What is the Transfer Pricing Documentation Threshold in Singapore

Globalization has paved the way for businesses to expand their roots all over the world and enjoy a multitude of legal and financial incentives, especially those related to tax regulations and overall legal compliance. 


Preparing a transfer pricing document is an essential part of this process to obtain these incentives. 


However, the exact policies and regulations surrounding transfer pricing documents are not always easy to understand and implement within an organization. 


This is the reason why many organizations choose to outsource accounting services in Singapore, so that the entire process is handled professionally and with maximum accuracy.


Keep reading to learn more about transfer pricing in detail.


What is Transfer Pricing?

Transfer pricing refers to the principles and methods involved in pricing transactions between two related parties, such as purchasing products or providing services. Arm’s length pricing is used for pricing between related parties.


Generally, prices are set quite close to the market price in the case of transactions between independent parties. It is integral for the tax system to ensure that the transaction price between related parties is comparable to the market price. 


This approach also helps in reducing the risk of audits and double taxation. However, taxpayers must ensure that whenever transactions between related parties occur, the transfer price is set at arm’s length, as if the parties were unrelated and negotiating without any bias.


Once taxpayers follow these best practices, the entire transfer pricing documentation becomes easier, and the companies are able to create a thorough transfer pricing document with the help of outsourced accounting services in Singapore.


Transfer Pricing Documentation Requirement

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All taxpayers who engage in related party transactions are expected to prepare a comprehensive transfer pricing document. 


It is also important to ensure that enough evidence is provided in the transfer pricing documentation to demonstrate that the transacted price is in accordance with the arm’s length principle.

Evolution of Transfer Pricing in Singapore

The regulations around transfer pricing underwent significant changes in Singapore in 2019. Prior to 2019, taxpayers were not legally required to prepare and maintain transfer pricing documents. 


However, the amendments to Singapore’s Income Tax Act made it compulsory for all companies with annual revenue of more than SG$10 million to prepare annual transfer pricing documentation as per the rules stated in the act.


Moreover, the companies are also required to securely retain the transfer pricing document for at least five years from the end of the basis period in which the transactions were conducted. Failure to comply with the transfer pricing rules can result in penalties of up to SG$10,000.


Section 34E of the Income Tax Act also grants power to the Singapore Tax Authority Comptroller to implement a 5% surcharge on the transfer pricing adjustments after a thorough assessment.


How to Ensure Compliance

Considering the $10 million threshold is key to ensuring compliance with Singapore’s transfer pricing requirements. However, all Singapore taxpayers must be prepared to demonstrate that they are following the arm’s length principle while conducting intercompany transactions. 


IRAS also has the right to modify the pricing of related-party transactions if they are not at arm’s length.


It is also important to note that most tax authorities in other countries also have similar transfer pricing requirements. 


Countries, including Singapore, typically perform thorough database searches to ensure the arm’s length nature of taxpayers’ transfer pricing policies is implemented for the purchase of all goods and services. This helps the authorities uncover any non-compliant practices that might be implemented in an organization. 

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The purpose of creating a comprehensive transfer pricing document with the help of outsourced accounting services in Singapore is to ensure that the company has all the details required to justify its transfer pricing practices and policies.


Transfer pricing benchmarking analysis is used for simpler transactions. This type of analysis includes a comprehensive assessment of functions, assets, and risks involved in related parties. 


It also involves identifying independent comparable companies working in the same region to ensure proper metrics are established for analysis. The range of the arm’s length is also obtained via quantitative analysis to ensure maximum accuracy.

In a Nutshell

Overall, every company should be familiar with the applicable transfer pricing document rules and regulations, especially when operating in different groups or jurisdictions. 


The transfer pricing documentation threshold for companies in Singapore is SG$10 million, so such organizations should outsource accounting services in Singapore to let the experts handle legal and financial matters related to preparing an accurate transfer pricing document.