Transfer Pricing in Singapore

The Singapore government has developed a comprehensive system for transfer pricing to prevent the abuse of intracompany transactions by companies in the city-state. Being a regional hub for multinational companies, the country’s transfer pricing regulations ensures that relevant parties do not underpay taxes and aims to prevent the distortion of taxable income.

What is transfer pricing?

Transfer pricing encompasses various elements of pricing agreements between a company’s subsidiaries, affiliates, or commonly controlled companies within a multinational organization.

This includes the exchange of physical goods, services, intellectual property, loans, and other financial transactions.

Transfer pricing applies to companies that transact between companies from the same group, such as a subsidiary, or other ‘related’ parties.

The persons or entities are related if:

  • One party has direct or indirect control of the other (e.g. head offices or branch offices); or
  • Both parties are under the control of the same persons or entity (e.g. several subsidiaries being owned by the same parent company).

Such conditions can give rise to preferential pricing between the parties, which could lead to the shifting of the taxable profit from one tax jurisdiction to another. The key principle to transfer pricing is that although these parties are related, they should interact as if they were independent business partners.

Transfer pricing in Singapore

The Singapore Transfer Pricing Guidelines (TPG) are based on and consistent with the TPG for Multinational Enterprises and Tax Administrations from the Organization for Economic Cooperation and Development (OECD).


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To ensure taxpayers undertake transactions with their related parties at pricing that reflects independent pricing, the Inland Revenue Authority of Singapore (IRAS) applies the arm’s length principle, which is an internationally endorsed principle.

If taxpayers understate their profits and do not comply with the arm’s length principle, the IRAS will adjust their profits upwards as regulated in the Income Tax Act.

The arm’s length principle: A three step approach

The arm’s length principle requires that a transaction with a related party must take place in similar circumstances to those of an independent party.

Step 1 - Conduct a comparability analysis

The comparability analysis provides a comprehensive assessment of the significant similarities and differences between taxpayers (or transactions) and benchmarked entities (or transactions).

The transaction must be equivalent to a transaction between independent parties. The relevant aspects include:

  • Contractual terms of the transaction;
  • Characteristics of the goods, services, or intangible properties;
  • Functional analysis on Functions performed, Assets used, and Risks assumed (“FAR”); and
  • Commercial and economic circumstances.

Other additional aspects:

  • Evaluating transactions on a separate or aggregate basis;
  • Using multiple-year data; and
  • Considering losses.

Step 2 – Identifying the most appropriate transfer pricing method

IRAS uses five internationally accepted methods to evaluate transfer prices of enterprises, based on those applied by independent parties in similar transactions, including:

  • Comparable Uncontrolled Price (CUP) Method

The CUP method compares the prices of assets and services transferred in the transaction with the related party and the price in an independent party transaction, where the circumstances are comparable.

  • Resale Price Method (RPM)

This method evaluates the resale price by comparing it with the selling and operating costs of the reseller.

  • Cost Plus Method (CPM)

This method compares the cost of production and the gross difference in related and unrelated transactions. The selling price of a product must not only cover production costs but also create additional profits for the company.

  • Profit Split Method (PSM)

This method compares how stakeholders divide a transaction profit and loss depending on their relative contributions.

  • Transactional Net Margin Method (TNMM)

The TNMM compares the net profit relative to an appropriate base (such as costs, sales, or assets) attained by a taxpayer from a related party transaction to that of comparable independent parties.

Step 3 - Determine the arm’s length results

The arm's length result is obtained by applying the appropriate transfer pricing method to the data of independent party transactions.

Transfer pricing documentation (TPD)

Singapore formally introduced TP rules from Year of Assessment (YA) 2019, requiring taxpayers to prepare contemporaneous TPD. The TPD is needed to analyze whether related party transactions are conducted at the arm’s length principle.


Did You Know
Taxpayers must comply with the arm’s length principle when transacting with their related parties and maintain proper transfer pricing documentation to substantiate their pricing.


A company is required to prepare and maintain TPD once meeting the following conditions:

  • Total turnover derived from its trade or business is more than S$10 million (US$7.4 million) for the previous basis period; and
  • TPD has been specifically requested for any prior establishments.

TPD Requirements

  • Enterprises should keep relevant documents of an overview of the business activities in Singapore;
  • The details are prescribed in the TP Documentation Rules;
  • TPD must be prepared no later than the filing due date of the tax return and submitted within 30 days from a request by IRAS;
  • TPD must be retained for at least five years; and
  • The penalty for non-compliance is up to S$10,000 (US$7,400).


If any of the following scenarios apply, taxpayers can refrain from preparing TPD for those transactions:

  • If the taxpayer’s gross revenue is not more than S$10 million (US$7.4 million);
  • Related party loans where an indicative margin is applied;
  • Routine support services where a five percent cost markup is applied;
  • Related party domestic loan; or
  • Related party transaction covered by an Advance Pricing Arrangement (APA).


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