GST ASK, GST ASK Singapore

The process of transfer pricing is regulated by the Inland Revenue Authority of Singapore (IRAS). There are certain guidelines promulgated by IRAS that businesses need to follow when doing transfer pricing. These guidelines have already undergone several changes over the past years. Recently, on August 10, 2021, IRAS released yet another modified version of the e-Tax Guide that was first published in February 2006.

Continue reading to learn more about the new e-Tax Guide, its prescribed changes, and its possible implications for the taxpayers of Singapore.

What is the new e-Tax Guide?

The new e-Tax Guide is considered as the consolidation of the four previous guides released separately by IRAS on February 23, 2006, July 30, 2008, October 20, 2008, and February 23, 2009. This new guide primarily aims to give clarity to the application of the arm’s length principle in doing related party transactions, maintaining transfer pricing documentation, and resolving transfer pricing disputes.

What are the major changes prescribed in the new e-Tax Guide?

The new e-Tax Guide significantly updates and amends the old 5th edition e-Tax Guide that contained guidelines on how to prepare transfer pricing documentation. It also clarifies certain points regarding transfer pricing adjustments as well as related party services and financial transactions. An introduction of arbitration and a discussion on cost contribution arrangements are also included in the new guide.

Section 7: “TP consultation” will be replaced by “TP audit”

In the 6th Edition TPG, the TP audit process will be formally replacing TP consultation:

  • In accordance with the legislated heftier penalty of up to $10,000 for non-compliance with contemporaneous TP documentation and 5% surcharge in regards to TP adjustments made on taxpayers.
  • Conforms with a more rigorous TP enforcement approach that will inflict penalties on taxpayers if there’s non-compliance.
  • Heftier surcharge provisions and penalty announced on 26 October 2017 and effective from YA 2019 onwards – with a minimum of two years of notification in advance.

Section 9: Improved guidance on 5% surcharge and remission of surcharge

The new e-Tax Guide essentially just reiterated the provision of the 5th edition guide on the surcharge of 5% when it comes to transfer pricing adjustments, with only a few clarifications on the process of computing the surcharge and other procedural matters.

1. Cancellation of surcharge occurs for a “good cause” as stated in section 34E(5) under the Singapore Income Tax (SITA). On the other hand, every TP adjustment, except when clarified, will be subjected to a surcharge of 5%. But for a good cause, the IRAS may consider remitting the surcharge completely or in part as per three conditions under Section 9.9:

  • Taxpayers have been cooperative and given responses, and necessary documentation within the timeframe put in place by IRAS.
  • Taxpayers possess good cojmpliance records of timely submission of tax payments and returns by the due dates for the existing YA and immediate two prior YAs.
  • Taxpayers have maintained proper TP documentation consistent with Section 34F of TP documentation rules and the SITA.

2. Adjustments involving taxpayers voluntarily making upwards adjustments for prior financial years on related party transactions (i.e. retrospective upward adjustments initiated on their own) are subjected to the 5% surcharge, regardless if the tax payable is required on the adjustments.

3. Cancellation of surcharge applies if there is a voluntary disclosure of non-arm’s length related party transactions. As stated in Section 9.10, a complete remission of the surcharge will be given if self-initiated retrospective upward adjustments are done by a taxpayer, in accordance with three conditions:

  • 10(a) These kinds of adjustments are done in two years after the tax return filing due date,
  • 10(b) Taxpayers have not gotten the notification on the kick-off of an investigation or audit from IRAS or have not gotten the query pertaining to any related party transactions for the applicable YA from IRAS, and
  • 10(c) Taxpayers have successfully fulfilled the three criteria stated in 9.9.

However, if a taxpayer is unable to meet the criteria in 9.10(a), a partial remission of the surcharge may still be granted, as long as the criteria in 9.10(c) are met.

Cases where adjustments are not subject to a 5% surcharge

When the surcharge may not be levied, the new guide also states certain conditions to be satisfied, including adjustments made to:

  • Year-end closing of accounts with year-end adjustments made and have met the following prerequisites (review Section 13.8 of the 6th Edition TPG):
    • Taxpayers have contemporaneous TPD and TP analyses in place to ascertain the arm’s length prices.
    • Taxpayers have to make the adjustments prior to filing their tax returns.
    • Taxpayers should ensure year-end adjustments are made symmetrically in the accounts as well as accounts from the affected related parties in order to avoid double non-taxation or double taxation.
  • implement an arbitration decision
  • reach the agreed upon arm’s length prices in consistent with terms found in the APA agreements.
  • remove double taxation in consistent with the outcome of the Mutual Agreement Procedure (MAP) as agreed upon IRAS, the taxpayers, and the relevant foreign tax authority.

Section 15: Additional guidance for related party financial transactions

The new e-Tax Guide reserves a discussion on transfer pricing approaches with regards to related party financial transactions that cover alternative funding arrangements. It also contains some guidelines when it comes to differentiating funding arrangements between loans and equity. In the Singapore TP guidelines, it’s the first time the concept of equity capital (or quasi-equity) has been introduced. Numerous checks and tests are to be carried out when characterising a funding transaction.

When it comes to interest pricing for intercompany loan transactions, the recent guide also delivers certain significant guidelines and commentary on the methodologies and approaches that the taxpayers can consider.

IRAS will be giving added guidance on the pricing of related party financial transactions which covers the areas below:

  • Pertaining to non-loan financial transactions (i.e. hedging, cash pooling, and captive insurance), taxpayers are required to take guidance from Chapter X of the OECD TPG when ascertaining the pricing and arm’s length condition of these kinds of transactions.
  • Key considerations to ascertain if a purported loan is to be regarded as a loan or as some form of other payment, particularly a contribution to equity capital (or quasi-equity). Taxpayers will have to apply the three-step approach in 5.12 of the 6th Edition TPG, particularly referring to the first step to conduct the comparability assessment. The following shows a list of useful indicators of economically relevant characteristics to review holistically:
    • Capability of the recipient of the funds to acquire loans from unrelated lending organisations and service such loans.
    • Feature of the advance of funds (i.e. obligation to make payment for interest, absence or presence of a fixed repayment date.)
    • Eagerness of an independent party to make advancement in funds under comparable circumstances.
    • Rights of a funder (i.e. level of subordination and seniority, right to impose payment of principal and interest).

Section 10: Added guidance on dispute prevention and resolution

1. MAP and APA applications

As stated by IRAS, an APA application may not be approved for certain reasons, and they include:

  • In the event of APAs:
    • The suggested transaction comprises a scheme that has, as one of its primary purposes, the reduction or avoidance of tax.
    • The suggested transaction is not executed for bona fide commercial reasons.
  • In the event of MAPs and APAs:
    • A taxpayer is not compliant with the arm’s length principle.
    • A taxpayer has insufficient TP documentation.

Under the FAQ section, the IRAS has further declared that it will not approve an APA request regarding a related party transaction which is going through an investigation or audit.

2. Arbitration

Generally, under double tax agreements (DTAs), arbitration provides a recourse to work problems that have arrived at a stalemate in MAP discussions.

Arbitration is a relatively new concept that is introduced in the recent e-Tax Guide for the first time. This concept is resorted to in situations where a transfer pricing dispute cannot be resolved by the IRAS and other competent foreign authority within a required period.

The new guide basically gives the taxpayers of Singapore the option to invoke the arbitration process whenever necessary. Any decision that will be generated from such arbitration will be considered binding on both the taxpayers and the competent authorities.

  • Within the 6th TPG, the IRAS has incorporated improved guidance on arbitration.
  • A taxpayer can send in a request in writing for unsettled problems to be sent in to an arbitration panel.
  • In accordance to opting as the OECD’s BASE Erosion & Profit Shifting (BEPS) project, Singapore chose to have the arbitration provisions to be incorporated in the Singapore DTAs with the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI).
  • Considering that the treaty partners similarly adopt the same arbitration provisions, arbitration provisions will apply.
  • Decisions done by the arbitration panel are binding on the appropriate authorities, ensuring certainty to taxpayers and assisting in sorting our cross-border disputes more promptly.

Section 17: Cost contribution arrangements

Under section 17 of the guide, the definition of a CCA can be found and various areas where CCA are generally utilised numerous intra-group arrangements. Numerous services amongst group entities and joint research and development are two general areas of CCAs. Main differences of these two kinds are also included.

In applying the arm’s length principle with regards to cost contribution arrangements (CCAs), the new e-Tax Guide provides insightful guidelines and examples on the manner and approaches that may be adopted by the taxpayers. It also stipulates the economic requirements that are necessary in the entry, withdrawal, and termination of participants as well as the information required for transfer pricing documentation with respect to the CCA.

Development CCAs Services CCAs
·       Ownership interest in or rights to utilise or exploit any tangible or intangible assets as a result of the activity of the CCA, is contractually given for every participant.

·       Set up for joint development, acquirement or production of tangible or intangible assets.

·       Anticipated to create potential losses or future benefits for participants

·       Participants exploit the rights, interest or entitlement without making payment for extra considerations (e.g. royalty) besides the balancing payments or contributions.

·       Creates existing benefits for participants.

·       Every participant is contractually entitled to acquire the services ensued from the activity of the CCA.

·       Set up for sharing of services

·       Usually provides less risky and more certain benefits in comparison to development CCAs.

·       Without having to make payment for extra consideration besides balancing payments and contributions, participants can benefit from the activity of the CCA.


 Key criteria have to be fulfilled to satisfy the arm’s length principle for a CCA (Section 17.11):

The value of the participants’ contributions to the CCA has to be in accordance with what independent parties would have agreed to make contributions to under similar circumstances given their proportionate share of the total expected benefits.

Every participant has to share the downside and upside consequences of risks linked with attaining the expected CCA outcomes.

Every participant’s share of the actual total contributions to a CCA has to be proportionate to its share of the overall anticipated benefits to be acquired under the CCA.

Taxpayers are required to follow the below steps to apply the arm’s length principle to a CCA:

Step 1: Ascertain participants within the CCA.

Step 2: Ascertain participant’s share of anticipated benefits from the CCA.

Step 3: Ascertain the arm’s length value of every participant’s contribution to the CCA.

Step 4: Ascertain the allocation of CCA contributions to every participant in accordance with its share of anticipated benefits.

The steps above are, in general, aligned with the OECD TPG and deals mostly with the resolve of the participants’ share of anticipated benefits to ascertain the participants’ contribution to the CCA.

Relevant arm’s length payments have to also be considered for withdrawal and entry of participants and CCA termination.

Tax treatment of CCA

  • The taxability and deductibility of balancing, buy-in or buy-out payments is dependent on the circumstances and facts of every case.
  • For research and development (R&D), the tax treatment considerations under Sections 14D ad 14DA of the SITA (make reference to the IRAS’ e-Tax Guide on R&D Tax Measures):
    • Buy-in payments
      • Is not qualified for deduction as qualifying R&D expenditure factors out payment for the right to be a participant to a CSA.
    • Balancing payments and contribution
      • Distinguished as R&D expenditure
      • Evaluation is necessary to ascertain if these payments are eligible for tax deductions under Section 14D of the SITA.

Section 5: Added guidance on the application of Berry ratio

Sections 5.99 and 5.101: the IRAS made clear that whenever key drivers for profitability involve the cost of goods, the Berry ratio is not applicable.

According to the IRAS, it acknowledges that the Berry ratio is only able to be utilised in limited cases whenever the below circumstances are met:

  • Besides distribution, a taxpayer does not carry out any value-added functions.
  • Operating expenses and gross profits have a direct link between each other.
  • A taxpayer serves as intermediary of buying foods from related parties and on-selling them to other related parties.
  • Value of functions carried out by a taxpayer does not impact the value of products given out.
  • In a particular transaction, a taxpayer does not employ intangibles.

Under Section 5.102, the IRAS has elaborated that the Berry ratio depends on the presumption that the value of the functions carried out is proportional to the operational expenses and not to sales.

Section 5: Added guidance on the application of value-added cost mark up

Under Section 5.102, similar to the Berry ratio, the value-added cost mark up depends on the presumption that the value of the functions carried out is not proportional to sales, but to operating expenses. Henceforth, when applying the value-added cost mark-up as PLI, the same considerations are involved as with the Berry ratio.

Section 6: Expansion of FAQ section in Appendix B of Section 6

Under the Appendix B FAQ, the IRAS has addressed the below points to clarify taxpayers’ common questions on TP documentation:

  • Dated on completion
  • Aside from just describing the business, TP documentation should also describe the value chain and how the counterparties to the transaction make a contribution to the value chain.
  • Comprises global organisational structure or abbreviated chart (merely displaying relevant related parties) if there exists a complex organisational structure.
  • In the TP documentation, it is also useful to include:
    • A taxpayer and its related parties’ contribution to the value chain.
    • Reasons for entering the related party transaction.
    • Events that impacted your business performance greatly.
  • A taxpayer is allowed to use TP documentation put together for other tax authorities as long as it’s in accordance with the 6th Edition TPG.

What do these changes entail?

The updates, amendments, and overall changes prescribed in the recent e-Tax Guide essentially provide the taxpayers of Singapore with the flexibility that they need in determining their funding arrangements. With the guide’s significant commentary and examples on the determination of the arm’s length pricing for intercompany loans, the taxpayers are also given the ability to establish their intercompany pricing arrangements through proper economic analyses.

Furthermore, the overall content of the modified e-Tax Guide suggests a change in the intent of the IRAS to begin examining transfer pricing arrangements with greater intensity. Such change can be largely inferred from the way the new guide has replaced the concept of “transfer pricing consultation” with “transfer pricing audit,” even though both terms basically involve similar approach and process.


Ultimately, the updates and amendments contained in the new e-Tax Guide give businesses or taxpayers the opportunity to reevaluate and examine their transfer pricing models and arrangements in order to make sure that they comply with the transfer pricing regulations of the government. This is also one sure way to avoid any potential adjustment or penalty with respect to transfer pricing. If you are quite confused about the changes prescribed in the recent e-Tax Guide, you can consult with us for a reliable transfer pricing advisory in Singapore.

Other than transfer pricing services, we at Max Lewis Consultants Pte Ltd also provide a diverse range of professional services, such as business and asset valuation, valuation of intellectual property rights and complex financial instruments, and GST ASK review services. To learn more about our trusted offers, do not hesitate to reach out to us to make sure your business is always on the right track.