(i) Permanent Establishments:
In Singapore, a permanent establishment (PE) of a foreign entity is treated as a separate taxable entity for tax purposes. The IRAS assesses the PE in the same manner as it would assess a standalone entity. Transactions between the PE and other parts of the same legal entity or related entities must be conducted at arm’s length.
Under Singapore’s Transfer Pricing Guidelines, which cover transactions entered into by permanent establishments with their head office or other related parties, no further attribution of profits to the PE is required if the taxpayer receives arm’s length remuneration from its foreign related party. The arm’s length remuneration should take into account functions, assets, and risks. Additionally, the remuneration paid by the foreign related party to the taxpayer must be supported by adequate transfer pricing documentation demonstrating compliance with the arm’s length principle. The foreign related party should not perform any functions, use any assets, or assume any risks in Singapore, except for those arising from the activities carried out by the taxpayer.
(ii) Small and Medium Enterprises (SMEs):
For small and medium enterprises (SMEs) in Singapore, specific thresholds are in place regarding transfer pricing documentation requirements. Transfer pricing documentation is not required if the following conditions are met for each category of related party transactions:
– Purchase of goods from related parties: The total value of purchases is below SGD 15 million.
– Sale of goods to related parties: The total value of sales is below SGD 15 million.
– Loans owed to related parties: The total outstanding loans are below SGD 15 million.
– Loans owed by related parties: The total outstanding loans are below SGD 15 million.
– Other categories of related party transactions (e.g., service income, service payments, royalty income, royalty expenses, rental income, rental expenses): The total value of each category of transactions is below SGD 1 million.
It’s important to note that all related party transactions within a specific category should be aggregated for the purpose of determining whether the threshold is met. If any of the thresholds are exceeded, transfer pricing documentation would be required for the relevant category of transactions.