In February of this year, the OECD agreed on a new framework for the implementation of the BEPS Project and invited all interested countries to join as Associates to develop international standards related to BEPS and to review and monitor the implementation of the whole BEPS package. Every country that participates in the framework as a BEPS Associate will be on an equal footing with the OECD and G20 countries in the OECD's Committee on Fiscal Affairs in reviewing and monitoring the implementation of the BEPS measures.

The OECD also stated that the framework's mandate will focus on the review of the implementation of the four BEPS minimum standards, in the areas of harmful tax practices, tax treaty abuse, Country-by-Country Reporting and improvements in cross-border tax dispute resolution.

On 16 June 2016, Singapore announced that it will join the framework for the implementation of the BEPS Project.

Transfer Pricing Perspective

The Base Erosion and Profit Shifting (BEPS) Action Plan has devoted considerable effort on transfer pricing documentation, as detailed in Action Plan 13. Under these guidelines, which was finalised in October 2015, a three-tiered approach should be applied to transfer pricing documentation as follows:

  • A Master file – The Master file will provide tax administrations with high-level global information regarding the overall global business and transfer pricing policies of the Multinational Enterprises (MNEs) that are adopted by the Group for each category of related party transaction.
  • A Local file – A Local file is akin to more transactional transfer pricing documentation where information on related party transactions, the transfer pricing method and third party transactions are included.
  • Country-by–country report ("CbCR") – requiring tax jurisdiction wise allocation of income, taxes paid, economic activity and taxes accrued on an annual basis, in a previously set format, for each tax jurisdiction in which they do business.

Though all MNEs are meant to prepare the Master file and Local file, the CbCR is only required provided the Group's revenue meets the revenue threshold.

In line with these changes in transfer pricing documentation guidelines and as a BEPS Associate, the IRAS has committed to implement CbCR for financial years beginning on or after 1 January 2017 for multinational enterprises whose ultimate parent entities are in Singapore and whose group turnover exceed S$1,125 million.

These enterprises are required to file the CbCRs with the IRAS within 12 months from the last day of their financial year. IRAS will then exchange these CbCRs with jurisdictions that Singapore has entered into bilateral agreements with for automatic exchange of CbCR information, having established that they meet the following conditions:

  • First, these jurisdictions have a strong rule of law and can ensure the confidentiality of the information exchanged and prevent its unauthorised use.
  • Second, there must be reciprocity in terms of the information exchanged.

The exchange of CbCRs will provide tax administrations a complete understanding of the way in which MNEs structure their operations by providing key information such as location and type of economic activities undertaken by each entity within the MNE group and the taxes paid.

Further guidance from the Inland Revenue Authority of Singapore on the exact implementation of CbCR processes are expected by September 2016.

Our comments

This is a much awaited and much expected development, given the current scrutiny that other tax jurisdictions (e.g., Australia) have placed on transactions with Singapore based taxpayers. As a BEPS Associate, it is now clear that Singapore will actively work with other jurisdictions in the implementation and monitoring phase of the BEPS Project.

By embracing CbCR, the Ministry of Finance and IRAS have demonstrated alignment with BEPS Action Plan 13. However, our current documentation rules do not explicitly detail the three tiered approach as stated in Action Plan 13. Specifically, where the group revenue thresholds are not met, Singapore-based taxpayers are still required to prepare the Masterfile and Local files for various entities, in line with local requirements. We would therefore advice Singapore-based taxpayers to review the status of transfer pricing documentation to ensure compliance with both the Singapore Transfer Pricing Guidelines as well as Action Plan 13.

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