In Singapore, the relevant tax law pertaining to transfer pricing consists of statutory provisions, regulations, and guidelines issued by the Inland Revenue Authority of Singapore (IRAS). Additionally, while case law can provide guidance, there is limited case law specifically addressing transfer pricing in Singapore due to the relatively recent introduction of specific transfer pricing rules. Here is a breakdown of the relevant tax law in Singapore:
(i) Statute and Regulations:
1. Section 34D of the Income Tax Act (ITA): This section empowers the IRAS to make adjustments to reflect arm’s length prices in transactions between related parties where conditions differ from those that would have been made if the parties were not related. It also allows the IRAS to treat a taxpayer and its permanent establishment (PE) as separate persons and charge a non-resident on a fair and reasonable percentage of the turnover of the business.
2. Section 33 of the ITA: This provision grants the IRAS the authority to vary or disregard an arrangement that alters the tax incidence, relieves a person from tax liability, or reduces or avoids tax liability unless the arrangement was carried out for genuine commercial reasons and not primarily to reduce taxes. The IRAS can recompute gains or profits to counteract any tax advantage obtained.
3. Section 53(2A) of the ITA: This section enables the IRAS to assess a non-resident person to tax if a resident and non-resident are closely connected and conduct business in a manner that results in the resident earning lower profits than expected. The IRAS may assess tax on a fair and reasonable percentage of the turnover of the business if the true amount of profit cannot be readily determined.
4. Section 34F of the ITA: This section imposes a mandatory requirement for taxpayers to prepare adequate transfer pricing documentation and outlines penalties for non-compliance.
(ii) IRAS Guidelines and Circulars:
1. Transfer Pricing Guidelines (TP Guidelines): The IRAS issued guidelines in 2006 (updated in 2015) providing comprehensive guidance on transfer pricing for related party transactions involving goods, services, and intangible property. The guidelines cover comparability analysis, transactional profit split method, transfer pricing adjustments, and documentation requirements.
2. Circulars: The IRAS has issued various circulars providing additional guidance on specific transfer pricing topics. These include circulars on related party loans and related party services, transfer pricing consultation, advance pricing arrangements (APAs), and general transfer pricing guidance.
(iii) Case Law:
While case law in Singapore on transfer pricing is limited due to the relatively recent introduction of specific transfer pricing rules, case law from other Commonwealth jurisdictions with similar legislation may have persuasive value. Sharkey v. Wernher (1955) 36 TC 275 is a cited case on applying the arm’s length principle, although the specific application of transfer pricing rules in Singapore has yet to be extensively tested in court.
In conclusion, the primary sources of relevant tax law for transfer pricing in Singapore include statutory provisions such as Section 34D, Section 33, and Section 53(2A) of the ITA, along with the IRAS’s Transfer Pricing Guidelines and circulars. While case law is limited, it can provide additional guidance, and decisions from other Commonwealth jurisdictions may be considered.