Singapore’s Transfer Pricing Guidelines for COVID-Affected Businesses

The Inland Revenue Authority of Singapore (“IRAS”) has issued transfer pricing guidelines for companies affected by the COVID-19 pandemic, which includes guidance on documentation requirements, term-testing for related party transactions and Advance Pricing Arrangements (“APA”).

Affected companies should include the following information, among others, in the transfer pricing documentation:

• a broad analysis of how the company’s industry was affected by the pandemic;
• the direct impact of the pandemic to the company’s business;
• who and which entity within the group made decisions to manage risks related to COVID-19;
• the functional analysis of the company and related parties before and after COVID-19;
• contractual arrangements between the company and its related parties, highlighted where any obligation or material terms and conditions have been varied, amended or terminated due to COVID-19;
• a comparison of the pre-COVID-19 budget and actual results of the profit and loss analysis, with explanation and evidence to support variances;
• reasons and supporting evidence to justify how the company’s profitability has been negatively impacted by the pandemic; and
• details relating to COVID-19 specific government assistance that the company has received, or government regulations imposed on the company which has an impact on the company’s operations.

Generally, companies are required to consult the IRAS before applying term-testing. However, if the company views that annual testing may result in volatile results due to the impact of COVID-19, the company may apply term-testing (generally over a period of 3 years) for the year of assessment 2021, subject to conditions.

• A company may file a new APA application or request for renewal of an existing APA if the company’s business operations and economic performance are not significantly impacted by COVID-19.
• A company should consider filing a new APA application or request for renewal of an existing APA only when there is a greater level of certainty on the factors which may affect the determination of arm’s length transfer prices between related parties.
• If the company has an APA application under review, the company should assess whether there are any transfer pricing implications arising from COVID-19 which may impact the APA application and provide the information to the IRAS as soon as possible.
• If the company has an existing APA agreement with the IRAS, the company should review and assess whether there is any breach of the terms and conditions in the existing APA agreement as a result of COVID-19, and if so, notify the IRAS of any breach as soon as possible and provide an analysis of the impact of COVID-19, explain why the terms and conditions have been breached and suggest the next course of action.
• The company should approach the IRAS when in doubt. In the case of ongoing bilateral and/or multilateral APAs, the IRAS will have to discuss the case with the other Competent Authorities.

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