On May 24, 2019, the Inland Revenue Authority of Singapore ("IRAS") released the transfer pricing guidelines for commodity marketing and trading activities (the "e-Tax Guide"), which outlines various factors that may affect the economic value attributed to such activities. These include discussions on appropriate application of transfer pricing methods and highlights common functions and benefits relating to various commodity marketing/trading activities in Singapore.
In summary, the e-Tax Guide addresses the following main points:
- Characterization of commodity
marketing/trading entities
The e-Tax Guide provides general descriptive/categorizing information for entities of various types such as service providers, agents, distributors or full risk-taking entrepreneurs. This is done through attributing various levels of activities and key functions that each functional category should assume. Additionally, the e-Tax Guide discusses the assets utilized (i.e. to optimize production, plan resources, reduce storage requirements and maximize profits throughout the value chain), as well as risks assumed in commodity marketing/trading activities. - Applicable transfer pricing
methods
The e-Tax Guide discusses and provides examples on the application of each transfer pricing method in relation to the four broad commodity marketing/trading categories (as mentioned above), including addressing practical concerns that may arise in applying such methods. - Transfer pricing
documentation requirements
The e-Tax Guide lists information that commodity marketing/trading entities must include in their transfer pricing documentation and reiterates the consequence of administrative fines (up to S$ 10,000) for non-compliance. Such information, among others, includes specific factors justifying the application of the Comparable Uncontrolled Price ("CUP") method, as well as comparison of differences terms/conditions agreed between the related parties against those within independent transactions.
While taxpayers are not mandated to comply with this e-Tax Guide, this guidance has been issued with the aim of enabling Singapore taxpayers with related-party commodity transactions to analyze their operations in relation to justifying economic substance for commodity marketing/trading activities. By extension, such justification is intended to defend the profitability levels earned in Singapore for such functions against future scrutiny arising from other tax jurisdictions relevant to a multi-national group's operations.
The e-Tax Guide is available here.
Read Transfer Pricing Times – June 2019
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.