A common misconception is that the submission of tax return is the only compliance requirement in Singapore and often companies overlooked transfer pricing requirements applicable to companies with related party transactions. Managing intragroup finance in Asia can come with several challenges from macroeconomic issues to tax and transfer pricing.

Companies with related party transactions are responsible to comply with the transfer pricing provision in Singapore. The transfer pricing provisions in Singapore (and other countries) are part of the income tax act and their objective is to enforce compliance with the arm’s length principle. They operate as a separate mechanism (in addition to the tax rules) to limit the deductible expenses or control the underestimation of assessable income.

To put it simply, a tax computation can be correct under Singapore Tax rules but if some items of the tax computation are associated with transactions with related parties (e.g. payments received or paid to related parties), the company needs to ensure that those items are properly calculated under transfer pricing regulations.

In addition to Singapore tax return, companies with related party transactions have following additional compliance requirements:

1. Preparation of related party form that is submitted together with the corporate tax return. The objective of this form is to report to Singapore tax authority (IRAS) the type of related party transactions and its values during the financial year. After the form is submitted to IRAS, the tax authority will use this information to conduct transfer pricing audits to ensure that companies are complying with the transfer pricing regulations in Singapore.
2. Preparation of transfer pricing documentation by 30 November 2023. In Singapore preparation of transfer pricing documentation is mandatory. Transfer pricing documentation is critical to proof that the items of the tax computation associated with related party transactions are calculated correctly. It is also important to keep in mind that the taxpayer has the responsibility to proof that the price agreed in a related party transaction is at arm’s length (also know a market price).
3. Depending on the circumstances of the company, the transfer pricing documentation required will need to include both a master file and local file as Singapore requires all taxpayers to include a two tiered analysis i.e. 1) Group Analysis (also known under OECD as Master File) 2) Entity Analysis (also knows under OECD as Local File.
4. Singapore has also implemented country by country report which is a separate reporting requirement for companies with consolidated revenue above Sg$1.1 billion during the preceding financial year. Country by country report is due 12 months after the financial year end. E.g. 31 December 2021 year end are due to lodge country by country reporting by 31 December 2022.

Singapore has non compliance penalties for companies fail to prepare the compliance requirements (not knowing is general not accepted as a valid reason!).

In addition to noncompliance penalties, if transfer pricing provisions are overlooked, a company can be presenting an incorrect tax return. This situation can lead to certain consequences to the company ranging from heavy penalties for incorrect lodgement of tax return to imprisonment of the representative of the company that signs the tax return e.g. company’s director or legal representative.