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September 20, 2021

Singapore expands transfer pricing guidance

Executive summary

The Inland Revenue Authority of Singapore (IRAS) released the 6th Edition Transfer Pricing Guidelines1 (TPG) on 10 August 2021, which provides updates and additional transfer pricing (TP) guidance in a number of areas as compared to the previous (5th) edition of the TPG, published on 23 February 2018.

The 6th Edition TPG does not deviate significantly from the 5th Edition TPG in terms of guidance on the considerations for the application of the arm’s-length principle and TP documentation requirements. However, the various updates and guidance in additional areas (including conditions for mitigating a TP surcharge) are reflective of the IRAS’ continuing focus on TP matters and enforcement of the arm’s-length requirement on taxpayers.

This Alert summarizes the key updates and additional guidance provided in the 6th Edition TPG.

Detailed discussion

Replacement of reference to “TP Consultation” with “TP Audit”

While TP audits are not new in Singapore, this change holds significance as it marks a shift to a more stringent, and potentially a much more aggressive enforcement approach by the IRAS in ensuring TP compliance.

Further guidance on application of the Berry ratio and value-added cost mark-up

The IRAS elaborates on the limited circumstances for the application of alternative profit level indicators such as the Berry ratio and value-added cost mark-up. In the case of the Berry ratio, the IRAS reiterates that it is only appropriate when the value of the functions performed is proportional to the operating expenses and not to sales. Similar principles are to be applied in cases where the value-added cost mark-up is being used. This is consistent with the IRAS’ practice where it commonly challenges taxpayers on the appropriateness of such profit-level indicators.

Guidance on remission of TP surcharge

Taxpayers are liable to a surcharge equal to 5% of TP adjustments (regardless of whether there is tax payable on the adjustments made). The 6th Edition TPG has included a new section (Section 9) to spell out the circumstances under which the IRAS may consider a full or partial remission of the TP surcharge (including where voluntary or self-initiated retrospective adjustments are made), such as cooperative and responsive behavior of taxpayers, maintenance of contemporaneous TP documentation and good tax compliance records.

Additional guidance on arbitration and circumstances under which the IRAS will not accept a Mutual Agreement Procedure (MAP) or Advance Pricing Arrangement (APA) application

The 6th Edition TPG added guidance on the availability of arbitration as a further recourse to resolve issues that have reached a stalemate in a MAP discussion. It also includes the circumstances under which the IRAS will not accept a MAP or APA application after its submission, one of which is where the proposed transaction is not carried out for bona fide commercial reasons or involves a scheme that has, as one of its main purposes, the avoidance or reduction of tax. The IRAS will also not accept an APA request on a related party transaction that is undergoing audit or investigation.

Additional guidance on TP aspects of related party services

The IRAS has now included formal guidance in the 6th Edition TPG on shareholder activities and duplicate services, which are in alignment with the guidance in the Organisation for Economic Co-operation and Development (OECD)’s TPG as well as the practices currently applied by the IRAS. It has also incorporated guidance on the application of the 5% profit mark-up under the OECD’s simplified approach for low value-adding intra-group services, subject to conditions such as meeting the OECD’s definition of low value-adding intra-group services.

Guidance on TP aspects of cost contribution arrangements (CCAs)

The 6th Edition TPG has included a new section (Section 17) with guidance to determine whether a CCA2 satisfies the arm’s-length principle. It provides a four-step framework on how to apply the arm’s-length principle to a CCA, which is generally aligned with the OECD’s TPG and centers around the determination of the participants’ share of expected benefits to determine the participants’ contribution to the CCA. It also sets out the tax treatment for various payments or adjustments made pursuant to a CCA for TP and income tax purposes, and the types of documentation that should be maintained for a CCA for tax purposes.

Additional guidance on TP aspects of financial transactions

The 6th Edition TPG expanded guidance on: (a) related-party loans and other types of related-party financial transactions (e.g., cash pooling, hedging, financial guarantees and captive insurance); (b) whether a purported loan should be regarded as a loan for tax purposes (or some other kind of payment, e.g., a contribution to equity capital); and (c) the determination of an arm’s-length interest rate for related party loans when an appropriate comparable uncontrolled price (CUP) is not available.

The expanded guidance on the TP aspects of related-party financial transactions is largely aligned with the key principles enunciated in similar TP guidance from the OECD.

In addition, the IRAS has now explicitly included a position statement that sets out clearly that it does not regard interest-free related-party loans as arm’s-length transactions, unless taxpayers have reliable evidence that independent parties under comparable circumstances would similarly provide loans without charging any interest. In general, the IRAS expects taxpayers to prepare TP documentation for intercompany loans (where these meet the threshold requirements for the preparation of contemporaneous TP documentation), even if these loans are interest free.


Throughout the 6th Edition TPG, the IRAS has impressed upon taxpayers the importance of preparing contemporaneous TP documentation, even if they may not be required to do so, to better manage their TP risk. This signals an increased expectation from the IRAS for taxpayers to support their transfer prices, and for it to be done on a timely basis. Taxpayers should consider:

  • TP documentation: Aside from satisfying the minimum legislative requirements, taxpayers should consider performing TP analyses for their key and material intercompany transactions. The IRAS continues to assess adherence to the arm’s-length principle for intercompany transactions even when they do not meet the thresholds for preparation of TP documentation. The presence of robust contemporaneous TP documentation significantly underpins how taxpayers will be able to effectively manage their engagement with the IRAS on TP audits or adjustments and APAs or MAPs.
  • Re-examine TP processes: It has been made clear that the IRAS requires adherence to the arm’s-length principle on a timely basis. Groups should re-examine their internal processes regarding TP calculations or adjustments to manage their exposure and make timely self-initiated retrospective adjustments where necessary.
  • Intercompany financing: With the alignment of the Singapore TPG with the key principles enunciated in similar TP guidance from the OECD on financial transactions (including, the IRAS explicitly specifying its view on interest-free loans in the 6th Edition TPG), this signals the IRAS’ intention to step up its administration and enforcement of the TP aspects of intercompany financing transactions. Taxpayers should take the opportunity to review their intercompany financing practices and make refinements to their intercompany financing TP policy where required.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Solutions LLP, Transfer Pricing Services, Singapore

Ernst & Young LLP (United States), Singapore Tax Desk, Chicago

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago



  1. See IRAS' e-Tax Guide Transfer Pricing Guidelines (
  2. Section 8.3 of Chapter VIII of the OECD TPG defines a CCA as “a contractual arrangement among business enterprises to share the contributions and risks involved in the joint development, production or the obtaining of intangibles, tangible assets or services with the understanding that such intangibles, tangible assets or services are expected to create benefits for the individual businesses of each of the participants.”

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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