Mandatory Transfer Pricing Documentation

Background

Singapore adopts the internationally accepted arm’s length principle to guide transfer pricing (TP). Taxpayers are expected to be able to support with documentation that they have concluded all related party transactions on an arm’s length basis. It is mandatory for taxpayers to prepare TP documentation if certain conditions are met. There is a penalty and surcharge for non-compliance with the TP documentation requirements.

Mandatory TP Documentation

Under section 34F of the Income Tax Act 1947 (ITA), an entity is required to prepare TP documentation in accordance with the Income Tax (Transfer Pricing Documentation) Rules 2018 (“TP Documentation Rules”) if either of the following conditions are met: 

1. The annual gross revenue derived from its trade or business for the basis period concerned exceeds S$10 million, or
2. It was required to prepare TP documentation for the immediate preceding basis period concerned.

The second condition ensures that taxpayers who were required to prepare TP documentation for a previous basis period will continue to be required to do so for the subsequent basis period. As explained by the Inland Revenue Authority of Singapore (IRAS), this is to provide certainty on taxpayers’ compliance efforts.

However, where taxpayers who are required to prepare TP documentation experience declining revenue such that their gross revenue is consistently below S$10 million, they will be exempted from preparing TP documentation for their related party transactions undertaken in a basis period if their gross revenue is not more than S$10 million for that basis period and the immediate two (2) preceding basis periods.

Mandatory TP documentation is based on a three-tiered structure consisting of:

1. Documentation at Group level: an overview of the businesses of the group that are relevant to the business operations in Singapore. The information to be included in the documentation at Group level is prescribed in the Second Schedule to the TP Documentation Rules
2. Documentation at Entity level: more detailed information on the taxpayer's business and the transactions with its related parties. The required information includes a functional analysis and TP analysis of the taxpayer’s business and transactions and is prescribed in the Second Schedule to the TP Documentation Rules, and
3. Country-by-Country (CbC) Report: Singapore-headquartered multinational enterprises (MNEs) meeting certain conditions are required to prepare and file CbC Reports with IRAS. These CbC Reports are supplementary to the TP documentation maintained by MNEs and the format is prescribed in the IRAS e-Tax Guide on “Country-by-Country Reporting”.

The TP documentation should be prepared on a contemporaneous basis. This means that the documentation and information relied on by taxpayers to determine the transfer price should exist at the time of the transactions. In other words, contemporaneous TP documentation is not based on hindsight. IRAS also accepts TP documentation as contemporaneous when the documentation has been prepared not later than the filing due date of the tax return for the financial year in which the transactions took place. This means that TP documentation should be completed by the filing due date of the income tax return.

In preparing contemporaneous TP documentation, taxpayers must use the latest information and data available at the time to show how the transfer prices for the transactions are determined or supported.

Taxpayers do not need to submit the TP documentation when they file their income tax returns. They are, however, required to submit the TP documentation within 30 days of a request by IRAS.

Taxpayers must retain TP documentation for at least five (5) years from the end of the basis period in which the transaction took place.

Taxpayers are required to review and refresh their TP documentation annually. This means that taxpayers have to prepare TP documentation for each basis period. To reduce taxpayers’ compliance burden, as long as the details in the TP documentation remain accurate, and certain conditions are met, taxpayers may refresh their TP documentation once every three (3) years.

Taxpayers are allowed to use the TP documentation they have prepared previously (“past TP documentation”) to support the transfer price in the basis period concerned if that past TP documentation is a qualifying past TP documentation.

Qualifying past TP documentation refers to:

1. Past TP documentation prepared for the first basis period immediately preceding the basis period concerned and which satisfies the following conditions, or
2. In the absence of (1), past TP documentation prepared for the second basis period immediately preceding the basis period concerned and which satisfies the following conditions.

For past TP documentation to be qualifying past TP documentation, the following conditions must be satisfied:

1. The transaction for which the past TP documentation was prepared is of the same type as the transaction undertaken in the basis period concerned
2. The transaction for which the past TP documentation was prepared and the transaction in the basis period concerned are undertaken with the same related parties
3. The past TP documentation must contain documentation at Group level and Entity level as prescribed in the TP Documentation Rules
4. The past TP documentation must indicate the date on which it was completed and be prepared in the English language or, if not in English, translated into English at the request of IRAS, and
5. The information contained in the past TP documentation on the following matters accurately describes the same matters in relation to the transaction in the basis period concerned:

• The commercial or financial relations between the taxpayer and its related parties
• The conditions made or imposed between the taxpayer and its related parties
• The TP method that is used for the transaction, and
• The arm’s length conditions within the meaning of section 34D of the ITA.

Where the related party transaction is undertaken in the basis period for the year of assessment (YA) 2026 or a subsequent YA, the taxpayer making a declaration that it has prepared a qualifying past TP documentation must specify the date on which the declaration is made.

If taxpayers are unable to show that their transfer prices are determined at arm’s length through their TP documentation or they do not have TP documentation, they may suffer adverse consequences, such as double taxation arising from TP adjustments by IRAS or foreign tax authorities, preclusion from resolving TP disputes under Mutual Agreement Procedures, rejection of Advance Pricing Arrangement applications, penalties and surcharges, etc.

More guidance on TP documentation is available in the IRAS e-Tax Guides on the following:

• Income Tax: Transfer Pricing Guidelines
• Transfer Pricing Guidelines Special Topic – Centralised Activities in Multinational Enterprise Groups
• GST: Transfer Pricing Adjustments
• Transfer Pricing Guidelines Special Topic –  Commodity Marketing and Trading Activities

Exemption from TP Documentation for Specified Transactions

If a taxpayer is required to prepare TP documentation under section 34F of the ITA and the exemption from TP documentation when gross revenue is consistently below S$10 million is not applicable, the taxpayer needs to perform a secondary check to assess if TP documentation can be exempted for those transactions that come within the specified transactions in the TP Documentation Rules. The specified transactions qualifying for exemption from TP documentation are:

1. The taxpayer transacts with a related party in Singapore and such local transaction (excluding related party loans) is subject to the same Singapore tax rates for both parties or exempt from Singapore tax for both parties
2. Domestic loans are provided between Singapore entities that are not in the business of borrowing or lending money and, for loans provided on or after 1 January 2025, the related entities agree to apply IRAS’ indicative margin to approximate an arm’s length interest rate for the year in which the related party loan is granted
3. The taxpayer applies IRAS’ indicative margin to approximate an arm’s length interest rate for a related party loan not exceeding S$15 million
4. The taxpayer applies the cost plus 5% mark-up for routine support services
5. The related party has entered into an Advance Pricing Arrangement, and
6. The related party transaction comes within a category of transactions and the total value of the aggregated related party transactions in that category in the basis period (excluding the value or amount of [1] to [5] above) does not exceed the threshold for that category. The threshold for each category of transaction is as follows:

Taxpayers who are not required to prepare TP documentation under section 34F of the ITA are nonetheless encouraged by IRAS to do so to better manage their TP risks.

Penalty and Surcharge

Under section 34F(8) of the ITA, failure to prepare the required TP documentation constitutes an offence and the taxpayer is liable to a penalty of up to S$10,000 per offence.

Specifically, a taxpayer can be liable to the fine for the following non-compliance:

• Not preparing or maintaining TP documentation based on the requirements under the TP Documentation Rules
• Not preparing TP documentation by the time of the filing of the tax return
• Not retaining TP documentation for a period of five (5) years from the end of the basis period in which the related party transaction took place
• Not submitting TP documentation within 30 days of a request by IRAS
• Providing any documentation or information that the taxpayer knows to be false or misleading.

In addition to the penalty for failure to prepare or submit TP documentation on time, a TP surcharge under section 34E may be imposed by the Comptroller of Income Tax, computed as 5% of the TP adjustment made by the Comptroller, regardless of whether tax is payable on the TP adjustment.