Singapore’s Transfer Pricing Guidelines (9th Edition): Share-based compensation – Completing the other half of the puzzle

At first glance, the update may appear technical. However, viewed alongside the changes announced in Budget 2025, it represents the completion of a broader policy framework governing the tax treatment of employee SBC costs in Singapore.

The transfer pricing question left unanswered

In Budget 2025, Singapore introduced changes to the tax treatment of Employee Equity-Based Remuneration (EEBR) arrangements by allowing, from YA 2026, a corporate tax deduction for qualifying payments made in connection with the issuance of shares under an EEBR scheme.

The change was generally welcomed as it improved the alignment between the economic cost borne by a business and the corresponding tax outcome. However, the transfer pricing consequences of employee SBC remained a separate consideration. In particular, MNE groups operating intercompany service arrangements continued to face questions regarding how such costs should be treated when determining arm's length service fees.

Viewed through that lens, the significance of the 9th edition TPG extends beyond a standalone transfer pricing update. Budget 2025 addressed the direct tax treatment of employee SBC, whereas the latest TPG update provides greater clarity on its transfer pricing treatment.

Together, the two developments contribute towards a more coherent framework for the taxation of employee SBC in Singapore.

What IRAS has clarified

Employee SBC can arise in several forms, including:

• Incurred costs: costs that are charged to the employing entity and recognised in its accounts.
• Uncharged costs: costs that are not charged despite relating to employees performing services.
• Notional accounting costs: costs recognised under accounting standards, even where no corresponding charge is made between group entities.

From a transfer pricing perspective, the challenge has never been whether employee SBC is relevant. The more difficult question has been whether such costs should be included in the cost base used to derive an arm’s length intercompany service fee and, if so, whether those costs themselves should also be recharged to related parties.

The 9th edition sets out IRAS’ position more clearly:

• Incurred costs: The position remains unchanged. Such costs should continue to be included in both the cost base used to determine the arm’s length remuneration and the service fee charged to related parties.
• Uncharged and notional costs (from YA2026 onwards): IRAS' position is that these costs should continue to form part of the cost base when deriving an arm’s length service fee. However, the underlying costs themselves do not need to be included in the service income charged to related parties. In simple terms, the costs remain in the mark-up base, but the underlying costs do not need to be passed on.

What does this mean in practice

The significance of the update is not merely that IRAS has clarified the treatment of SBC costs.

More importantly, IRAS has now put into writing a position that many Singapore transfer pricing practitioners have understood and applied in practice, while simultaneously introducing a pragmatic treatment for uncharged and notional costs.

The result is greater certainty for taxpayers.

At the same time, certainty often comes with reduced flexibility. Now that IRAS has articulated its position in the TPG, MNE groups adopting alternative approaches may find those positions more difficult to support from a Singapore transfer pricing perspective. Taxpayers seeking to depart from the guidance should be prepared to demonstrate why their approach remains consistent with the arm’s length principle.

This may require some groups to revisit existing transfer pricing policies, intercompany charging mechanisms and supporting documentation.

A broader signal from IRAS

Perhaps the most interesting aspect of the update lies beyond the technical treatment of SBC itself.

The OECD is currently consulting on the transfer pricing treatment of share-based compensation costs as part of its public consultation on the proposed revisions to Chapter VII (Intra-Group Services) of the OECD Transfer Pricing Guidelines. The consultation specifically invites comments on this issue, and a final OECD position has yet to emerge.

Against that backdrop, IRAS’ decision to take a clear Singapore position at this stage is particularly noteworthy. It provides welcome certainty for Singapore taxpayers while the international discussion continues.

More broadly, the update may signal IRAS’ willingness to provide practical guidance in areas where international consensus is still developing, rather than waiting for the OECD position to be finalised.

This does not suggest that Singapore is departing from OECD principles. IRAS has historically aligned closely with the OECD Transfer Pricing Guidelines. Rather, the latest update illustrates a pragmatic approach: providing taxpayers with clarity where practical issues arise, while international guidance continues to evolve.

Timing matters more than you might expect

This is not something that can be pushed to a later year.

The guidance applies from Year of Assessment (YA) 2026, which corresponds to the financial year 2025. For many MBE groups, the relevant accounts may already have been finalised.

With the YA 2026 corporate income tax filing deadline falling on 30 November 2026, businesses should assess the impact before positions are reflected in the tax return and transfer pricing documentation.

Final thoughts

The 9th edition of the TPG contains only one substantive update. However, it addresses a topic that has generated practical uncertainty for many MNE groups and should not be dismissed as a minor technical amendment.

Viewed in isolation, the update clarifies the transfer pricing treatment of employee SBC costs.

Viewed alongside Budget 2025, it completes the other half of the discussion by addressing the transfer pricing consequences of costs for which the direct tax treatment has already been enhanced.

For MNE groups operating cost-plus service arrangements, the practical question is no longer whether employee SBC costs should be considered in the transfer pricing analysis. The focus now shifts to whether existing charging mechanisms, policies and documentation remain aligned with IRAS' stated position.