Introduction to Transfer Pricing

Transfer pricing is the pricing of goods, services and intangibles between related parties. The arm's length principle should be adopted for transfer pricing between related parties. Taxpayers should prepare and keep contemporaneous transfer pricing documentation to show that their related party transactions are conducted at arm’s length.

Overview of Transfer Pricing

Transfer pricing is the pricing of goods, services and intangibles between related parties.

Related parties are parties who control one another, or who are under the common control of another party, whether directly or indirectly. They include branches and head offices.

Related parties must deal with each other at arm's length.

The Arm's Length Principle

IRAS endorses the arm's length principle as the standard to guide transfer pricing. It is an internationally accepted standard adopted for transfer pricing 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 the transfer pricing rules would ensure this outcome.

Where the pricing of related party transactions is not at arm's length and results in a reduced profit for the Singapore taxpayer, IRAS may adjust the profit of the Singapore taxpayer upward. The adjustment to reflect the arm's length results may increase the amount of income or reduce the amount of deduction or loss of the Singapore taxpayer.

The arm's length principle requires that transfer prices between related parties are equivalent to prices that unrelated parties would have charged in the same or similar circumstances. It involves identifying situations or transactions undertaken by unrelated parties that are comparable to the situations or transactions between related parties. This is commonly known as "comparability analysis".

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

Step 1 - Conduct a comparability analysis

Step 2 - Identify the most appropriate transfer pricing method and tested party

Step 3 - Determine the arm's length results

The application of the 3-step approach is summarised in the flowchart below:

App of three step approach


CUP: Comparable uncontrolled price

TNMM: Transactional net margin method

For further information on each of the above steps, please refer to Part I, section 5 of the e-Tax Guide on Transfer Pricing Guidelines (PDF, 1.46MB).

Transfer Pricing Documentation

Purpose of Preparing and Maintaining Transfer Pricing Documentation

Taxpayers should prepare and keep contemporaneous transfer pricing documentation.

Transfer pricing documentation refers to the records kept by taxpayers to show that their related party transactions are conducted at arm's length.

The preparation and maintenance of transfer pricing documentation will facilitate reviews by tax authorities and therefore help resolve any transfer pricing issues that may arise.  Without transfer pricing documentation to show that the transfer prices are at arm's length, taxpayers may not be able to deal with transfer pricing enforcement actions by tax authorities and double taxation arising from those actions.

Contemporaneous Documentation

Contemporaneous transfer pricing documentation refers to documentation and information that taxpayers have relied upon to determine the transfer price prior to or at the time of undertaking the transactions. IRAS will also accept transfer pricing documentation as contemporaneous when it has been prepared not later than the filing due date of the tax return for the financial year in which the transactions took place.

In preparing contemporaneous transfer pricing documentation, a taxpayer must use the latest available information and data to establish its transfer pricing.     

Transfer Pricing Documentation Requirements

With effect from the Year of Assessment 2019, taxpayers who have met certain conditions are required to prepare transfer pricing documentation under Section 34F of the Income Tax Act unless exemption for specified transactions applies. Taxpayers who are not required to prepare transfer pricing documentation under Section 34F of the Income Tax Act are nonetheless encouraged to do so to better manage their transfer pricing risks.

Summary of Transfer Pricing Documentation Requirements under Section 34F

Scope Transfer pricing documentation requirements 
Who must prepare

Taxpayers who met either of the following conditions:

  1. Gross revenue derived from their trade or business is more than $10 million for the basis period concerned; or
  2. Transfer pricing documentation was required to be prepared for the basis period immediately before the basis period concerned
What to prepare

Information as prescribed in the Income Tax (Transfer Pricing Documentation) Rules 2018 that covers:

  • An overview of the businesses of the group in which the taxpayer is a member, that is relevant to the business operations in Singapore and
  • The taxpayer's business and the transactions with its related parties, including functional analysis and transfer pricing analysis
Exemption from documentation requirements The exemptions are prescribed in the Income Tax (Transfer Pricing Documentation) Rules 2018. Such exemptions include related party domestic transactions subject to the same tax rate, related party transactions with value not exceeding certain thresholds, etc. 
When to complete documentation By the filing due date of the tax return 
When to submit Taxpayers do not need to submit the transfer pricing documentation when they file their tax returns. They are however, required to submit the transfer pricing documentation within 30 days from a request by IRAS
How long to retain documentation A period of at least 5 years from the end of the basis period in which the transaction took place 

Please refer to Part I, section 6 of the e-Tax Guide on Transfer Pricing Guidelines (PDF, 1.46MB) for more details including the information and exemptions prescribed in the Income Tax (Transfer Pricing Documentation) Rules 2018.

  • A Singapore company is part of a multinational corporate group and its transfer pricing policy is determined by the headquarters overseas. The Singapore company may not be involved in the determination of its transfer prices. Moreover, if the related party transactions of the Singapore company are relatively insignificant compared to other group members’, there would be no transfer pricing study conducted specifically for the Singapore company. The Singapore company’s transactions do not fall within IRAS’ specified transactions qualifying for exemption from transfer pricing documentation.  Is it sufficient that the Singapore company only makes available transfer pricing documentation pertaining to the group’s overall transfer pricing policy?

    Although the Singapore company was not involved in determining the overall transfer pricing policy of the corporate group, it should seek to understand how the transfer pricing policy is applied to its related party transactions and hold regular reviews with its headquarters or other relevant entities to ensure compliance with the arm's length principle.  

    The Singapore company should determine whether the transfer pricing documentation prepared by the corporate group can support the arm's length pricing of the Singapore company's related party transactions and contains all details stated in the Income Tax (Transfer Pricing Documentation) Rules 2018. If not, the Singapore company may need to supplement it with other documentation or analysis, taking into consideration its tax risks and compliance costs.

  • 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?

    The Singapore company should keep 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 the Singapore company is paying for and whether the amounts charged are reasonable.  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.

  • 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 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, 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 taxpayer to the overseas related party.  Alternatively, if similar goods bundled with services are provided by other entities to independent parties under similar circumstances, the bundled price of the unrelated party transaction may be used for comparison.


  • If a Singapore company has a transfer pricing study in place and proper documentation of the transfer pricing study, does the Singapore company need to seek IRAS’ agreement before it implements the arm’s length price established in the transfer pricing study?

    There is no need to seek IRAS' agreement after the Singapore taxpayer has determined the arm's length prices through a transfer pricing study.  IRAS also does not require transfer pricing documentation to be submitted when tax returns are filed, however IRAS may request for such documentation subsequently.  Maintaining proper transfer pricing documentation will help taxpayers defend their pricing in the event of a transfer pricing audit or transfer pricing dispute in the future.