What taxpayers should know about the latest TP guidelines

Latest Singapore TP guidelines introduce changes to requirements for financing arrangements, documentation and safe-harbour rules.

On 19 November 2025, the Inland Revenue Authority of Singapore (IRAS) released the Transfer Pricing Guidelines (Eighth Edition) (TPG (eighth edition)), which includes significant updates on various aspects of transfer pricing (TP) provisions applicable to Singapore taxpayers with domestic and cross-border related party transactions.

Singapore’s longstanding approach to TP has been relatively stable, built around the Organisation for Economic Co-operation and Development (OECD)’s principles, strong documentation and arm’s length standard. The latest edition introduces a more calibrated framework with simplification for low-risk activities on one hand and stricter expectations for financing and evidence-heavy arrangements on the other.

The changes bring both opportunities for compliance relief and areas of heightened scrutiny for taxpayers. This article summarises the key changes and their practical implications to help taxpayers prepare for the new landscape.

1. Additional guidance on TP aspects of financial transactions

A. Domestic related party loans

The IRAS issued an important clarification that while related party domestic loans entered on or after 1 January 2025 must still adhere to the arm's length principle or utilise the indicative margin, the IRAS will not enforce this requirement in practice where both the lender and borrower are not in the business of borrowing and lending. Further, the IRAS will not request TP documentation (TPD) for such transactions. 

For example, if company A lends S$100,000 to its subsidiary company B interest-free, neither will face TP adjustments if both companies are Singapore entities that are not in the business of borrowing and lending, easing compliance burdens. However, if company A borrows funds from a bank to lend to company B, the interest paid to the bank cannot be deducted for income tax purposes.

This clarification is particularly significant considering the feedback received on the TPG (seventh edition), where the IRAS discontinued the use of interest restriction as a proxy to the arm’s length principle. Taxpayers expressed concerns that the change in TPG (seventh edition) created a substantial compliance burden, as they would need to prepare TP analyses to support the interest rates applied if the indicative margin provided by the IRAS was not utilised. While the indicative margin could help reduce compliance costs, many taxpayers have noted that the margin tends to be on the higher side, raising questions about its applicability in various scenarios.

This clarification is a positive development for taxpayers, reflecting the IRAS’ willingness to consider the perspectives of the taxpayers and offering more leeway in structuring domestic loan arrangements.

B. Cross-border interest-free loans

For outbound related party loans where the interest income is regarded as a passive source, TP adjustments will apply only when the interest income is remitted to Singapore. If the outbound loan is interest-free, no TP adjustments will be made. Conversely, inbound interest-free loans where the Singapore entity is the borrower will not incur imputed arm's length interest expense, and there will be no withholding tax (WHT) under Section 45 of the Income Tax Act 1947 (ITA) as there is no interest payment. 

This update clarifies when and whether TP adjustments will be made by the IRAS concerning related party loans. However, taxpayers should also consider the risks from the foreign counterparty’s perspective. While the IRAS has clarified its stance on TP adjustments, foreign related parties may have different regulatory requirements or expectations regarding interest rates and WHT. These differences could lead to discrepancies or disputes, potentially resulting in double taxation for which the IRAS may not be able to provide support in mutual agreement procedure (MAP) discussions if the taxpayer cannot demonstrate that the transaction was conducted on an arm’s length basis.

C. Annual review of financing transactions

Under the TPG (seventh edition), the IRAS clarified that taxpayers are required to conduct annual reviews of loan arrangements with related parties, regardless of the tenor of the loan. This is essential due to potential changes in factors such as the economic environment, collateral value and the borrower's financial status.

The TPG (eighth edition) emphasises that the IRAS treats financing transactions the same as any other related party transactions, where regular reviews are necessary and must be documented in the TPD. It is important to note that the IRAS does not expect these reviews to necessarily lead to changes in the interest rates applied. This indicates a recognition that while documentation and review are critical, not all audit interventions will result in adjustments to interest rates.

If significant changes are identified during these reviews, taxpayers must evaluate how these changes impact the loan's interest rate and terms, treating necessary refinancing as a new loan priced according to Section 15 of the TPG. Conversely, taxpayers can argue against repricing by providing evidence, such as:

• Existing internal comparable uncontrolled transactions (i.e., third-party loans with similar terms) that have fixed interest rates for the entire duration.
• Demonstrating that changes in collateral value do not affect the interest rate.

For loans with floating interest rates, taxpayers should ensure that any economic changes are reflected in the reference rate, maintaining the relevance of the margin if the credit standing of the related party has no significant change.

While the updates in the TPG (eighth edition) provide clarity on the treatment of financing transactions and the expectations for documentation and review, taxpayers should be prepared for continued scrutiny by the IRAS in this area. As the regulatory landscape evolves, maintaining robust documentation and being both proactive and timely in compliance efforts will be essential for managing potential risks associated with related party financing transactions. 

2. Simplified and streamlined approach (SSA) for distribution and marketing activities

The TPG (eighth edition) introduces the SSA for qualifying routine distribution and marketing support activities. This mechanism aligns with the OECD’s “Amount B” framework and will be implemented from 1 January 2026 to 31 December 2028 as a pilot.

Key features of the SSA

• Provides a standardised profit margin for routine functions
• Reduces the need for annual benchmarking analyses
• Offers greater certainty for taxpayers willing to adopt the safe harbour
• Applies only to low-risk, routine functions with limited strategic and pricing authority

For example, a Singapore subsidiary that buys consumer products from its foreign parent, performs basic logistics and distribution and sells to unrelated retailers. This is a classic “routine distributor” model. Historically, such entities needed annual benchmarking support using comparable company searches (absent carrying out uncontrolled transactions).

Under SSA, the entity could adopt the IRAS’s prescribed return on sales. This helps:

• Reduce documentation burden
• Enhance audit certainty 
• Avoid disputes around comparability and selection of benchmarking inputs

However:

• Entities performing strategic pricing, warehousing with value-add or regional management functions may not qualify 
• The SSA is optional and taxpayers must weigh the benefits of simplification against the rigidity of its applicability and using a standardised margin

The introduction of the SSA not only simplifies compliance for routine distribution and marketing support activities but also aligns with Singapore's role in the OECD’s Inclusive Framework. By adopting this standardised approach, the IRAS demonstrates its commitment to fostering a collaborative and fair tax environment that respects international norms and the decisions of covered jurisdictions.

3. Higher bar for TPD and pass-through costs

The TPG (eighth edition) increases the emphasis on documentation quality, clarity and consistency. Two areas that stand out include:

A. Strengthened requirements for simplified TPD

The TPG (eighth edition) clarifies that where a taxpayer makes use of a qualifying past TPD, the taxpayer must formally declare such use in its simplified TPD. In the absence of this declaration, the taxpayer will not be regarded as having prepared a simplified TPD. Consequently, the requirements under Section 34F of the ITA would not be met, exposing the taxpayer to potential penalties.

This requirement was made mandatory by the IRAS in response to observed compliance gaps where taxpayers had prepared a full TPD in the first year, but in the subsequent two years relied on that documentation without performing contemporaneous review, validation and testing of its results. In some cases, taxpayers assumed that reliance on prior-year documentation alone was sufficient, even though the underlying facts, functions, risks or financial results may have changed.

By requiring an explicit declaration that a qualifying past TPD has been used, the IRAS seeks to reinforce the principle of annual and contemporaneous compliance. The declaration serves as a confirmation that the taxpayer has:

• Assessed whether the prior-year TPD continues to be relevant and applicable
• Reviewed whether there have been material changes to business operations, intercompany transactions or economic conditions
• Tested the TP outcomes for the relevant year to ensure they remain arm’s length

Accordingly, the declaration is not intended to be a mere administrative formality. Rather, it functions as a compliance safeguard to ensure that taxpayers do not mechanically roll forward prior-year TPD without appropriate analysis. 

B. Stricter evidence needed for pass-through and reimbursement arrangements

In the past, some taxpayers relied solely on invoices or intercompany billing statements to justify pass-through costs. The TPG (eighth edition) clarifies that invoices cannot be regarded as written agreements and are insufficient to substantiate the use of strict pass-through costs. 

The TPG (eighth edition) also provides the requirement to explain in the TPD the basis for treating costs as strict pass-through costs.

This update reflects the IRAS’ position, which remains stricter than the OECD TP guidelines. While the OECD places greater emphasis on the substance of the arrangement and the absence of value creation by the intermediary, the IRAS requires clear documentary evidence (i.e., written agreements) demonstrating that the costs were incurred purely as an agent or conduit, without the assumption of risks or performance of value-adding activities. In practice, the IRAS has consistently requested such written agreements during TP queries and audits. Accordingly, it is highly recommended that taxpayers ensure that robust contractual documentation is in place to substantiate the pass-through nature of these costs.

4. Clearer processes for MAP and dispute resolution

The TPG (eighth edition) also expands guidance on the MAP. The IRAS clarifies that taxpayers can file a protective MAP to preserve their right to treaty relief while challenging an assessment domestically. 

This is relevant when:

• A proposed TP adjustment may create double taxation
• Treaty-based relief may depend on timely MAP filing

This protective measure safeguards against missing deadlines while allowing taxpayers to explore other avenues for resolution.

5. Other notable updates

In addition to the above, the IRAS has made the following other key updates in the TPG (eighth edition):

• Emphasises that taxpayers must substantiate their treatment of gains, losses or deductions as capital in nature, ensuring consistency between income tax and TP compliance
• Provides additional guidance on profit attribution to permanent establishments (PEs), and clarifies the tax filing obligations for PEs under specific circumstances
• Outlines the options available to a taxpayer if it disagrees with IRAS’ TP adjustments which includes formally objecting to the adjustment in accordance with the IRAS’ objection and appeal process. In addition, the taxpayer has the option to pursue domestic legal remedies available under the ITA or request the IRAS to address any resulting double taxation through the MAP, if applicable
• Clarifies that when surcharges applied and the TP adjustment used as a basis is subsequently increased, reduced or annulled, the surcharge will be adjusted accordingly, and a refund will be made where the excess surcharge has been paid

Key takeaways

The TPG (eighth edition) introduces several important clarifications that underscore the IRAS’ clearer expectations for taxpayers. Although the core arm’s length framework remains unchanged, the updates introduce targeted refinements on financing arrangements, documentation standards and dispute management. 

Notably, the IRAS has clarified that domestic related party loans entered into on or after 1 January 2025 between related parties (not in the business of borrowing and lending) will generally fall outside the scope of Section 34D TP adjustments. While this provides administrative relief for purely domestic financing, interest deductibility and other statutory requirements continue to apply.

The IRAS has also introduced an SSA pilot, broadly aligned with the OECD’s Amount B initiative, for qualifying baseline marketing and distribution activities. The pilot offers a potential compliance simplification for routine distributors but requires careful assessment of eligibility and applicability conditions, and operational alignment.

The TPG (eighth edition) also raises the bar on TPD, tightening the conditions for reliance on prior-year documentation and imposing more rigorous substantiation requirements for strict pass-through costs. 

Against the backdrop of the IRAS’ continued and sustained focus on TP enforcement, taxpayers should undertake a proactive review of their TP policies, documentation and operating models in light of the updated guidelines. Such review can help identify and assess potential gaps in existing TP frameworks, strengthen audit readiness, and mitigate adjustment and controversy risks.

The co-authors of this article are Luis Coronado, EY Global Tax Controversy Leader and Sharon Tan, Partner, International Tax and Transaction Services – Transfer Pricing, Ernst & Young Solutions LLP.