Executive summary

In its recent update to the e-tax guide: Transfer Pricing Guidelines (Eighth Edition) (TP Guidelines), the Inland Revenue Authority of Singapore (IRAS) announced the implementation of a simplified and streamlined approach (SSA) for qualifying baseline marketing and distribution transactions between related parties, on a pilot basis from 1 January 2026 to 31 December 2028. The IRAS's framework for the SSA, presented in Section 19 of the TP Guidelines, is aligned with the Organisation for Economic Co-operation and Development (OECD) guidance on Amount B. (The SSA is referred to as Amount B in the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project.)

As part of the two-pillar solution to address the tax challenges arising from the digitalization of the economy agreed by the OECD/G20 Inclusive Framework on BEPS in October 2021, Amount B provides for the SSA in applying the arm's-length principle to in-country baseline marketing and distribution activities. Under the SSA framework, the arm's-length return of a distributor or marketing service provider is determined based on a pricing matrix taking into account the nature of the goods distributed and the extent of operating expenses and operating assets incurred in the transaction. Unlike other BEPS measures, the SSA is not subject to a revenue threshold and can be applicable to many multinational businesses.

Singapore taxpayers meeting the qualifying conditions may choose to apply the SSA from 1 January 2026 if they are the tested parties of a qualifying transaction.

The implementation of the SSA by Singapore is a welcome development that should be considered for taxpayers looking for more certainty and simplification of compliance burden for tangible goods distribution or sales and marketing services transactions between related parties if the tested party is in Singapore.

Overview of the SSA framework

The IRAS is implementing the SSA on a pilot basis from 1 January 2026 to 31 December 2028. For any financial year beginning during this period, taxpayers can choose to apply the SSA on their qualifying transactions when they meet the qualifying conditions.

Qualifying transactions

Qualifying transactions under the SSA include:

• Buy-sell marketing and distribution transactions in which a distributor purchases goods from related parties for wholesale distribution to unrelated parties
• Sales agency and commissionaire arrangements in which the agent or commissionaire contributes to related parties' wholesale distribution of goods to unrelated parties

Wholesale distribution

Wholesale distribution is defined as the distribution of goods to any customer except end consumers. If a distributor is involved in both wholesale and retail distribution, it will be considered solely engaged in wholesale distribution if its three-year weighted average net retail revenues do not exceed 20% of its total net revenues over the same period (the de minimis threshold).

Exclusions

Certain transactions are excluded from the SSA. Specifically, transactions involving intangible goods, services or the marketing, trading or distribution of commodities are out of scope. Additionally, if the tested party performs non-distribution activities (such as manufacturing, research and development, procurement or financing non-incidental to the qualifying transaction), the transaction will only qualify if the distribution activity can be reliably evaluated and priced separately from these other activities.

Scoping criteria

To qualify for the SSA, the transaction must exhibit economically relevant characteristics that allow for reliable pricing using a one-sided transfer pricing method, such as a traditional transaction method or the transactional net margin method (TNMM), with the distributor, sales agent or commissionaire designated as the tested party.

Furthermore, the tested party in the qualifying transaction must not incur annual operating expenses lower than 3% or greater than 30% of its annual net revenues (operating expense intensity (OES) ratio). This means that only entities with annual operating expenses within the range of 3% to 30% of annual net revenues will be eligible to apply the SSA to their qualifying transactions. This OES ratio is determined annually on a three-year weighted average basis.

The OECD guidance on Amount B provided that jurisdictions adopting the SSA must set an upper bound for this scoping criterion between 20% and 30% at the time of implementation. In line with this, the IRAS has announced that the upper bound will be set at 30%, which may result in more transactions falling within scope.

Determination of the return on sales

The TNMM is chosen as the most appropriate transfer pricing method under the SSA. If taxpayers have determined that the application of the comparable uncontrolled price (CUP) method using internal comparables is more appropriate, they should apply the CUP method instead of the SSA.

For purposes of the SSA, the net profit indicator for establishing the pricing for the qualifying transaction is the return on sales (ROS), which refers to the ratio of earnings before interest and taxes (EBIT) to net revenues, expressed as a percentage.

Taxpayers must determine the ROS for the qualifying transaction using a two-step approach:

• SSA step 1: Identify the ROS from the pricing matrix.
• SSA step 2: Perform the operating expense cross-check.

SSA step 1: Identify the ROS from the pricing matrix

Taxpayers are to identify the ROS from the following pricing matrix corresponding to the tested party's industry grouping, net operating asset intensity (OAS) and OES.

Industry grouping refers to the categorization of industries in which the tested parties operate. OAS refers to the ratio of net operating assets to net revenue, calculated on a three-year weighted average basis for each financial year. Similarly, OES refers to the ratio of operating expenses to net revenue, also calculated on a three-year weighted average basis for each financial year as in the scoping criteria condition.

SSA step 2: Perform the operating expense cross-check

The operating expense cross-check ensures that entities are neither over- nor under-remunerated relative to their operating expenses. If the application of the ROS under SSA step 1 produces a return on operating expense (ROpex) that is outside the predefined cap-and-collar range specified in the table below, the profitability of the tested party will be adjusted to the nearest edge of this range.

*The bracketed letters in this chart refer to the corresponding letters in the "Pricing matrix" chart, above.

TP documentation requirements

When applying for the SSA, taxpayers must prepare and document the following supportive information:

• A clear explanation of the delineation of the qualifying transaction, including a detailed functional analysis of the parties involved and the specific context of the transaction, such as any commercial or financial relationship between the parties that may influence its accurate delineation
• Copies of written contracts or agreements governing the qualifying transaction that support the explanation on the delineation provided
• Calculations detailing how relevant revenues, operating expenses and operating assets are allocated or attributed to the qualifying transaction
• Information and allocation schedules demonstrating how the financial data used to substantiate the qualifying conditions of the SSA and its application is reconciled to the annual financial statements

The OECD guidance on Amount B provides that taxpayers electing to apply the SSA for the first time should include in its documentation a consent to apply the approach for a minimum of three years. The IRAS's framework for the SSA, outlined in Section 19 of the TP Guidelines, does not address this provision.

Inclusive Framework political commitment for covered jurisdictions

Additionally, the outcome of the SSA determined by a jurisdiction is not binding on the counterparty jurisdiction in which the related party to the qualifying transaction is located. However, members of the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework), including Singapore, have committed to respect SSA outcome applied by covered jurisdictions under certain conditions. The list of 66 covered jurisdictions was published by the OECD in June 2024. (For background, see EY Global Tax Alert, OECD/G20 Inclusive Framework releases documents on Pillar One Amount B and Pillar Two, dated 20 June 2024.)

The IRAS has confirmed in Paragraph 19.20 of the TP Guidelines that, if there is a double taxation agreement (DTA) in effect between Singapore and a covered jurisdiction, Singapore will regard the SSA outcome as arm's length and will take necessary steps to relieve double taxation arising from SSA application.

Key considerations

Considerations for Singapore entities looking to apply the SSA include:

• Determining whether the jurisdiction that is counterparty to the qualifying transaction has implemented the SSA and whether that jurisdiction has a DTA in effect with Singapore
• Determining which entity should ultimately bear the corresponding adjustment necessary for the in-scope distributor to comply with the SSA
• Evaluating the direct and indirect tax implications in Singapore and in the counterparty jurisdictions related to a transfer pricing adjustment under the SSA
• Identifying the specific financial data needed to implement the SSA and determining whether the financial reporting systems can provide this information

Next steps

With the SSA in effect in Singapore as of 1 January 2026, it is important for Singapore entities to proactively assess the potential benefits and implications of applying the SSA. For example:

• Identify transactions that are potentially in scope.
• Compare the current transfer pricing policy of in-scope transactions with the pricing under the SSA
• Monitor future developments including the list of jurisdictions that will implement the SSA
• Model the financial and cash tax impact on the group transfer pricing and operating models
• Assess existing reporting systems to ensure they can produce the financial data required and monitor whether the transfer pricing outcome is aligned with the SSA
• Identify transfer pricing risk areas and assess how the SSA can help mitigate these risks
• Prepare information and documentation required for applying the SSA