lunes, 21 de marzo de 2016

Singapore: Transfer pricing guidelines updated

The Inland Revenue Authority of Singapore (IRAS) issued the third edition of the domestic transfer pricing guidelines on 4 January 2016. The updated guidelines, which have been revised mainly to reflect enhancements to guidance on the use of the cost-plus method, the procedure for applying for an advance pricing arrangement (APA) and related party loans, replace the second edition of the transfer pricing guidelines issued on 6 January 2015. The guidelines generally are consistent with the OECD transfer pricing guidelines.
Cost-plus method
The cost-plus method (CPM) focuses on the gross mark-up obtained by a supplier for property transferred or services provided to a related purchaser; it essentially values the functions performed by the supplier of the property or services.
The updated guidelines clarify that, in applying the CPM, the direct and indirect costs used to compute the cost base are limited to the costs of the supplier of goods or services and should take into account an analysis of the supplier’s functions performed, assets used and risks assumed in the provision of the goods or services. The methods for determining the cost base should be consistent over time.
If the tested party (i.e. the party to which the transfer pricing analysis is applied) is the supplier of the goods or services and is a taxpayer in Singapore, the cost base also should be determined according to Singapore financial reporting standards.
Adjustments should be made where necessary to ensure that the cost base is at arm’s length; as such, the cost base may be adjusted to include costs not reflected in the accounts of the tested party. The updated guidelines include an example of costs that should have been allocated to the tested party, but instead were borne by other related parties in the group. Such costs, although not allocated to the tested party and not reflected in the tested party’s accounts, will be included in the cost base of the tested party.
APA procedure
The updated guidelines provide enhancements to the details on the procedure for applying for an APA. The following timeline applies to the APA process:

  • The taxpayer should submit prefiling meeting materials at least 10 months before the first day of the covered period, and should initiate the first prefiling meeting at least nine months before the first day of the covered period.
  • The IRAS must indicate at least four months before the first day of the covered period whether the APA application may be submitted; the taxpayer then has three months from the receipt of the IRAS’ indication to submit an APA application (an extension of the previous time limit). The IRAS must issue an acceptance letter to the taxpayer within one month of receipt of the application.
  • The IRAS must inform the taxpayer of its decision on the APA within one month of the competent authorities reaching an agreement. 
  • The taxpayer and the IRAS will then implement the APA.

The IRAS’ acceptance of an APA period and rollback to prior years is subject to taxpayer compliance with the above process, and a taxpayer’s failure to comply may result in a change in the period to be covered in a bilateral APA (including a situation where the taxpayer is covered for fewer years than originally intended). For bilateral APAs where applications are required to be submitted to the IRAS and the relevant foreign competent authority, the IRAS’ consideration and observation of the timeline under its APA process should not be affected by the filing deadline imposed by the relevant foreign competent authority.
The previous transfer pricing guidelines stated that the acceptance of a mutual agreement procedure (MAP) or APA application is at the discretion of the competent authorities. Where the IRAS or the relevant foreign competent authority rejects a MAP or an APA application, the taxpayer will have to consider other options to manage its transfer pricing risks. The updated guidelines state that the taxpayer may be subject to an audit if the IRAS suspects noncompliance with Singapore tax law.
Related party loans
The IRAS also has clarified that, similar to the application of the arm’s length principle to loans granted by taxpayers to a related party, the arm’s length principle also should apply to loans received by taxpayers from a related party, or taxpayers that become a debtor of a related party.
Source: Deloitte

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