Transfer pricing cannot be ignored … any more

The tax environment in Singapore is dynamic, in order to be in step with international developments. IRAS has put in place various requirements and guidance, to ensure taxpayers are able to defend their current structures under the spotlight of BEPS. Over the past 18 months, IRAS has undertaken a series of consultations with selected stakeholders, to obtain in-depth feedback on the extent that taxpayers are ready for BEPS Action 13 requirements, in particular CbCR.

2015 was a watershed year for transfer pricing compliance in Singapore. Following the release of expanded IRAS transfer guidance in January 2015, taxpayers were required to have Singapore-specific documentation in place before November 30 2015, the due date for tax returns for the 2014 financial year (December 15 2015 for e-filing). In tandem with the foregoing, there has been a notable increase in the number of transfer pricing queries and requests for documentation from IRAS. Generally speaking, IRAS' transfer pricing guidance echoes OECD principles.

In January 2016, IRAS released an updated version of its 2015 transfer pricing guidelines. The updated version provides additional guidance on the application of certain transfer pricing methods and amended guidance regarding MAP and APA processes. The fact that IRAS has updated its guidance within a span of one year reflects the importance of transfer pricing as well as the increasing appetite of Singapore taxpayers for resolution of controversy through MAPs and APAs. In fact, as of March 2015 IRAS had 39 APA applications and 17 MAP cases under review.

Transfer pricing audits have slowly evolved into two distinct channels in Singapore.

The first channel is the conventional route of tax queries, where recently there has been an increase in emphasis on transfer pricing matters. In particular, there are several questions on transfer pricing in the queries and often there are several rounds of queries focussed on transfer pricing matters. It is the norm for IRAS's queries to be drawn out for the better part of a year.

In addition to the conventional route of tax queries, the Transfer Pricing Consultation process, which is often the precursor to a transfer pricing audit, is also widely used by IRAS. Under this approach, IRAS will usually first approach the taxpayer with a list of basic questions on the related-party transactions including a request for the taxpayer's transfer pricing documentation. This is usually followed by a detailed questionnaire of two to four pages, often containing 10 to 12 questions, some of which have several sub-sections. The information gathered during this process is fairly comprehensive and goes beyond the nature of the related-party transactions to often obtain an appreciation of the taxpayer's business. Typically, after collecting and reviewing the information over one or two rounds of correspondence, IRAS will request a meeting with the key representatives of the taxpayer to verify their understanding based on this desktop review and build upon their knowledge of the taxpayer's business. At the end of the Transfer Pricing Consultation process, which can easily take beyond a year, IRAS may propose a transfer pricing adjustment or advise the taxpayer on how best to improve its transfer pricing practices, eg to prepare, improve or submit Singapore-specific transfer pricing documentation.

IRAS has in place guidance for documentation based loosely on the Master File and Local File concept as part of the new transfer pricing documentation requirements introduced in 2015, applicable for Year of Assessment 2015. On June 16 2016, the Ministry of Finance announced in a press release that Singapore has become the latest participant to the OECD's inclusive framework for implementation of measures against BEPS and will implement CbCR. Singapore's CbCR requirements will apply to multinationals whose ultimate parent entity is in Singapore, and whose group turnover exceeds SGD 1.125 billion – equivalent to the threshold of €750 million specified by the OECD. Multinationals whose revenues exceed the threshold are required to file their CbC report with IRAS within 12 months from the last day of the financial year. The foregoing will affect multinationals whose financial years begin on or after January 1 2017. Hence, the first wave of Singapore CbC reports will be due by December 31 2018. IRAS will consult Singapore-headquartered multinationals further on the implementation details of CbCR, and release these details later within this year.

Geoffrey K. Soh Partner KPMG in Singapore 16 Raffles Quay, #22-00, Hong Leong Building, Singapore 048581 Tel: +65 6213 3035 geoffreysoh@kpmg.com.sg Geoffrey Soh is the Head of Transfer Pricing at KPMG in Singapore and a Steering Committee member of KPMG's Global Transfer Pricing Practice. He has over 21 years of professional experience, including over 18 years of experience in providing transfer pricing services. Prior to joining KPMG Singapore, Geoff worked for over five years in KPMG Vancouver's transfer pricing practice. He transferred to Singapore in 2003, to develop KPMG's transfer pricing practices in the region. Under Geoff's leadership, KPMG Singapore has one of the largest full-time transfer pricing practices in Southeast Asia. Geoff has been acknowledged several times by the World Tax Guide for transfer pricing excellence in Singapore and was instrumental in the International Tax Review's accolade to KPMG Singapore as the National Firm of the Year for Transfer Pricing in 2016. His viewpoints and articles on transfer pricing issues can be found in industry publications such as CCH, International Tax Review, and accounting industry publications in Canada and Singapore. He has also recently been quoted in various publications for his thoughts on BEPS-related developments. Over the years, Geoff has shared his thoughts at over a hundred conferences and events in Singapore as well as globally.

Felicia Chia Director KPMG in Singapore 16 Raffles Quay, #22-00, Hong Leong Building, Singapore 048581 Tel: +65 6213 2525 fchia@kpmg.com.sg Felicia is a Director in the Transfer Pricing Practice at KPMG Singapore and the Financial Services Transfer Pricing lead in Singapore. She has over a decade of experience in providing transfer pricing services to multinational clients in Singapore, the US, and the Asia Pacific region. In 2008, she returned to Singapore after embarking on an international rotation with KPMG LLP's Silicon Valley office. Felicia's experience includes advising on transfer pricing planning and documentation projects to determine proper arm's-length compensation for tangible property, intangibles, and intercompany services. In addition, she has assisted in the preparation of cost allocation studies for global/regional headquarters, as well as audit defence assistance and conducting transfer pricing risk analyses. She has also been involved in the negotiation and implementation of unilateral and bilateral advanced pricing arrangements (APAs) and mutual agreement procedures (MAPs). Felicia has also led several value chain management projects and advised clients on how to comply with OECD BEPS guidance. Felicia is a regular speaker on global transfer pricing at client seminars and published a number of articles in connection with transfer pricing issues. She was recognised as a leading adviser in Singapore in the inaugural edition of the International Tax Review's "Women in Tax Leaders" guide.