Additional guidance on TP aspects of financial transactions It also sets out the tax treatment for various payments or adjustments made pursuant to a CCA for TP and income tax purposes, and the types of documentation that should be maintained for a CCA for tax purposes. It provides a four-step framework on how to apply the arm’s-length principle to a CCA, which is generally aligned with the OECD’s TPG and centers around the determination of the participants’ share of expected benefits to determine the participants’ contribution to the CCA. The 6th Edition TPG has included a new section (Section 17) with guidance to determine whether a CCA 2 satisfies the arm’s-length principle. Guidance on TP aspects of cost contribution arrangements (CCAs) It has also incorporated guidance on the application of the 5% profit mark-up under the OECD’s simplified approach for low value-adding intra-group services, subject to conditions such as meeting the OECD’s definition of low value-adding intra-group services. The IRAS has now included formal guidance in the 6th Edition TPG on shareholder activities and duplicate services, which are in alignment with the guidance in the Organisation for Economic Co-operation and Development (OECD)’s TPG as well as the practices currently applied by the IRAS. Additional guidance on TP aspects of related party services It also includes the circumstances under which the IRAS will not accept a MAP or APA application after its submission, one of which is where the proposed transaction is not carried out for bona fide commercial reasons or involves a scheme that has, as one of its main purposes, the avoidance or reduction of tax. The IRAS will also not accept an APA request on a related party transaction that is undergoing audit or investigation. The 6th Edition TPG added guidance on the availability of arbitration as a further recourse to resolve issues that have reached a stalemate in a MAP discussion. Additional guidance on arbitration and circumstances under which the IRAS will not accept a Mutual Agreement Procedure (MAP) or Advance Pricing Arrangement (APA) application The 6th Edition TPG has included a new section (Section 9) to spell out the circumstances under which the IRAS may consider a full or partial remission of the TP surcharge (including where voluntary or self-initiated retrospective adjustments are made), such as cooperative and responsive behavior of taxpayers, maintenance of contemporaneous TP documentation and good tax compliance records. Taxpayers are liable to a surcharge equal to 5% of TP adjustments (regardless of whether there is tax payable on the adjustments made). This is consistent with the IRAS’ practice where it commonly challenges taxpayers on the appropriateness of such profit-level indicators. Similar principles are to be applied in cases where the value-added cost mark-up is being used. In the case of the Berry ratio, the IRAS reiterates that it is only appropriate when the value of the functions performed is proportional to the operating expenses and not to sales. The IRAS elaborates on the limited circumstances for the application of alternative profit level indicators such as the Berry ratio and value-added cost mark-up. Further guidance on application of the Berry ratio and value-added cost mark-up While TP audits are not new in Singapore, this change holds significance as it marks a shift to a more stringent, and potentially a much more aggressive enforcement approach by the IRAS in ensuring TP compliance. Detailed discussion Replacement of reference to “TP Consultation” with “TP Audit” This Alert summarizes the key updates and additional guidance provided in the 6th Edition TPG. However, the various updates and guidance in additional areas (including conditions for mitigating a TP surcharge) are reflective of the IRAS’ continuing focus on TP matters and enforcement of the arm’s-length requirement on taxpayers. The 6th Edition TPG does not deviate significantly from the 5th Edition TPG in terms of guidance on the considerations for the application of the arm’s-length principle and TP documentation requirements. The Inland Revenue Authority of Singapore (IRAS) released the 6th Edition Transfer Pricing Guidelines 1 (TPG) on 10 August 2021, which provides updates and additional transfer pricing (TP) guidance in a number of areas as compared to the previous (5th) edition of the TPG, published on 23 February 2018.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |