Transfer Pricing

Update on IRAS e-Tax Guide Transfer Pricing Guidelines (Sixth Edition)

My Hanh Tran
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On 10 August 2021, the Inland Revenue Authority of Singapore released an update to its transfer pricing e-Tax Guide. In this piece, we highlight significant changes in the updated guide and how it impacts your business.

The Inland Revenue Authority of Singapore (IRAS) released the ‘IRAS e-Tax Guide Transfer Pricing Guidelines (Sixth Edition)’ on 10 August 2021 (e-Tax Guide). This e-Tax Guide is the consolidation of its previous four e-Tax Guides including:

  • transfer pricing (TP) guidelines published on 23 February 2006,
  • transfer pricing consultation published on 30 July 2008,
  • supplementary administrative guidance on advance pricing arrangements published on 20 October 2008, and
  • transfer pricing guidelines for related party loans and related party services published on 23 February 2009.

The purpose of the e-Tax Guide is to provide clarity around applying the arm’s length principle when transacting with their related parties, maintaining transfer pricing documentation (TPD), avoiding or resolving TP disputes as well as understanding the implications of non-compliance to TP requirements.

The e-Tax Guide provides significant updates and amendments to its previous 5th edition e-Tax Guide Transfer Pricing Guidelines (5th edition e-Tax Guide), including the guidance on how to prepare TPD (in the form of frequently asked questions), clarifications with regards to TP adjustment, the introduction of arbitration, clarifications on related party services and financial transactions and a discussion on cost contribution arrangements (CCAs).

In this article, we highlight the significant changes prescribed in the e-Tax Guide.

TP adjustments, surcharge and remissions

The surcharge of 5% in the case of TP adjustment (which was introduced in the 5th edition e-Tax Guide) is reiterated in this e-Tax Guide, with further clarification on how to compute the surcharge and some procedural matters.  

The e-Tax Guide also provides certain conditions where the surcharge of 5% may not be levied, including:

  • year-end adjustments at year-end closing of accounts (provided taxpayers have in place TP analyses and contemporaneous TPD and make the adjustments consistently in the accounts of the affected related parties),
  • adjustments made pursuant to the advance pricing agreements,
  • corresponding adjustments in accordance with the outcome of the Mutual Agreement Procedure (MAP) agreed by IRAS,
  • adjustments made in accordance with the arbitration decision.

Separately, the e-Tax Guide allows remission of surcharge in certain cases, in partial or in whole.  These include cases where of taxpayers having acceptable compliance records or cases where taxpayers have been cooperative during the TP audit.


The concept of arbitration has been introduced for the very first time in the e-Tax Guide with respect to situations where the IRAS and relevant foreign competent authority are unable to resolve the TP dispute under a MAP within a stipulated period. With this guidance, a Singapore taxpayer could prefer to invoke the arbitration process. It is imperative to note that any decision made by the arbitration panel on the matter will be binding on the taxpayer and both competent authorities.

Related party services

The e-Tax Guide discusses transfer pricing matters in connection with shareholder activities. Shareholder activities — such as meeting of shareholders, listing on stock exchange, and auditing of other group members’ accounts in the interest of the parent company — are common in multinational groups and are conducted for the ownership interest rather than the group members. The e-Tax Guide clarifies that these activities would not be regarded as related party services and should not be charged to any of the Group members.

The e-Tax Guide also comments on identification and analysis of services that may be duplicative in nature.

Furthermore, the e-Tax Guide allows the use of the cost plus 5% safe harbour in respect of inter-company services that fit into the definition of low value-added services as prescribed by the Organisation for Economic Co-operation and Development (OECD) in respect of its commentary on pricing for low value-adding intra-group services.

Related party financial transactions

The e-Tax Guide makes significant updates on matters relating to financial transactions. The e-Tax Guide discusses transfer pricing approaches with respect to related party financial transactions covering alternative funding arrangements including cash pooling, hedging, financial guarantees and captive insurance.

The e-Tax Guide also provides guidance on distinguishing funding arrangements between loans and equity.  This is noticeably the first time the concept of equity capital (or quasi-equity) has been introduced in the Singapore TP guidelines. The e-Tax Guide discusses various checks and tests to be conducted whilst characterising a funding transaction.

Lastly, the e-Tax Guide provides significant guidance and commentary on the methodologies and approaches that can be considered for pricing of interest for inter-company loan transactions.  

Cost Contribution Arrangement (CCA)

In Section 17 of the e-Tax Guide, taxpayers can find the definition of a CCA and the context and areas where CCAs are typically used in multiple intra-group arrangements. These two typical areas of CCAs are joint research and development, and multiple services amongst group entities. The key differences of these two types are also discussed in the e-Tax Guide.

The e-Tax Guide also provides useful guidance and examples on the manner and approaches to be adopted when applying the arm’s length principle with respect to CCAs. In addition, it is also listed out economic requirements in respect of entry and withdrawal of participants as well as terminations, the information required for TPD with respect to the CCA and emphasized the importance of putting proper TPD in place.

Our view

This e-Tax Guide has introduced a lot of new concepts to the Singapore taxpayers and provided clarity on how to apply the arm’s length principle to financial transactions, especially the segregation of funding transactions between loans and equity, the introduction of quasi-equity concept as well as the provision of a list of alternative funding arrangements such as cash pooling, hedging, financial guarantees, captive insurance.

This move is extremely welcome as it gives flexibility to taxpayers in determining their funding arrangements.   

We are also of the view that the commentary and examples around determining the arm's length pricing for intercompany loans are highly appreciated. Taxpayers can now be better equipped to substantiate their intercompany pricing arrangements by proper economic analyses.

Aside from these changes, the e-Tax Guide has replaced the concept of “TP consultation” with “TP audit”. Despite the fact that the approach and process behind the TP consultation and the TP audit are quite similar, the change in term suggests a change in the intent of the IRAS to start reviewing TP arrangements with greater intensity.

As such, taxpayers in Singapore should take this opportunity to review their TP models and arrangements to ensure that they are in line with the TP regulations and to mitigate potential TP adjustments and penalties.