Transfer Pricing Alert Issue 19 24 August 2018 Overview of the transfer pricing landscape in Singapore Overview With fiscal year (FY) 2016 marking the end of the three-year documentation cycle for taxpayers that last prepared their Singapore documentation for FY 2014, many taxpayers will have to prepare a full transfer pricing (TP) documentation report for FY 2017 to meet the Inland Revenue Authority of Singapore s (IRAS) contemporaneous TP documentation requirements. On 22 February 2018, the Singapore government gazetted the Income Tax (Transfer Pricing Documentation) Rules 2018 (TPD Rules) made under section 7 of the Singapore Income Tax Act (SITA). The TPD Rules have effect for the basis period for the Year of Assessment (YA) 2019 onwards. The TPD Rules detail the form and content of TP documentation and set out exemptions referred to within section 34F of the SITA. On 23 February 2018, the IRAS also released the fifth edition of the Singapore TP Guidelines (2018 Singapore TP Guidelines). The 2018 Singapore TP Guidelines incorporate the TPD Rules, and provide examples and explanation on certain aspects of the TPD Rules. These include enhanced guidance on comparability analysis and transactional profit split method (PSM), as well as a completely rewritten section 6 relating to TP documentation requirements.
Overview of the transfer pricing landscape in Singapore 2 Most notably, the obligation for taxpayers to prepare and maintain contemporaneous TP documentation is now enforceable under section 34F of the SITA, albeit with certain conditions and exemptions formally codified under the TPD Rules. Taxpayers also need to be aware of the penalty regime for non-compliance with TP documentation requirements and the arm s length principle. In particular, a new five percent surcharge will be imposed by the IRAS on any TP adjustments made, regardless of whether there is tax payable on the adjustments. In addition, any surcharge imposed by the IRAS on TP adjustments made is payable within a month from the date of the written notice of the surcharge issued to a taxpayer. Singapore taxpayers should also be reminded that effective from YA 2018, a completed form for the reporting of related party transactions (RPT) must be submitted along with the corporate income tax return (Form C), subject to certain thresholds. This increases the transparency that the IRAS has regarding a taxpayer s TP practices. In light of these local developments, coupled with increased TP compliance requirements globally, 2018 marks the year in which Singapore taxpayers need to re-evaluate their approach to managing their TP practices more closely. Whilst fulfilling the Singapore TP documentation requirements is increasingly important, taxpayers must also be mindful of the impact that the compliance positions taken locally may have on their overall group s global TP policy.
Overview of the transfer pricing landscape in Singapore 3 Summary of the key changes in the Singapore legislative TP landscape SITA TP related changes The Income Tax (Amendment) Act 2017 came into force on 27 October 2017 with specific TP-related changes. A brief overview of the TP-related amendments are as follows: Section 34D: clarifies the types of adjustments the Comptroller may make to enforce the arm s length principle. Section 34E: introduces a surcharge on the TP adjustments made by the Comptroller with effect from YA 2019. Section 34F: introduces the mandatory requirement for contemporaneous and adequate TP documentation, and penalties for non-compliance from YA 2019. Section 74: lifts the statutory time bar so as to allow the Comptroller to raise additional assessments for Mutual Agreement Procedure (MAP) cases. Section 93A: clarifies that any claim for relief for error or mistake in relation to a RPT must be supported by contemporaneous and adequate TP documentation from YA 2019. Section 105K: clarifies that the Minister may declare Country-by-Country Reporting (CbCR) exchange agreements and other similar agreements as international tax compliance agreements. SITA TPD Rules The new TPD Rules formally legislate TP compliance requirements in Singapore. They emphasise the mandatory TP documentation requirement under section 34F of the SITA and outline the form and content of TP documentation. They also provide for the qualifying of past TP documentation, and list exemptions from preparing TP documentation. 2018 Singapore TP Guidelines The 2018 Singapore TP Guidelines explain some of the legislative changes brought about in relation to TP and include: Incorporating the TPD Rules into the guidelines and providing examples and explanation on some of the aspects of the TPD Rules. Clarification on related parties to Permanent Establishments (PE) in Singapore, wherein for a non-resident person who carries on a business in Singapore through a PE, the Singapore PE and other PEs of such nonresident person outside Singapore will constitute separate related parties for the purpose of attributing profits. Enhanced guidance on conducting comparability analysis and transactional PSM. A completely rewritten section 6 (relating to TP documentation) of the 2018 Singapore TP Guidelines. A new section 15 (relating to surcharge and penalty), which explains the TP surcharge (applicable at five percent on amount of TP adjustments), and the penalty for noncompliance with TP documentation requirement (not exceeding S$10,000) as set out under section 34F of the SITA. For further information, please refer to the 1 March 2018 EY TP Alert for further clarification and implications of the CbCR regulations, TPD Rules and revised 2018 Singapore TP guidelines. 1 RPT reporting update In June 2018, the IRAS released on its website the finalised RPT Form for YA 2018. It replaces the sample RPT Form that was released in November 2016 with some minor format changes. A taxpayer must complete an RPT Form and submit it together with the corporate income tax return (Form C) if the aggregated value of RPT exceeds S$15m for the relevant YA. Details to be disclosed include the types and amount of RPT, as well as the names, locations and relationships of the top five foreign transacting parties (by amount of sales or 1 Please click here to view our TP Alert Country-by-Country Reporting regulations, transfer pricing documentation rules and revised transfer pricing guidelines.
Overview of the transfer pricing landscape in Singapore 4 purchases of goods, and services transacted), as well as loans and non-trade amounts due to or from related parties. This reporting requirement is expected to provide the IRAS with relevant information to better assess taxpayers TP risks and to strengthen its enforcement of the arm s length pricing requirement. As the RPT Form is part of Form C, penalties for non-filing or incorrect filing of Form C apply, for e.g., the IRAS may offer to compound the offence with a composition amount not exceeding S$1,000. Please refer to the November 2016 EY Alert for information on the new reporting requirements of the RPT Form. 2 The 2 December 2016 EY TP Alert also provides insights on some of the practical issues that taxpayers may face when completing the RPT Form. 3 SITA CbCR regulations In February 2018, the Income Tax (International Tax Compliance Agreements) (Country-by-Country Reporting) Regulations 2018 (CbCR regulations) and the Income Tax (International Tax Compliance Agreements) (Multilateral Competent Authority Agreement on the Exchange of Country-by- Country Reports) Order 2018 (Order 2018) under the SITA were published in the Singapore Government Gazette. The First and Second Schedules of Order 2018 list the 42 countries in which the IRAS will exchange Country-by-Country (CbC) reports as outlined in our 18 January 2018 EY TP Alert. 4 For Singapore, Singapore-resident ultimate parent entities (UPE) of the following two types of Multinational Enterprise (MNE) groups are required to submit a CbC report to the Comptroller (or an authorised person): Type A Group: An MNE group that has consolidated revenues of at least S$1,125m (or its equivalent in a foreign currency) and has two or more entities that are tax residents in different countries. Type B Group: An MNE group that has consolidated revenues of at least S$1,125m (or its equivalent in a foreign currency) and has a single entity that is a tax resident in one country, but is also subject to income tax for its business carried out through a permanent establishment PE in another country. The CbC report must be submitted no later than 12 months after the end of the accounting period, or at a later time as the Comptroller may permit. Singapore MNE groups may also be subject to CbC report filing obligations in countries where Singapore has not entered into bilateral relationship for the automatic exchange of CbC reports. The IRAS has sent letters to Singapore MNE groups notifying them of their obligation to file a CbC report for FY 2017. For Singapore MNE groups subject to CbCR filing requirements according to the CbCR regulations that have not received such a letter, it is recommended to contact the IRAS to seek further instructions. Key considerations for preparing FY 2017 TP documentation As next steps, the following summarise some key questions for Singapore taxpayers to explore and consider for formulation of its 2017 TP documentation approach in light of these developments: Did FY 2016 mark the end of the three-year documentation cycle? Should a full TP documentation be prepared for FY 2017 purposes? Which entities should prepare TP documentation (e.g., loss making, high risk or high value transactions) in FY 2017? What information is required and necessary for the preparation of the TP documentation? Is there sufficient and accurate information on group or global operations to meet the new content requirement in Singapore? Consistency with information presented in the group s master file with information disclosed across in the TP documentation within the group and to bridge the gap between the group master file and TP documentation for local purposes. 2 Please click here to view our Tax Update Reporting of related party transactions in the corporate income tax return from YA 2018. 3 Please click here to view our TP Alert Impact of a new related party transactions disclosure requirement from YA 2018. 4 Please click here to view our TP Alert Singapore activates additional bilateral relationships with 18 jurisdictions for the automatic exchange of CbC Reports.
Overview of the transfer pricing landscape in Singapore 5 Consistency of information presented in TP documentation with information already shared to tax authorities. How the TP documentation can support the CbCR position of the MNE Group. Are the actual financial results presented in the TP documentation, in line with the TP policies or intercompany agreements implemented? Are the legal agreements in place and updated? With increasing tax transparency, taxpayers should ensure consistency of information presented in TP documentation with public information (e.g., company website, social media etc.) Are the financial and economic analyses contained in the previous TP documentation, including the applied TP methods, still accurate and relevant for FY 2017 purposes? Does the FY 2017 tested party results remain consistent with the range of benchmarking results identified in previous TP documentation? Are there any discrepancies between transactions and the amounts reported in the RPT Form with the audited accounts and TP documentation? How can such differences be reconciled and explained? How EY can help EY can assist taxpayers in managing the four stages of their TP life cycle: Planning assist in developing the right TP policy and determine an appropriate TP risk management strategy. Accounting provide guidance on how to implement the adopted TP policy. Compliance assist in the preparation of TP documentation, defence file, business case for change etc. Controversy assist in addressing queries from the IRAS, as well as assisting with Advance Pricing Agreement or MAP applications. EY is the Singapore Tax Firm of the Year at the International Tax Review Tax Awards 2018. Contact us Transfer Pricing Luis Coronado EY Asia-Pacific Transfer Pricing Leader and Partner Tel: +65 6309 8826 Email: luis.coronado@sg.ey.com Stephen Lam Partner, Transfer Pricing Services Tel: +65 6309 8305 Email: stephen.lam@sg.ey.com Jonathan Belec Partner, Transfer Pricing Services Tel: +65 6309 6175 Email: jonathan.belec@sg.ey.com Chai Sui Fun EY Asean International Tax Policy and Controversy Leader and Partner Tel: +65 6718 1128 Email: sui.fun.chai@sg.ey.com Stephen Bruce Partner, Financial Services Tax Tel: +65 6309 8898 Email: stephen.bruce@sg.ey.com Sharon Tan Tel: +65 6309 6375 Email: sharon.tan@sg.ey.com Jow Lee Ying Email: lee-ying.jow@sg.ey.com Rajesh Bheemanee Tel: +65 6309 8274 Email: rajesh.bheemanee@sg.ey.com Warren Chung Tel: +65 6718 1072 Email: hoonseok.chung@sg.ey.com Anju Singh Tel: +65 6309 6712 Email: anju.singh@sg.ey.com
Overview of the transfer pricing landscape in Singapore 6 Our Leaders, Singapore Head of Tax and Global Compliance and Reporting Soh Pui Ming Email: pui.ming.soh@sg.ey.com Business Tax Services Angela Tan Email: angela.tan@sg.ey.com Financial Services Organisation Amy Ang Email: amy.ang@sg.ey.com Indirect Tax Services Yeo Kai Eng Email: kai.eng.yeo@sg.ey.com International Tax Services Chester Wee Email: chester.wee@sg.ey.com Transfer Pricing Luis Coronado Email: luis.coronado@sg.ey.com People Advisory Services Panneer Selvam Email: panneer.selvam@sg.ey.com Talent and Reward Samir Bedi Email: samir.bedi@sg.ey.com Transaction Tax Darryl Kinneally Email: darryl.kinneally@sg.ey.com EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organisation, please visit ey.com. 2018. All Rights Reserved. APAC no. 12001568 (UEN T08LL0784H) is a limited liability partnership registered in Singapore under the Limited Liability Partnerships Act (Chapter 163A). This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com