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The Inland Revenue Authority of Singapore (IRAS) has recently issued a transfer pricing guidance (34-pager document) for centralized activities of multinational enterprise (MNE) groups in Singapore. This will assist taxpayers in analysing such activities between related parties and also enable them to identify factors that may affect transfer prices for these activities and the most appropriate transfer pricing method to benchmark the same.
Broad overview of the aforesaid guidance is as under:
- The performance of centralized services of an entity alone does not mean that the entity should be considered a headquarters (HQ) within the MNE group. Other factors such as organisation structure and strategic importance of the activities performed need to be taken into account.
- Label HQ does not dictate the transfer pricing analysis of the entity. The facts and circumstances of each HQ must be considered in determining the role of the HQ.
- IRAS emphasizes the importance of delineating the actual transfer pricing activities (comparability analysis) of the MNE group and understanding them in the context of the business of the MNE group and the nature of the transaction itself.
- In determining the arm’s length price for a related party transaction, due consideration must be given to the HQ’s contribution to value creation, taking into account the assets used and the risks assumed by the HQ (functional analysis).
- The general approach to analyse intra-group HQ activities does not differ from the approach used in other intra-group transactions.
- Transfer pricing documentation must be prepared in line with the IRAS Transfer Pricing Guidelines.
- The guidance provides scenarios where certain transfer pricing methods may be appropriate for certain functions of a HQ.
For the complete document, please click here.