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Transfer Pricing

Transfer pricing refers to the prices at which goods and services are exchanged between companies under common control, typically between entities ultimately controlled by a single parent company. For instance, the price charged by a subsidiary to its parent or sister company for the goods sold or services rendered is known as the transfer price.

Many multinational corporations use transfer pricing to allocate profits among various subsidiaries within their group. They leverage the differences in tax rates and tax systems across different countries or regions to shift profits from high-tax jurisdictions to lower-tax countries or even tax havens, thereby reducing the overall tax burden for the company.

For example, if a company’s manufacturer is in China and its distributor is in Singapore, the Chinese manufacturer can sell to the Singapore distributor at a lower price if the corporate tax rate in Singapore is lower than that in China, thereby shifting profits to Singapore and reducing the tax liability in China, thus reducing the company’s overall tax expense.

Starting from 2019 tax year, the Inland Revenue Authority of Singapore (IRAS) has implemented transfer pricing requirements for related-party transactions. Eligible taxpayers are required to prepare Transfer Pricing Documentation to demonstrate that related-party transactions are conducted at arm’s length.

Project Workflow

Companies with an annual turnover exceeding SGD10 million are required to prepare a transfer pricing report as per the regulations of the Inland Revenue Authority of Singapore (IRAS).

The transfer pricing report must be submitted within 30 days as mandated by the IRAS. Failure to do so may result in fines of up to SGD10,000.

01

Pricing Strategies and Policies

Assisting corporate clients in developing appropriate transfer pricing strategies and policies to ensure compliance and adherence to relevant tax requirements.

02

Documentation Preparation and Reporting

Supporting clients in preparing essential transfer pricing documentation and reports, including transfer pricing documentation and international transaction pricing reports.

Conditions for Exemption from Transfer Pricing Reporting

Transfer pricing reporting can be exempted if the following conditions are met for transactions with related parties:

The taxpayer transacts with related parties in Singapore and is subject to the same Singapore tax rate.

The taxpayer engages in loan transactions with related parties within Singapore.

The taxpayer applies indicative interest rates to related loans.

The taxpayer applies a 5% cost-plus mark-up on routine service transactions in related-party dealings.

The types of related-party transactions are covered by predetermined pricing arrangements.

The value of related-party transactions does not exceed a specific value.