IRAS E-Tax Transfer Pricing Guide

Learning CentreIRAS E-Tax Transfer Pricing Guide

IRAS E-Tax Transfer Pricing Guide 


The Inland Revenue Authority of Singapore (IRAS) released the sixth edition of its e-tax transfer pricing guidance on August 10. This guidance extended its coverage of intercompany financing, providing a few interesting examples, which this discussion illustrates with market data.


Paragraph 15.46 discusses intercompany loan guarantees in light of implicit support. The example states:


The parent company of a group with subsidiaries, which alone has an AA credit rating, guarantees a loan to one of its investee companies. Rating Company A rated Company X at BBB; company X is currently regarded as vulnerable to a further downgrade. Company X is unwilling to provide third-party security, so the parent company guarantees the loan instead.


Rating Company A is informed of the guarantee. Rating Company A incorporates the guarantee into its rating process, resulting in a rating of parent company A’s AA credit rating. Company X agrees to accept the loan at the parent company’s AA credit rating and pays back the full amount of its loan.


Consider a Singapore subsidiary of a US parent corporation. The Singapore subsidiary borrows 100 million Singapore dollars on February 14, 2018, for 10 years with a fixed interest rate of 3 percent.


The Monetary Authority of Singapore notes that the 10-year government bond rate on that date equals 2.25 percent. The 0.75 percent difference represents the credit spread for AA corporate debt.


A standalone borrower with a credit rating would have likely paid an interest rate of 3.75 percent since credit spreads for borrowers with a BBB credit rating would be near 1.5 percent. The US IRS might view the appropriate credit spread in this case to be 0.75 percent.



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