Singapore’s Updated Transfer Pricing Regulations: How They Affect SMEs

As a small business owner in Singapore, the latest updates to the Transfer Pricing Guidelines from IRAS are crucial for you. Effective from 14 June 2024, these revisions simplify compliance and adjust key requirements. It’s essential to understand how these changes impact your business and ensure you stay compliant. Here’s how these changes impact small and medium-sized businesses:

1. Revised Documentation Requirements

• Increased Exemption Thresholds: The threshold for Transfer Pricing Documentation (TPD) exemption has been raised from S$1 million to S$2 million, starting from the Year of Assessment (YA) 2026.
• Ongoing Compliance: Even if exempt from TPD, transactions must still adhere to the arm’s length principle.

Example: For consulting services exceeding S$2 million, ensure that pricing aligns with market rates, despite not needing detailed documentation.

2. Working Capital Adjustments

• Adjustment Flexibility: The new guidelines permit adjustments for trade receivables, payables, and inventory.
• Improved Comparability: These adjustments improve the accuracy of pricing by reflecting real economic conditions.

Example: Adjust pricing if your SME’s inventory levels differ from market norms to ensure prices reflect actual economic conditions.

3. Government Assistance

• Documentation Requirements: SMEs need to document how government support impacts their related party transactions.
• Impact Assessment: Evaluate and record the effect of government aid on your transaction terms.

Example: Document how a government grant influences transaction terms with related entities.

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4. Domestic Loan Exemption

• Exemption Details: From 1 January 2025, domestic loans between related parties will be exempt from TPD requirements.
• Annual Review Requirement: Interest rates on these loans must be reviewed annually to ensure they are at arm’s length.

Example: Check annually that interest rates on domestic loans are fair and aligned with market conditions.

5. Emphasis on Transaction Substance

• Commercial Purpose: Transactions must be supported by a valid business reason.
• Contemporaneous Documentation: Maintain thorough records to substantiate the business rationale for transactions.

Example: Ensure related party transactions are backed by a legitimate business reason and detailed documentation.

Summary

The updated Transfer Pricing Guidelines offer some relief with higher exemption thresholds and clearer rules on adjustments and government assistance. However, SMEs must continue to ensure their transactions comply with the arm’s length principle and are properly documented. Engaging with transfer pricing experts can help navigate these changes effectively.

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