TRANSFER PRICING DOCUMENT
Transfer pricing offers numerous tax and financial benefits for organizations. You can count on us. Let our expert team help you navigate them effectively.
Benefits of Transfer Pricing Documentation
Transfer pricing documentation ensures that the important records stored by taxpayers represent the transactions between the companies. Preparation and maintenance of the transfer pricing document is important to make the taxation process more efficient and reliable.
Companies also get the benefit of preventing future transfer pricing issues with the presence of proper transfer pricing documentation. Furthermore, by maintaining important documents, you are ensuring your company does not run into any legal issues as all required legal and official documents are kept for future records.
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What Your Transfer Pricing Documentation Needs To Include
Outline and Structure Details
It is important to include the outline and structure details of an organization in the transfer pricing document.
Similarly, details about critical financial key figures and legal ownership are also added.
Industry Analysis
Essential information about the current market trends, competitors’ research, and key factors of the business actions are added in the Industry Analysis part of the transfer pricing document.
Intercompany Transactions Overview
This section includes the compilation of transactions between related parties and the relevant pricing policies.
This process is to establish the fact that the transaction is performed in line with the arm’s length principle.
Functional Analysis
Functional analysis deals with the functions, assets and risk assumed by all the parties involved in the related party transactions.
Transfer Pricing Method
The taxpayers must select the methods that provide the best estimation of an arm’s length price. Taxpayers can choose from the traditional transaction methods or the transactional profit methods.
Economic Analysis
This part of the transfer pricing documentation is important as it provides evidence that the methodology was carried out appropriately and that the related party transaction is carried out at arm’s length.
All strategies and analysis carried out should be included in the documentation.
Transfer Pricing Documentation in Singapore - Frequently Asked Questions (FAQ)
Transfer pricing refers to the pricing of goods, services, and intangible assets transferred between related entities, such as subsidiaries or branches within a multinational group. It ensures that transactions between these entities are conducted at arm’s length, reflecting market value.
Transfer pricing documentation is crucial for demonstrating compliance with Singapore’s transfer pricing regulations. It helps to substantiate that intercompany transactions are conducted at arm’s length, thereby reducing the risk of tax adjustments, penalties, and double taxation by the Inland Revenue Authority of Singapore (IRAS).
Companies in Singapore that engage in related-party transactions are required to prepare and maintain transfer pricing documentation. This includes transactions such as the sale of goods, provision of services, loans, and the transfer of intellectual property between related entities.
Transfer pricing documentation in Singapore typically includes:
- Organizational Structure: Overview of the company’s structure, including details of related entities.
- Nature of the Business: Description of the business and industry in which the company operates.
- Related Party Transactions: Details of all intercompany transactions, including the pricing policies applied.
- Transfer Pricing Methodology: Explanation of the method used to determine that the transactions are at arm’s length.
- Financial Information: Relevant financial data to support the transfer pricing analysis.
Transfer pricing documentation should be prepared contemporaneously, meaning it should be in place by the time the tax return is filed for the financial year. It must be updated annually to reflect any changes in the business, transactions, or economic conditions.
Non-compliance with transfer pricing documentation requirements can result in penalties, including fines and tax adjustments. The IRAS may impose a surcharge of 5% on the transfer pricing adjustment amount, regardless of whether there is any tax payable.
IRAS reviews transfer pricing documentation as part of its routine tax audits. The documentation must be robust and provide adequate support for the transfer pricing practices. If the documentation is found lacking, IRAS may make transfer pricing adjustments, leading to additional tax liabilities.
To ensure compliance, it’s essential to:
- Engage a qualified tax professional or consultant to assist in preparing the documentation.
- Conduct a thorough analysis of related-party transactions.
- Regularly update the documentation to reflect any changes in the business or external environment.
- Review IRAS guidelines and ensure all relevant information is included in the documentation.
If these processes seem overwhelming to you, give us a call and our expert team will be pleased to assist you with transfer pricing documentation.
