Transfer pricing is one of the most crucial issues in international tax. It has become critical with the Organization for Economic Cooperation and Development (“OECD”) developing transfer pricing guidelines and is bringing leading nations together to stop companies from evading taxes by shifting profits to low-tax jurisdictions.
There are many misconceptions and myths with regards to transfer pricing practices around the world.
We have busted these myths to give your clients an understanding of what is required to comply with the transfer pricing rules in Singapore.
MYTH ONE: Small companies are not subject to transfer
Transfer pricing regulations apply to any company engaged in related party transactions regardless of their size. These companies can range anywhere from large multinational enterprises to small and medium enterprises.
In many instances, entrepreneurs, start-ups and small and medium enterprises are the focus of the tax authorities, especially companies in the digital space that have been under scrutiny of tax authorities due to high profile cases of lead MNEs in this industry.
MYTH TWO: Transfer pricing strategy is irrelevant
Transfer pricing strategy is the backbone to manage transfer pricing risks. Without a strategy in place, the management of transfer pricing risks is pointless as reactive transfer pricing is a recipe to increase the tax liability and penalties.
Tax authorities worldwide are imposing new and more severe transfer pricing requirements on companies concerning their transfer pricing arrangements. Failure to comply can result in significant penalties. Hence, it is better to get it right from the beginning than to be liable for a big tax bill due to mispricing.
MYTH THREE: Transfer pricing advisory is only needed
when compliance is needed
Transfer pricing advisory at the time of setting a related party transaction is critical to defending the price in front of tax authorities. If the price is incorrect since the beginning, a tax risk will be a hanging fruit that will equal in a higher tax liability.
Careful design and planning as early as possible in the implementation of any significant business strategy or restructure helps to ensure transfer pricing is an effective part of an overall tax planning strategy and realise savings in effective tax rates across the group.
MYTH FOUR: Only the big 4s can provide this service and is expensive
Our firm has a team of transfer pricing experts with big four experience that offer practical, proactive and cost-effective transfer pricing advisory. Transfer Pricing Solutions has been set up to have minimal overheads which keep our fee rates considerably lower than the staff at the Big 4 firms. This gives us the ability to spend further time to provide your clients with hands-on practical transfer pricing solutions.
As a specialist firm, we can identify and address transfer pricing exposures and opportunities, with the goal of developing and helping to implement commercial and tax-efficient transfer pricing policies and adapt them as circumstances change.
Transfer Pricing Solutions Asia is a boutique transfer pricing firm that provides practical, proactive and cost-effective advisory to your clients.
We can assist your clients with the preparation of transfer pricing documentation locally and regionally, Master File and Local File, local, regional and global benchmarking.
Singapore is often a preferred location for setting up headquarters as the door to conduct business in Asia. The IRAS has released its views on how Singapore HQ's should plan and implement their transfer pricing framework. Want to know more? Read our article with our views on IRAS TP Guidelines for Singapore HQs.
The Malaysian Finance Bill 2020 incorporates transfer pricing-related changes to the current Income Tax Act, 1967 (“ITA”). The changes permit significantly greater authority to the Malaysia Inland Revenue Board (“MIRB”) and re-emphasises the importance of transfer pricing compliance, with effect from 1 January 2021.
The OECD guidance emphasised that, besides interest rates, all terms and conditions of the financing transactions (including the volume of debt) should be tested against the arm’s length principle.