This article is authored by Edwin Leow (Tax Director, Nexia TS)
A Fine Balance
Singapore recently announced new reporting measures commencing during the 2018 tax year which require taxpayers to report certain details of related party transactions (RPT) where the value of RPT in the audited accounts for the financial year exceeds S$15,000,000 (approximately US$10,500,000). The so-called “Form for Reporting Related Party Transactions” will need to be submitted together with the submission of the corporate income tax return otherwise known as the Form C. The value of RPT is the sum of all RPT items in the Income Statement and the year-end balances of loans and non-trade amounts.
This marks a subtle shift from the Inland Revenue Authority of Singapore’s (IRAS) current stance of maintaining a relatively light touch approach towards transfer pricing reporting in the interest of enforcing the arms’ length principles without placing a disproportionate burden on taxpayers at large. Indeed, it signifies that the IRAS is aligning itself with the growing trend of greater scrutiny and heightened reporting requirements among an increasing number of countries on the transfer pricing front. In countries like Malaysia and India, transfer pricing reporting for related party transactions is an integral part of the overall corporate tax filing regime in those locations.
This latest move by the Singapore tax authorities is by no means isolated. Earlier this year, Singapore had already joined the inclusive framework for implementing measures against Base Erosion and Profit Shifting (BEPS). The inclusive framework is an OECD-backed effort and was endorsed by G20 members in February 2016.
By joining the inclusive framework, Singapore had already effectively committed to implementing four minimum standards of the 15-point action plan under the BEPS project:
Countering Harmful Tax Practices
Under this action point which focuses on concerns around preferential regimes, Singapore is committed to using its tax incentive framework in a judicious manner in line with rewarding economically substantive activities without risking its use as a means to facilitate artificial profit shifting. This is in line with one of the key premises of BEPS where the incidence of taxation of profits is aligned with the place where the real economic activity generating them occurs.
Preventing Treaty Abuse
Singapore is firmly against all forms of treaty shopping and in a joint effort towards combating such activities, is actively working in conjunction with other countries to develop a multilateral instrument which will incorporate anti-abuse measures such as “Limitation of Benefits” clauses for inclusion in its tax treaties.
Transfer Pricing Documentation – Country-by-Country Reporting
Singapore has recently supplemented its two-tiered Master-File approach to transfer pricing documentation with a three-tiered approach by implementing Country by Country (CbC) reporting. CbC reporting is being implemented for multinational enterprises (MNEs) whose ultimate parent entities are in Singapore and whose group turnover exceeds S$1.125 billion. It is set to come into effect for financial years beginning on or after 1 January 2017 with the entities being required to file CbC reports within 12 months from the last day of their financial year. The CbC reports will be automatically exchanged with tax authorities of other jurisdictions that have entered into bilateral agreements with Singapore.
Enhancing Dispute Resolution
Singapore is committed to working closely with other countries on the establishment of robust dispute resolution mechanisms in line with the BEPS project to ensure taxpayers have access to such mechanisms under the bilateral treaty framework.
In conclusion, Singapore has tried to maintain a fine line between enforcing global transfer pricing rules while keeping its tax administration relatively simple without unduly burdening the average taxpayer. This balance is no doubt becoming harder to attain given the global scrutiny on transfer pricing and the increased reporting requirements being implemented by countries around the world. Singapore has had to in some ways jump on the bandwagon as evidenced by the latest reporting measures it is implementing. Having said that, it is the hope of many a taxpayer here that the pragmatism shown thus far by the IRAS will yet remain a cornerstone that continues to guide its approach towards achieving that fine balance.
For more information, please contact:
Mr Edwin Leow