transfer pricing for foreign subsidiaries

Managing Singapore TP Risks • transfer pricing for foreign subsidiaries

The million dollar question:

Is your parent company transfer pricing documentation acceptable in Singapore?

Example: A US multinational company with subsidiaries around the world, including Singapore, recently prepared new US transfer pricing documentation.

The company applies their transfer pricing policies on a global basis. The US tax director instructs the Singapore tax director to use this documentation to support the prices charged by the US Company to the Singapore subsidiary.

Is the US documentation acceptable in Singapore?

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We are a Tier 2 transfer pricing firm that partners with multinational firms, applying our experience and expertise in transfer pricing to provide, prepare, document and assist in defending your international related party transactions.

Does your foreign-prepared transfer pricing documentation offer the following?

Adherence to Singapore laws and regulations
Transfer Pricing contracts
Perform local benchmarking
Penalty protection and reduce risk of audit
Relevance to local operations

Frequently asked questions.

I sign the tax return. What are my responsibilities as it relates to Transfer Pricing?

Under Singapore’s regime, Public Officers/Directors are obligated to determine their businesses’ compliance with transfer pricing prior to signing the tax return. Adjustments will be expected to be made where non-compliance with the rules has led to lower taxable income in Singapore. In addition to penalties on the company in the event of non-compliance, Public Officers can be held personally liable for false or misleading information.

We recommend Public Officers ensure that the business prepare a minimum level of transfer pricing documentation to substantiate the position taken in the tax return, and the transfer pricing documentation must satisfy Singapore transfer pricing requirements, not just foreign prepared documentation that does not address the local laws.

My company is loss making. What’s the risk?

Singapore transfer pricing rules focus on arm’s length profit and arm’s length price for the Singapore entity. Loss making entities in Singapore continue to be a focus point of IRAS through their risk engine analysis. The transfer pricing legislation has been drafted in a way that may allow IRAS to treat the incurrence of losses as evidence of the existence of non-arm’s length conditions if it cannot be supported from a commercial perspective.
The legislation also includes reconstruction powers which gives the IRAS the power to “reconstruct” a transaction if the business cannot support the commercial and financial reasons for the existing transactions.
If your business is loss making, transfer pricing documentation is critical to outline the commercial rationale of continuing low profits or losses.

When is transfer pricing documentation due?

Singapore introduced compulsory transfer pricing documentation effective from the year of assessment (YA) 2019.

Transfer Pricing Documentation should be prepared ideally at the time that the subsidiary enters into a controlled transaction otherwise how can you have certainty that the price is at arm’s length?

Singapore has a concession that allows Transfer pricing documentation to be prepared at the latest by lodgement of the tax return, otherwise how can the public officer be comfortable that the transfer pricing is arm’s length when they sign the tax return?

What are the main transfer pricing risks in Singapore?

Singapore taxpayers can face significant risks that can increase the company tax bill such as 1) transfer pricing adjustments 2) double taxation due to non-compliance with the arm’s length principle. Singapore taxpayers can face the following consequences:

Non-compliance with arm’s length principle 5% surcharge on the TP adjustment;
Not possible to perform year-end adjustments or retrospective adjustments;

Not possible to request assistance from tax authority in the event of double taxation issues.

Why Transfer Pricing Solutions Asia? What experience do you have?

We are a group of advisors from big four and mid tiered firms with extensive experience in various areas of transfer pricing including:

transfer pricing planning
documentation requirements
Transfer pricing contracts
local, regional and global benchmarking
planning and compliance related to Base Erosion and Profit shifting (BEPS) action plan
assisting in client risk reviews and audit defences

All our team members have dedicated experience in transfer pricing across various industries. Our transfer pricing practitioners also have extensive experience in different jurisdictions including US, Europe, Malaysia and South East Asia, Australia and the rest of the Asia Pacific Region.

Firm director Adriana Calderon is a transfer pricing leader in Singapore who has been skilling up the accounting and tax profession in Singapore since 2016 with training roles at Singapore Institute of Accredited Tax Professionals, Institute of Singapore Chartered Accountants and Singapore Institute of Technology. Her students are staff from the big four, mid tiered firm and Singapore Tax Authority (Inland Revenue Authority of Singapore - IRAS). She is frequently invited by the tax profession and IRAS to provide input on how IRAS should administrate the transfer pricing legislation in Singapore. Recently IRAS took our firm’s views to enact transfer pricing measures to take as a result of COVID -19. She has been also recognised as a top transfer pricing advisor by world tax leaders.