Transfer pricing is very common amongst taxpayers; this term is the pricing of goods, services, and other valuables between associated parties. The arm’s length rule should be used to initiate transfer pricing amongst two related parties. It is also paramount that taxpayers prepare and maintain existing transfer pricing documentation as clear proof that the transaction conducted between the associated parties was carried out at arm’s length.
Preparing and keeping a transfer pricing document comes with several benefits for taxpayers, one of which is that it can help correct any transfer pricing problems that may arise. Without proof to indicate that the transfer prices were done at arm’s length, taxpayers may be barred from dealing with any transfer pricing enforcement actions by tax authorities, including double taxation that may emanate as a result of such actions.
An accounting firm can prepare a transfer pricing document. If peradventure you live in Singapore, an accounting firm in Singapore can help you with the preparation of a transfer pricing document as well as other payroll services.
This blog post aims to fill you in on all that will need to be included in your transfer pricing document.
1. Contemporaneous documentation
It will be required of organizations to prepare transfer pricing documentation before or at the instance of undertaking the transaction, or at least during the period when the essential tax returns are being developed. Taxpayers are not to tender the transfer pricing documentation alongside tax returns, but the documentation must be made ready when requested by the Inland Revenue Authority of Singapore (IRAS).
Subsequently, the transfer pricing documentation must be revised to ensure the accuracy of the economic analysis, and also to make sure that the utilized review methods chosen remain applicable and, more importantly, that the transfer pricing still conforms to the arm’s length rule. There are some situations where a transfer pricing document is not needed, and they are:
- When the taxpayer is a small or medium-sized company with just private dealings that has associated parties subject to similar Singapore task rate.
- When the taxpayer has made use of a secured harbor mark-up of 5% on charges created for routine service that was offered to associated parties.
- Related party domestic transactions are subject to the same tax rate
- Related party domestic loan
- Related party loan on which indicative margin is applied
- Routine support services on which 5% cost mark-up is applied
- Related party transactions covered by APA
- Related party transactions not exceeding a certain value
Meanwhile, according to IRAS’S guidelines, there are two conditions where transfer pricing document is required:
- Gross revenue derived from the trade is more than $10 million for the basis period concerned. Transfer pricing documentation must be prepared for the basis period immediately before the basis is concerned.
- There is no threshold for the number of employees
Also, there exist some high-risk situations that require the preparation of transfer pricing documentation.
- The use of certain transfer pricing tactics that are aimed to move the profile to other related parties that enjoy a more satisfying tax treatment.
- The taxpayer performs transactions with related parties abroad that have a broad value connected to other dealings of the taxpayer.
- The taxpayer carries out dealings with associated parties in low-tax areas.
2. Raised disclosure
As recommended by IRAS, the transfer pricing document need certain information at group and entity levels. The current change is underlined below:
On the group level information, these needs were included:
- Information (charts included) on the world’s organizational structure, displaying the location and ownership connections amongst the related parties.
- The line of business of the group, their services, products, and industry, coupled with their economic and regulatory dynamics.
- The propellers of business profit
- The business relationship between all connected parties
- The business outline and tactics of the groups and any current restructuring or M&A.
- Overall transfer pricing policies
At the entry stage, they include:
- Common information on the Singapore taxpayer, such as ownership structures, charts displaying connections with the ultimate parent company.
- Description of the entity’s business
- Description of transactions between the entity and its related parties
- Transfer pricing analysis to ascertain the transaction is at arm’s length
- The number of employees present in each department
- A lucid representation of management and reporting lines stating who the Singapore management reports to, including countries where such persons keep their principal office
3. Quantera Global Comments
The IRSA is fully aware that preparing a transfer pricing document may lead to high adherence, including the administrative cost for taxpayers. However, the documentation requirements have ceased to be strict or complicated compared to other jurisdictions in the region of Asia. In any respect, they aren’t as hard as they seem. For more information, get in touch with us.