Introduction:
When it comes to transfer pricing, compliance with regulations is crucial to ensure fair taxation and prevent the erosion of a country’s tax base. In Singapore, the Inland Revenue Authority of Singapore (IRAS) oversees transfer pricing regulations and imposes penalties for non-compliance. This blog post provides an in-depth analysis of transfer pricing penalties, including their application, severity, and potential penalty relief options. Understanding these penalties is essential for taxpayers to navigate the transfer pricing landscape effectively.
I. Transfer Pricing Penalties:
(i) Penalty Provisions:
Unlike some jurisdictions, Singapore does not have specific penalties solely for failure to meet transfer pricing requirements. However, the IRAS can invoke penalty provisions if a taxpayer violates record-keeping or information-keeping requirements associated with transfer pricing rules. The general provisions for offenses and penalties are applicable in cases where a taxpayer fails to meet their obligations concerning the application of the arm’s length standard in intercompany transactions. If a taxpayer understates or fails to report income due to such failure, the following penalties may be imposed:
– A fine of up to 100% of the tax that has been or would have been undercharged.
– In cases of negligence, the penalty is double the amount of tax undercharged, along with a fine not exceeding SGD 5,000 or imprisonment for up to three years, or both.
– In cases of willful non-disclosure with the intent to evade tax, more severe penalties apply.
– Theoretically, penalties relating to record-keeping requirements under Secs. 65, 65A, and 65B of the Income Tax Act (ITA) could be charged if there is insufficient or no transfer pricing documentation.
For non-compliance related to Country-by-Country (CbC) reporting, specific penalties apply. If the CbC report is not submitted by the due date or the taxpayer fails to retain all records for a five-year period, a fine of SGD 1,000 may be imposed. If the fine is not paid, a responsible person within the taxpayer’s organization could face imprisonment for six months. Additionally, a penalty of up to SGD 50 per day may be charged for each day the failure to pay continues after conviction. False information included in the CbC report can result in a penalty of up to SGD 10,000, with the responsible person facing imprisonment for up to two years.
From the year of assessment 2019, the following offenses may result in a fine not exceeding SGD 10,000:
– Failure to prepare transfer pricing documentation in accordance with prescribed timing or content.
– Failure to submit transfer pricing documentation within 30 days of an IRAS request.
– Failure to retain transfer pricing documentation for a minimum of five years.
– Providing false or misleading transfer pricing documentation.
In addition, when the IRAS makes a transfer pricing adjustment under Section 34D of the ITA, a surcharge of 5% on the amount of the adjustment is imposed, irrespective of any additional tax payable resulting from the adjustment.
(ii) Penalty Relief:
In cases of reasonable cause for the understatement of income, tax penalties can be mitigated. Good-quality transfer pricing documentation plays a vital role in mitigating penalties. It is important to note that penalties and interest charges on the underpayment of tax are not deductible for tax purposes.
Conclusion:
Compliance with transfer pricing regulations is essential to avoid penalties and ensure a fair and transparent tax system. While Singapore does not have specific penalties for transfer pricing non-compliance, penalties associated with record-keeping and general tax offenses can apply. Understanding the severity of these penalties and the available penalty relief options is crucial for taxpayers. Maintaining comprehensive and contemporaneous transfer pricing documentation is a key defense strategy in mitigating penalties. Seeking professional advice from tax experts and staying updated on the latest regulations can help taxpayers navigate the complexities of transfer pricing and ensure compliance with IRAS requirements.