Singapore – Seventh Edition of the e-Tax Guide on Transfer Pricing Guidelines
The Inland Revenue Authority of Singapore (IRAS) published the seventh edition of the e-Tax Guide on Transfer Pricing (TP) Guidelines on 14 June 2024.
Here are some updates:
1. Increased exemption threshold from TP documentation for some category of transactions – effective from YA2026 onwards
The current exemption threshold of SGD 1 million will increase to SGD 2 million for the inbound and outbound related party transactions (service fees, royalties fees, license fees, guarantee fees and any other transactions except for purchases, sales and loans). The SGD 15 million exemption threshold remains applicable for related party purchases, sales and loans.
2. Interest rates for related party loans
Applying the arm’s length principle, the interest rates for related party loans should reflect the interest rates charged between unrelated parties for similar loans under similar circumstances.
For a related party domestic loan entered into prior to 1 January 2025, if the lender and borrower of that loan are both taxpayers in Singapore and the lender is not in the business of borrowing and lending, IRAS will restrict the interest expense claimed by the lender on the loan as a proxy to the arm’s length principle. Where the lender is in the business of borrowing and lending funds (for example, banks, other financial institutions or finance and treasury centres), the taxpayers should determine the interest rate based on the arm’s length principle.
For a related party domestic loan entered into on or after 1 January 2025, if the lender and borrower of a related party loan are both taxpayers in Singapore and neither of them is in the business of borrowing and lending, the taxpayers can apply the IRAS indicative margin to derive the interest rate regardless of the amount of the loan. If the taxpayers choose not to apply the IRAS indicative margin or either of them is in the business of borrowing and lending, they should determine the interest rate based on the arm’s length principle. If the related party loan is a cross-border loan, taxpayers should ensure compliance with the arm’s length principle. IRAS does not regard interest-free related party loans as arm’s length transactions, unless taxpayers have reliable evidence that independent parties under comparable circumstances will similarly provide loans without charging any interest.
3. IRAS’ indicative margins for related party loans
For each of the related party loans not exceeding SGD 15 million, the entity can approximate an arm’s length interest rate for that loan by adding the IRAS’ indicative margin to the choice of a base reference rate. This threshold of SGD 15 million does not apply to a related party domestic loan entered into or after 1 January 2025 where neither parties to the loan are in the business of borrowing and lending. The IRAS’ indicative margin is available at https://www.iras.gov.sg/taxes/international-tax/transfer-pricing#indicativemargin
4. Additional information
Please note that not all updates provided in the recent TP guidelines have been covered. Taxpayers should review the recent TP guidelines to understand their impact on intercompany financing policies and compliance going forward.
For specific, please refer to the IRAS TP Guidelines at https://www.iras.gov.sg/taxes/international-tax/transfer-pricing