This alert summarizes the key transfer pricing guidance provided by IRAS on centralised activities carried out in Singapore.
On 19 March 2021, the Inland Revenue Authority of Singapore (IRAS) released transfer pricing (TP) guidelines on centralised activities in multinational enterprise (MNE) groups (e-Tax Guide), which provide guidance on how to analyse the economic value of centralised activities carried out in Singapore. The e-Tax Guide outlines the broad categories of centralised activities and the factors that may affect the transfer price for such activities, discusses the appropriate TP methods and sets out the increased expectations for MNE groups to have robust TP documentation.
The IRAS recognises that centralised activities could be performed at different levels of intensity and scope and the extent of assets used and risks assumed may vary. This e-Tax Guide seeks to identify the varied functions performed, assets used, and risks assumed in different centralised activities arrangements and provides guidance on how to determine the arm’s length transfer price.
The e-Tax Guide can be seen as a nudge from the IRAS for all MNE groups performing centralised activities to look within and re-evaluate the TP aspects relating to the activities. Now more than ever, it is crucial for MNE groups to be able to substantiate the business considerations for setting up such operations in Singapore and elsewhere, with appropriate documentation, substance, internal systems and processes.
