Transfer Pricing

IRAS endorses the arm's length principle, an internationally endorsed standard, to guide the pricing of transactions between related parties. IRAS subscribes to the principle that profits should be taxed where the real economic activities generating the profits are performed and where value is created. A proper application of transfer pricing rules will ensure this outcome.

The arm's length principle requires that transfer prices between related parties are equivalent to prices that unrelated parties would have charged under the same or comparable circumstances.

IRAS recommends that you adopt the following 3-step approach to apply the arm's length principle in your related party transactions:

• Step 1 - Conduct a comparability analysis to identify situations or transactions undertaken by unrelated parties that are comparable to the situations or transactions undertaken between related parties
• Step 2 - Identify the most appropriate transfer pricing method and tested party
• Step 3 - Determine the arm's length results

Legend:
CUP: Comparable uncontrolled price
TNMM: Transactional net margin method

Learn more about the 3-step approach (PDF, 1.6MB) (refer to section 5).

Transfer Pricing Adjustment and Surcharge for Non-Compliance with Arm's Length Principle

Where the pricing of related party transactions is not at arm's length and results in understated profit (or overstated loss) for the taxpayer in Singapore, IRAS will increase the profit (or reduce the loss) of the taxpayer in Singapore in accordance with Section 34D(1A) of the Income Tax Act 1947. 

Effective from the Year of Assessment (YA) 2019, when IRAS makes a transfer pricing adjustment under Section 34D, a surcharge of 5% on the amount of transfer pricing adjustment will be imposed. The 5% surcharge will be imposed regardless of whether there is any additional tax payable resulting from the transfer pricing adjustment. IRAS may consider remitting wholly or in part the surcharge for any good cause.

Learn more about the transfer pricing adjustment and surcharge for non-compliance with the arm’s length principle (PDF, 1.6MB) (refer to sections 8 and 9).

You must prepare and keep contemporaneous transfer pricing documentation to show that your related party transactions are conducted at arm's length.

Contemporaneous transfer pricing documentation refers to documentation and information that you have relied on to determine the transfer prices for related party transactions prior to or at the time of undertaking the transactions. IRAS also accepts transfer pricing documentation as contemporaneous when the documentation has been prepared not later than the filing due date of the Income Tax Return for the financial year in which the transactions took place.

In preparing contemporaneous transfer pricing documentation, you must use the latest information and data available at the time to show how the transfer prices for the transactions are determined or supported.

The preparation and maintenance of transfer pricing documentation facilitate review by tax authorities and therefore help resolve any transfer pricing issue that may arise. If taxpayers are unable to show that their transfer prices are at arm’s length through their transfer pricing documentation or they do not have transfer pricing documentation, they may suffer adverse consequences, such as double taxation arising from transfer pricing adjustment by IRAS or foreign tax authorities, penalties, etc.

Transfer Pricing Documentation Requirements

With effect from the Year of Assessment (YA) 2019, you are required to prepare transfer pricing documentation under Section 34F of the Income Tax Act 1947 if you meet certain conditions, unless exemption for specified transactions applies. If you are not required to prepare transfer pricing documentation under Section 34F, you are nonetheless encouraged to do so to better manage your transfer pricing risks.

A summary of transfer pricing documentation requirements under Section 34F is as follows:

Learn more about transfer pricing documentation requirements (PDF, 1.6MB) (refer to section 6).

Penalty for Non-Compliance with Transfer Pricing Documentation Requirements

Effective from YA 2019, a taxpayer is liable to a fine not exceeding $10,000 if it commits the following offences:

• Failure to prepare transfer pricing documentation in accordance with the prescribed timing or content;
• Failure to submit transfer pricing documentation within 30 days of a request by IRAS;
• Failure to retain transfer pricing documentation for at least 5 years; or
• Provision of any documentation that is false or misleading.

Learn more about the penalty for non-compliance with transfer pricing documentation requirements (PDF, 1.6MB) (refer to section 9).

1. A Singapore company is part of a multinational corporate group and its transfer pricing policy is determined by the overseas headquarters. The Singapore company may not be involved in the determination of its transfer prices. Moreover, as its related party transactions are relatively insignificant compared to those of other group members, there is no transfer pricing study conducted specifically for the Singapore company. The Singapore company’s transactions do not qualify for exemption from transfer pricing documentation. Can the Singapore company rely on the transfer pricing documentation pertaining to the group’s overall transfer pricing policy for the purpose of Section 34F of the Income Tax Act 1947?

   Although the Singapore company is not involved in determining the group’s overall transfer pricing policy, it must seek to understand how that transfer pricing policy is applied to its related party transactions, determine if that transfer pricing policy is consistent with IRAS’ transfer pricing guidelines and conduct regular reviews with its headquarters or other relevant group members to ensure compliance with the arm's length principle.

   The Singapore company must ensure that the transfer pricing documentation prepared by the corporate group supports the arm's length pricing of the Singapore company's related party transactions and contains details similar to those prescribed in the Income Tax (Transfer Pricing Documentation) Rules 2018. If not, the Singapore company must either prepare transfer pricing documentation in accordance with the Income Tax (Transfer Pricing Documentation) Rules 2018 or supplement the transfer pricing documentation prepared by the corporate group with information required by IRAS at the Group and Entity levels if such information have not been included.

2. A Singapore company regularly pays an overseas related party for the costs of performing administrative services. What is the transfer pricing documentation required for such an arrangement?

   Assuming that the Singapore company meets the conditions under Section 34F of the Income Tax Act 1947 for the preparation of transfer pricing documentation, the information to be included in its transfer pricing documentation are as prescribed in the Income Tax (Transfer Pricing Documentation) Rules 2018. It will also be useful if the Singapore company keeps records to explain the services provided by the overseas related party, the benefits it received and the basis used to compute the billed amount. Otherwise, there would not be clarity on the services that the Singapore company is paying for and whether the amounts charged are reasonable.

   For example, the Singapore company should enter into a written contract with the overseas related party detailing the services to be provided and how the amount of service charge is determined. There should also be checks in place to make sure that the terms of the contract are adhered to before paying each bill.

3. A Singapore company provides services to its overseas related parties. The remuneration for these services is bundled together with the price of goods supplied by the Singapore company to the same overseas related parties. Is such a practice acceptable to IRAS for transfer pricing purposes?

   In this case, IRAS will review whether the price of goods sold, reduced by an arm's length remuneration for the provision of the services, is at arm's length. In other words, there should be evidence to show that there is indeed a component embedded in the price of goods sold that represents the value of the services provided by the Singapore company to its overseas related parties. Alternatively, if similar goods bundled with services are provided by the Singapore company or its related entities to independent parties under similar circumstances, the bundled price of such unrelated party transactions can be used for comparison.

4. A Singapore company has a transfer pricing study in place and has prepared proper documentation on the transfer pricing study. Does the Singapore company need to seek IRAS’ agreement before implementing the transfer price established in the transfer pricing study?

   The Singapore company does not need to seek IRAS' agreement to implement the transfer price established through its transfer pricing study. The Singapore company is also not required to submit the transfer pricing documentation with its Corporate Income Tax Returns unless IRAS requests for it, in which case, the Singapore company is to submit the transfer pricing documentation within 30 days from IRAS’ request.

Your company must complete the Form for Reporting RPT if the value of RPT disclosed in the financial statements for the financial period exceeds S$15 million. This Form, which is available as part of the Corporate Income Tax Return (Form C), provides IRAS with relevant information to better assess companies' transfer pricing risks.

The value of RPT is the sum of:

1. All amounts received/ receivable from related parties and all amounts paid/ payable to related parties as reported in the Income Statement, but excluding compensation paid to key management personnel and dividends; and
2. Year-end balances of loans and non-trade amounts due from/ to all related parties.

If the value of RPT disclosed in the financial statements for the financial period exceeds S$15 million, your company should indicate 'Yes' in Item 31 of the Form C and provide the details in the Related Party Transactions tab. 

Learn more about the RPT reporting requirements (PDF, 514KB), including the procedure to revise the Form for Reporting RPT and the Frequently Asked Questions.

IRAS carries out TPA to review the transfer pricing and transfer pricing documentation of taxpayers to ensure they comply with the arm’s length principle and transfer pricing documentation requirements.

[Revised!] The TPA process is illustrated in this flowchart:

Learn more about the TPA process (PDF, 1.6MB) (refer to section 7).

APA is a dispute prevention facility under which IRAS and the taxpayer or relevant DTA partner agree in advance on a set of criteria to ascertain the pricing of a taxpayer’s related party transactions for a specific period of time.

Learn more about APA.

MAP is a dispute resolution facility provided under the MAP article in our Avoidance of Double Taxation Agreements (DTAs). Under MAP, IRAS and the relevant foreign competent authority (CA) resolve disputes regarding the application of the DTA. Usually, a MAP is entered into between 2 CAs, but it is also possible for IRAS to enter into a multilateral MAP involving 3 or more CAs.

Learn more about MAP.

Arbitration offers a recourse to resolve issues that have reached stalemate in MAP discussion.

Learn more about arbitration.

There should be arm's length charges for services provided between related parties, comparable to the charges for such services provided between unrelated parties under similar circumstances.

5% Cost Mark-Up for Routine Support Services

If the services provided between related parties are in the list of routine support services in Annex C of the e-Tax Guide on Transfer Pricing Guidelines (PDF, 1.6MB), IRAS is prepared to accept the charging of these routine support services at cost plus 5% mark-up, provided that:

1. The routine support services are only provided to related parties; and
2. All costs relating to the routine support services performed are taken into account in computing the 5% cost mark-up.

5% Profit Mark-up Under OECD Simplified Approach for Low Value-adding Intra-group Services

Where taxpayers are unable to apply the 5% cost mark-up because their routine support services do not fall within Annex C, they may consider applying the 5% profit mark-up under the OECD simplified approach for low value-adding intra-group services (‘OECD simplified approach’) when the following conditions are satisfied:

1. The routine support services meet the definition of low value-adding intra-group services for the OECD simplified approach;
2. The routine support services are not specifically excluded as low value-adding intra-group services for the OECD simplified approach;
3. The tax authority of the other party to the routine support services has similarly adopted the OECD simplified approach;
4. The service provider does not offer the same routine support services to an unrelated party; and
5. All costs relating to the routine support services performed are taken into account in computing the 5% profit mark-up.

Cost-Pooling Arrangement for Routine Support Services

Where routine support services are provided to related parties under a cost-pooling arrangement, IRAS is prepared to accept the charging of the costs of services provided with no mark-up if all the following conditions are satisfied:

1. Each participant's share of the costs must be borne in the form of cash or other monetary contributions;
2. The services are not provided to any unrelated party;
3. The provision of the services is not the principal activity of the service provider. If the costs of providing the services do not exceed 15% of the total expenses of the service provider for that financial year, the provision of the services is not treated as its principal activity;
4. The services are listed in Annex C of the e-Tax Guide on Transfer Pricing Guidelines (PDF, 1.6MB); and
5. There is documentation showing that the parties intended to enter into the cost-pooling arrangement before the provision of the services.

Strict Pass-through Costs

A taxpayer may merely act as the paying agent for services provided by a service provider (whether independent or related) to the taxpayer's related parties. When the taxpayer pays the service provider and onward charges these costs to its related parties, IRAS is prepared to consider these costs as strict pass-through costs and accept no mark-up on the onward charges when all the following conditions are met:

1. The services provided by the service provider for which the taxpayer passes on the costs are for the benefit of the related parties (benefits test);
2. The service provider charges an arm's length fee for the services provided;
3. The taxpayer is merely the paying agent and does not enhance the value of the services provided by the service provider; and
4. The related parties are legally or contractually liable for the payment of the costs. This condition can be met even if the taxpayer is legally or contractually liable to pay for services but it has a written agreement or email correspondence with its related parties for the latter to assume the liabilities relating to the services.

The taxpayer should nonetheless charge an appropriate arm’s length mark-up for its function in arranging and paying for the acquired services on behalf of its related parties.

Summary

Learn more about the application of the arm’s length principle to related party services (PDF, 1.6MB) (refer to section 14).

Related Party Financial Transactions Other Than Related Party Loans

Taxpayers may enter into cash pooling, hedging, financial guarantees or captive insurance arrangement with their related parties. As with any related party transaction, it is important to accurately delineate the actual financial transactions and conduct thorough functional analysis following the 3-step approach to apply the arm’s length principle. The arm’s length transfer price or remuneration of each party to the financial transactions will then be determined accordingly.

Related Party Loans

Applying the arm's length principle, the interest rates for related party loans should reflect the interest rates charged between unrelated parties for similar loans under similar circumstances.

For a related party domestic loan entered into prior to 1 Jan 2025, if the lender and borrower of that loan are both taxpayers in Singapore and the lender is not in the business of borrowing and lending, IRAS will restrict the interest expense claimed by the lender on the loan as a proxy to the arm’s length principle. Where the lender is in the business of borrowing and lending funds (for example, banks, other financial institutions or finance and treasury centres), the taxpayers should determine the interest rate based on the arm’s length principle.

[NEW!] For a related party domestic loan entered into on or after 1 Jan 2025, if the lender and borrower of a related party loan are both taxpayers in Singapore and neither of them is in the business of borrowing and lending, the taxpayers can apply the IRAS indicative margin to derive the interest rate regardless of the amount of the loan. If the taxpayers choose not to apply the IRAS indicative margin or either of them is in the business of borrowing and lending, they should determine the interest rate based on the arm’s length principle.

If the related party loan is a cross-border loan, taxpayers should ensure compliance with the arm's length principle.

IRAS does not regard interest-free related party loans as arm’s length transactions, unless taxpayers have reliable evidence that independent parties under comparable circumstances will similarly provide loans without charging any interest.

Indicative Margins for Related Party Loans

For each of your related party loans not exceeding S$15 million, you can approximate an arm’s length interest rate for that loan by adding the IRAS’ indicative margin to your choice of a base reference rate. This threshold of S$15 million does not apply to a related party domestic loan entered into on or after 1 Jan 2025 where neither parties to the loan are in the business of borrowing and lending.

IRAS publishes the indicative margin at the beginning of each calendar year as tabulated in Table A and Table B:

Table A: Indicative margins applicable to Interbank Offered Rates (“IBORs”) as base reference rates 

Table B: Indicative margins applicable to Risk-Free Rates (“RFRs”) as base reference rates 

Related party loans referenced to IBORs 

Table A reflects the indicative margins for related party loans obtained or provided prior to 2022 for which the base reference rates were IBORs, like the Singapore Inter Bank Offered Rate (“SIBOR”), the London Inter Bank Offered Rate (“LIBOR”), etc. 

From 2022, IRAS no longer publishes indicative margins for base reference rates that are IBORs. This is in line with the transition of IBORs to RFRs arising from the global IBOR reform. If you obtain or provide related party loans from 2022 that reference to IBORs, you are to determine the interest rates following the guidance provided in the IRAS’ Transfer Pricing Guidelines.

Related party loans referenced to RFRs

With the transition of IBORs to RFRs, IRAS has enhanced the methodology to derive indicative margins for base reference rates that are RFRs, like Singapore Overnight Rate Average (“SORA”), Secured Overnight Financing Rate (“SOFR”), Sterling Overnight Index Average (“SONIA”), etc. 

Table B reflects the indicative margins for related party loans obtained or provided from 2022 for which the base reference rates are RFRs. 

Transition of legacy related party IBOR loans to RFR loans

Existing products/ contracts that reference IBORs have to be transitioned to reference their corresponding RFRs. If you have legacy related party IBOR-based loans, you are to convert them to RFR-based loans. When converting such legacy IBOR-based loans, you cannot apply the indicative margins in Table B. You are to apply the guidance issued by the relevant governing bodies for the relevant IBOR/ RFR pairs. For example, if you are transitioning your legacy related party SOR-based or SIBOR-based loans to SORA-based loans, you are to apply the guidance issued by the Singapore Steering Committee for SOR & SIBOR Transition to SORA (such as the Report on Recommendation for Transition of Legacy SOR Contracts and the Report on Final Transition Approach for SIBOR Loans to SORA issued on 29 Jul 2021 and 30 Jun 2023 respectively), the Association of Banks in Singapore and the Monetary Authority of Singapore.

IRAS’ indicative margin is not mandatory

The indicative margin is an alternative to performing a detailed transfer pricing analysis to determine armʼs length interest rates and is not mandatory.

If you choose not to apply the indicative margin or if it is not applicable to you, you have to apply an interest rate in line with the armʼs length principle and prepare contemporaneous transfer pricing documentation if you are required to do so. If you are not required to prepare transfer pricing documentation under Section 34F of the Income Tax Act 1947, you may still wish to do so to better manage your transfer pricing risk.

Learn more about the application of the arm’s length principle to related party financial transactions (PDF, 1.6MB) (refer to section 15).

In place of multiple intra-group arrangements, members of a group may enter into a cost contribution arrangement (CCA) to share the development of intangibles or tangible assets or to obtain services from each other. For a CCA to satisfy the arm’s length principle:

1. All the participants to the CCA must share the upside and downside consequences of the risks associated with achieving the anticipated CCA outcomes;
2. The value of the participants’ contributions to the CCA must be consistent with what independent parties would have agreed to contribute under comparable circumstances given their proportionate share of the total anticipated benefits; and
3. Each participant’s share of the actual overall contributions to a CCA must be proportionate to its share of the overall expected benefits to be received under the CCA.

Learn more about the application of the arm’s length principle to CCAs (PDF, 1.6MB) (refer to section 17).

At times, the activities performed by a company in Singapore for its overseas related company may create for the overseas company a PE in Singapore. Profits that are attributable to the PE are liable to tax in Singapore.

However, if all the following conditions are met, there will be no attribution of profits to the PE and thus, there will be no Singapore tax liability for the overseas company arising from the inter-company service arrangement:

1. The Singapore company receives an arm's length fee from the overseas company that is commensurate with the functions performed, assets used and risks assumed by the Singapore company;
2. The fee paid by the overseas company to the Singapore company is supported by adequate transfer pricing documentation to demonstrate compliance with the arm's length principle; and
3. The overseas company does not perform any functions, use any assets or assume any risks in Singapore, other than those arising from the activities carried out by the Singapore company under the inter-company service arrangement.

Benefits from government assistance may have transfer pricing implications. Broadly, situations involving government assistance may concern (a) a member of a group receiving government assistance and (b) assistance being availed to independent parties within the market where a group operates. Where the benefits from government assistance are economically relevant (in that the benefits are taken into account by independent parties when evaluating the terms of a comparable transaction under comparable circumstances), such benefits would have to be examined as part of transfer pricing analysis conducted for transactions between related parties.

Learn more about how benefits from government assistance should be treated for transfer pricing purpose (PDF, 1.6MB) (refer to section 18).

Singapore-headquartered multinational enterprises (MNEs) meeting certain conditions are required to prepare and file CbC Reports with IRAS for financial years (FYs) beginning on or after 1 Jan 2017. These CbC Reports are supplementary to the transfer pricing documentation maintained by MNEs.

Learn more about CbC Reporting.