Singapore IRAS warning on misuse of the services cost-plus 5% mark-up concession


It is common practice for businesses to price services transaction between related parties using cost plus a mark-up. In our experience, we have noticed a common trend to use a cost plus a 5% mark-up for any service transaction as an arm’s length price without considering the type of services being provided. 

A recurrent question that often arises is: Is it correct to use a cost plus 5% mark-up for any service transaction?

In a nutshell, no it’s not correct to use cost plus 5% mark-up for any service transaction.

The Inland Revenue of Singapore (IRAS) clarified in a recent statement Companies Servicing Only Related Parties when is it appropriate to use the cost plus 5% mark-up concession. The IRAS also explained in the transfer pricing guidelines fourth edition released in January 2017 what are the requirements that a taxpayer needs to meet to rely on the cost plus 5% mark-up concession.

What are the key requirements for a taxpayer to be eligible to use the cost plus 5% mark-up concession?

To alleviate compliance burden on companies, IRAS accept a cost plus 5% mark-up as an arm’s length price for certain routine support services if the following conditions are satisfied:

Routine support services are services that support the main business activity of a company different from the main activities by which the business derive its income, and therefore only a small mark-up is intended to be added. Examples of these services include support with accounting, auditing and legal matters, clerical and administration activities, computer support.  

  • The service provider does not offer the same routine support services to an unrelated party; and
  • All cost including direct, indirect and operating costs relating to the routine support services performed are taken into account in computing the 5% mark-up.

What is the benefit for taxpayers when using the cost plus 5% mark-up concession?

The main benefit for a taxpayer if using the cost plus 5% mark-up concession is that it does not have to prepare a comprehensive transfer pricing analysis including a benchmarking analysis to support the 5% mark-up.

However, simplified documentation is still required to substantiate the following:

  • A description of the activities being performed and why they are routine in nature
  • A description of the benefits received by the recipient (also known as ‘benefit test’)
  • A description of the costs included in the cost base
  • If used, an analysis of the allocation keys used to allocate costs among the related parties. 

Do I always have to use a cost plus 5% mark-up for routine services as an arm’s length price?

No. A taxpayer can adopt a mark-up that is different from the 5% mark up as an arm’s length price for a transaction involving routine service. For a different mark-up to be acceptable, the taxpayer will have to demonstrate that the mark-up is at arm's length. For this purpose, the taxpayer will be required to:

  • Support their basis with detailed transfer pricing analysis;
  • Apply the mark-up consistently year-after-year throughout the group until there are material changes to the circumstances or services provided; and
  • Review the mark-up regularly to ensure that it continues to reflect the arm's length conditions.


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