Singapore joined the inclusive framework for the global implementation of the BEPS Project in June 2016.
As a BEPS Associate, Singapore is working alongside other jurisdictions to help develop the implementation and monitoring phase of the BEPS Project. Singapore is committed to implementing the four minimum standards under the BEPS Project, namely the standards on:
- Transfer pricing documentation;
- Enhancing dispute resolution;
- Countering harmful tax practices; and
- Preventing treaty abuse.
Singapore has updated its transfer pricing rules to reflect the adoption of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as revised by the Actions 8 – 10: 2015 Final Reports on Aligning Transfer Pricing Outcomes with Value Creation.
The Inland Revenue Authority of Singapore’s (“IRAS”) Transfer Pricing (“TP”) Guidelines (4th edition) issued on 12 January 2017 states explicitly that profits should be taxed where the real economic activities generating the profits are performed and where value is created.
The functional and risk analysis are therefore essential as follows:
- Importance of robust functional analysis as part of TP documentation
- Look to market for independent price and compare to related party price
- Need to include commercial and economic considerations for meaningful comparison
- To assume a risk, taxpayer must control the risk and have the financial capacity to assume the risk
This move indicates Singapore’s formal endorsement of BEPS Action 8-10’s position that risk is allocated to party only if the party can control the risk and the financial capacity to bear the risk. The revised TP Guidelines clarifies the definition of risk management as the capability to take on, respond and mitigate risks.
Form for reporting related party transactions
In an effort to further ensure that taxpayers comply with transfer pricing documentation and the arm's length pricing requirements in relation to their related party transactions (“RPT”), IRAS has introduced a new Form for Reporting RPT (“RPT Form”) for companies to take effect from Year of Assessment 2018, i.e. financial year 2017, but only if the value of all RPT exceeds S$15 million. The purpose of introducing this new Form is to enable IRAS to better assess companies’ transfer pricing risks and improve on their enforcement of the arm's length pricing requirement.
A company is required to state in its tax return Form C whether the aggregate of all amounts of its RPT disclosed in audited financial statements for the financial year in question exceeded S$15 million. If so, the completion of the RPT Form is compulsory and the completed form must be lodged together with the company’s tax return for that year of assessment.
Taxpayers with operations in Singapore are required to constantly monitor that their TP compliance are up to current requirements and ensure that their TP documentation remains robust at all times.
Country-by-Country reporting (CbCR)
In line with the OECD’s recommendations, CbCR is implemented in Singapore for financial years (“FY”s) beginning on or after 1 January 2017 for Singapore-headquartered multinational enterprises (“MNE”s) which meet certain criteria.
The ultimate parent entity of the Singapore MNE group will be required to prepare and file a CbC Report to IRAS for all entities in the group. The MNE group is required to submit the CbC Report if it meets all of the following conditions:
- The ultimate parent entity of the MNE group is tax resident in Singapore;
- Consolidated group revenue for the MNE group in the preceding financial year is at least S$1,125 million; and
- The MNE group has subsidiaries or operations in at least one foreign jurisdiction.
Submission of CbC Reports to IRAS must be done electronically in accordance with the prevailing CbCR XML Schema as recommended by the OECD.
Based on the identification of relevant jurisdictions in a CbC Report submitted by a Reporting Entity, IRAS will provide the CbC Report to the tax authorities which have agreements with Singapore for the automatic exchange of CbCR information. To date, Singapore has not yet signed any CbCR exchange agreements, but this is expected to change in the near future, given the progress Singapore has made with other information exchange agreements.
IRAS is in the process of reviewing and developing IT solutions to collect and exchange the CbCR information. Details on the mode of submission of CbC Report are expected to be released by the end of September 2017.
Penalties will be imposed on late submission of a CbC Report as well as for provision of false or misleading CbC information.
The IRAS recognises that some jurisdictions would be implementing CbCR for FYs beginning on or after 1 Jan 2016. To address the transition issue arising from this, affected Singapore-headquartered MNEs may file a CbC Report for FY beginning on or after 1 Jan 2016 to IRAS on a voluntary basis.
Singapore intends to follow the OECD guidelines and provide for secondary mechanism on Singapore subsidiaries of foreign MNEs in its CbCR legislation. As CbCR is still new and jurisdictions are in the early stages of implementing CbCR, IRAS will be monitoring developments and assess whether there is a need to trigger this secondary mechanism.
At this juncture, Singapore does not see a need to provide for surrogate filing for foreign MNE groups. Therefore, only Singapore MNE groups are required to submit CbC reports to IRAS.
Enhancing Dispute Resolution
Singapore recognises the need for Singapore businesses, notably those which operate across borders, to have access to effective and efficient dispute resolution mechanisms.
In order to enhance the processes for dispute resolution, IRAS has on 12 January 2017 provided further clarification on the instances taxpayers may seek MAP assistance, the MAP process, timeline and scope of outcome. In general, IRAS aims to resolve a MAP case within 24 months from receiving the taxpayer’s complete application.
Where the matter has been subjected to litigation and determination by the Singapore tribunals and courts, IRAS is unlikely to amend the transfer pricing adjustments that will be at odds with the determination by the Singapore judiciary.
Singapore will be including arbitration provisions in Singapore’s tax treaties to provide its taxpayers with an additional dispute resolution mechanism.
Countering Harmful Tax Practices
Under the BEPS Action 5 agreed framework for the compulsory spontaneous exchange of information in respect of rulings, IRAS will spontaneously exchange information with jurisdictions of all related parties covered by the cross – border unilateral APAs, as well as the jurisdictions of the taxpayer’s ultimate and immediate parent entity, provided that these jurisdictions:
- Have a tax treaty or exchange of information instrument with Singapore;
- Have the necessary legal framework and safeguards to ensure confidentiality and appropriate use of the information exchanged; and
- Are similarly committed to compulsory spontaneous exchange of information on cross-border unilateral APAs under the framework agreed in the BEPS Action 5 Final Report.
The timelines for information exchange are:
- December 2017, for unilateral APAs issued on or after 1 January 2012 and still in effect on 1 January 2015, and unilateral APAs issued on or after 1 January 2015 but before 1 April 2017
- Within three months after the date of agreement, for unilateral APAs issued on or after 1 April 2017
Singapore has remained constant on its continued approach to develop sustainable domestic tax policies and rules that support substantive economic activities. There is constant review to ensure that Singapore’s tax incentives are relevant, target substantial activities and are able to produce economic spinoffs such as the generation of good jobs and there is no artificial shifting of profits.
Preventing Treaty Abuse
Singapore has time and time again reiterated its position that it does not condone treaty shopping.
Singapore has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“the Multilateral Instrument”) on 7 June 2017 together with many other jurisdictions. Singapore will work towards the ratification of the Multilateral Instrument at the earliest date. IRAS will be providing clarification on the amendments to each DTA to taxpayers.
On the local front, IRAS currently maintains a tight control over the issuance of Certificate of Residence to taxpayers which wish to access the benefits of a treaty.
Following the announcement made in Budget 2017, studies are on-going on the feasibility of adjusting the GST system on cross border digital transactions to ensure a level playing field between their local businesses which are GST-registered, and foreign-based ones which are not.
We would expect the Singapore government to announce further updates on this matter this year.