The Inland Revenue Authority of Singapore (IRAS) provided taxpayers with a Transfer Pricing Consultation study on July 30, 2008, revising the study on August 6, 2008 (the study). The 2008 study implements the February 2006 Transfer Pricing Guidelines Circular.1 The IRAS issued the study primarily to buttress the documentation facets of the Transfer Pricing Guidelines Circular. This study explains how the IRAS carries out its transfer pricing “Consultation.” Note that an IRAS “consultation” can result in a full-fledged tax audit plus professional advice provided by the Singapore tax authorities to the taxpayer.
The IRAS issued its Transfer Pricing Guideline Circular in February 2006, doing so to provide guidance to Singapore taxpayers on applying the arm’s length principle.2 The IRAS guidelines provide Singapore taxpayers with key concepts and with guiding principles, with the purpose of preparing and maintaining adequate documentation. The principal objective of preparing and maintaining transfer pricing documentation is to place the taxpayer in a position in which the taxpayer can readily demonstrate that it has “exerted reasonable efforts” to ensure that its transfer prices are consistent with the arm’s length principle.3 Section 4 in the 2006 circular provides specific documentation guidelines.
The IRAS has formalized its consultative process with Singapore taxpayers in its issuance of the study.4 The IRAS will apply the consultation process to its taxpayers with taxpayers it selects. The IRAS’s rationale in issuing the study is “to further help taxpayers comply with the arm’s length principle in related party transactions.” The IRAS intends to achieve three objectives as part of this consultative process. The IRAS will:
The IRAS imposes three objectives on the taxpayer:
Despite the IRAS’s general expectations as to taxpayer behavior, the IRAS will monitor the taxpayer’s ease of compliance and the taxpayer’s level of compliance with the guidelines.5
The Transfer Pricing Consultation is a process designed for the IRAS to encourage taxpayers to further assist and advise the taxpayers as to the guidelines themselves and to the potential risks that the IRAS and the taxpayer identify. The IRAS states that the Transfer Pricing Consultation has two objectives:6
The IRAS is in the process of sending questionnaires to selected taxpayers that have a significant number of related party transactions or appear to have a significant number of related party transactions.9 The IRAS is focusing primarily on transactions with overseas parties. The IRAS is looking at the volume of transactions over time. However, the consultation fails to provide guidance as to the level that would constitute a “significant amount” to engender the IRAS’s involvement with a taxpayer.
The taxpayer must provide the following transfer pricing information to IRAS through a questionnaire:10
The IRAS is to evaluate the taxpayer’s response to the questionnaire. Based on these taxpayer responses, the IRAS will then determine whether it should undertake a transfer pricing consultation for the taxpayer.11
The transfer pricing consultation process entails the IRAS’s field office visit to the taxpayer. The stated purpose of the field office visit is to:12
Based on this field office review, the IRAS might (or might not) decide to proceed with a transfer pricing consultation with a taxpayer. If the IRAS does proceed with a transfer pricing consultation with a taxpayer, the IRAS will seek written information for the taxpayer as to a number of matters.13
The IRAS consultation rules set parameters for the IRAS’s visit to the taxpayer’s facilities. The taxpayer is to make available the relevant personnel to make a presentation on:14
In particular, the taxpayer is to provide these explanations to the IRAS as to its business operations:
The IRAS reserves for itself the power to review the manner in which the company prepares and maintains its documentation and the contents of the documentation being prepared.
The IRAS is to provide the taxpayer with its opinion as to the following issues based on the IRAS’s findings:15
The transfer pricing consultation is “a process designed to further facilitate taxpayer’s compliance with the transfer pricing guidelines.”16 Nevertheless, the taxpayer’s transfer pricing might deviate significantly from the IRAS’s opinion of arm’s length pricing. In that event, the IRAS will express its position and will “make arrangements with the taxpayer to review the issue at an appropriate time.”
The transfer pricing consultation process is designed to push the taxpayer toward tax preparation and self-review. Accordingly, the taxpayer with significant related party transactions should ensure that it has a system in place to prepare and maintain adequate and timely transfer pricing documentation, doing so to demonstrate compliance with the arm’s length principle.17 The taxpayer can use Annex G of the 2006 guidelines as a general checklist of the usual types of information as to such documentation. The taxpayer can use this information to help prepare its documentation or conduct a self-review of its documentation. Taxpayers and others can reach the IRAS at [email protected] or call 63513367 in Singapore.
The IRAS provides the Singapore taxpayer with a sample questionnaire but reserves the right to change the format and contents of the questionnaire from time to time or to customize the form for specific taxpayers. The IRAS is to indicate the taxable year of the entity. The taxpayer is to provide this information to IRAS:
NOTES
1. For background concerning the Transfer Pricing Guidelines Circular, see R. Feinschreiber and M. Kent, “Transfer Pricing in Singapore,” Corporate Business Taxation Monthly (November 2007): 35.
2. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, sec. 1.1.
3. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 1.2.
4. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 1.3.
5. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 2.1.
6. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 2.2.
7. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 2.2(a).
8. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 2.2(b).
9. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 3.1.
10. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 3.2.
11. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 3.3.
12. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 4.1.
13. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 4.1.
14. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 4.2.
15. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 4.3.
16. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 4.4.
17. Inland Revenue Authority of Singapore Transfer Pricing Consultation, 2008, section 5.1.
3.128.170.27