, prepared according to the applicable accounting standards and the taxpayer is not required to determine whether a particular related party falls within the provisions of section 34D of the Singapore Income Tax Act.
Penalty for non-compliance
The RPT Form will be considered a part of the income tax return (Form C). Thus, all penalties of non-filing or incorrect filing of income tax returns will be applicable for non-compliance with the above disclosure requirements.
Transfer pricing documentation
Companies are not required to submit their transfer pricing documentation together with the RPT Form or Income Tax Return. However, they are required to prepare and maintain contemporaneous transfer pricing documentation in line with the transfer pricing guidelines. Such documentation needs to be submitted to the IRAS within 30 days of the request.