The Inland Revenue Authority of Singapore has recently issued the e-Tax Guide - Transfer Pricing Guidelines Special Topic on Centralised Activities in Multinational Enterprise Groups (MNE). The e-Tax Guide published on 19 March focuses on analysing the importance of the centralised activities in Singapore and providing guidance on how to analyse these activities. The e-Tax Guide also discusses the factors that may affect the transfer price for these activities and provides guidance on the transfer pricing methods that may be appropriate for benchmarking such activities.
The e-Tax Guide is important considering Singapore being adopted as a destination by significant number of MNCs for housing their global as well as regional headquarters (HQ). The e-Tax Guide aims to analyse potential inter-company transactions that may be carried out by MNCs through their Singapore-based HQ and discusses the approach to determine the arm’s length price in respect of such transactions.
The guidance applies to Singapore-based HQs as well as to other entities within Singapore that provide centralised activities. The e-Tax Guide makes a reference to analysing the Group’s profit drivers as well as the overall value chain of the MNC Group vis-à-vis the Singapore HQ’s contribution to such profit drivers and its position within the value chain. This aids in the determination of whether the Singapore HQ would operate as an entrepreneur or a service provider. The approach and methodology for analysing the HQ as an entrepreneur would differ from analysing the Singapore HQ as a service provider.
That said, the e-tax Guide does clarify that basic principles of transfer pricing would need to be adhered to whilst analysing the arm’s length pricing arrangements in respect of the Singapore HQ. This includes conducting comparability analysis, analysing functions, risks and assets of the transacting parties, selection of the most appropriate transfer pricing method in order to determine the arm’s length remuneration of the transactions etc.
It is important to note that the e-Tax Guide indicates the separation of individual transactions from the HQ’s overall centralised activities and to analyse each transaction separately. Aggregation would be permitted only where transactions are so intermittently related that they would be different to separate.
The HQ follows the same guidance in Section 6 of the IRAS Transfer Pricing Guidelines to prepare transfer pricing documentation if the related party transactions meet the prescribed conditions. The HQ can also avoid transfer pricing disputes and obtain early tax certainty by applying for an Advance Pricing Arrangement (APA) for its related party transactions for future years.