The COVID-19 pandemic has caused substantial disarray to not only people movements but also business operations and supply chains, bringing significant financial impacts to many companies in Singapore. As such, business owners have sought clarity on several tax aspects relevant to the COVID-19 impact on their operations. In response to these issues, the Inland Revenue Authority of Singapore or IRAS regularly published relevant guidelines regarding tax considerations arising from the pandemic.
Recently, IRAS has released FAQ-format guidance on transfer pricing or TP considerations for taxpayers who are affected by the pandemic, as part of the COVID-19 Support Measures and Tax Guidance. The guidance’s first half mentions the options available for taxpayers relevant to the transfer pricing documentation’s preparation if the pandemic has severely impacted their activities. The guidance’s remainder addresses the effect on Advance Pricing Arrangement applications, including the existing ones due to the pandemic. Here are the guidance’s key takeaways that Singapore taxpayers should consider in light of the COVID-19 impact on their businesses.
Transfer Pricing Documentation for Taxpayers Implicated by the Covid-19 Pandemic
Since COVID-19 has impacted businesses at a varying degree, IRAS conceded that there could be different and significant implications on the transfer pricing position of each taxpayer. Most prominently, it has specified that for the YA 2021, taxpayers can apply for multiyear testing instead of annual testing. Generally, multiyear testing is only permitted under exceptional situations and after deliberation with IRAS. This one-off concession may help smooth out the volatile outcomes due to COVID-19.
Moreover, IRAS has given out a list of additional details which taxpayers might want to include in their TP documentation which would help to rectify their TP arrangements’ arm’s lengths nature during this time. These somewhat depend on established TP concepts, which include, among others:
- Decision-making capacity or authorities
- The risks allocation in substance and according to the contractual arrangements
- Information about COVID-19 government assistance obtained
Affect on Apas Due to Covid-19
The COVID-19 pandemic has resulted in sudden disruption on the global economy that introduces a threat to the understanding between a taxpayer and a tax authority under the Advance Pricing Arrangement or APA if the taxpayer’s business has been substantially affected to the point where the APA’s terms and conditions can no longer be complied with.
IRAS outlined the following guidance regarding APAs:
- Taxpayers whose business activities have not been markedly impacted by the pandemic may continue to file new applications or renewal requests.
- Taxpayers with an APA application under negotiation or review should evaluate if there are any TP implications due to COVID-19, which would affect the said application and give details to IRAS. IRAS might put the case on hold and assess the application later in case of substantial predicted intricacies.
- Taxpayers who have an existing APA agreement should evaluate if any crucial assumptions have been breached due to the pandemic. If so, they should inform IRAS promptly. IRAS would, after that, assess the next steps according to every case’s merits.
Key Insights of the Faq-style Transfer Pricing Guidance
IRAS has distinctly emphasized that taxpayers have to give details on how their activities and profitability have been affected by the pandemic and the need to support them with a sound analysis and proof. IRAS is somewhat anticipating and is prepared to consider that there may be unpredictable results during this atypical period.
The fact that multiyear testing is permitted, though only for YA 2021, indicates its open mindset. Nonetheless, the pandemic should not be utilised as a justification to explain transfer pricing result; the responsibility is on taxpayers to acutely verify the effect of COVID-19 with relevant qualitative and quantitative evidence.
Although for most Singapore taxpayers the paramount focus is on transfer pricing compliance for Year of Assessment 2020, it would be reasonable to seriously consider the need for their transfer prices’ adjustments, which include the adjustments for year-end, for YA 2021 before their fiscal year-end.
As businesses across all sectors are likely to continue to feel the impact of COVID-19 in 2021 and potentially beyond, IRAS would likely modify or update its guidance going forward.
How Singapore Accounting Services Provider Can Help
With the Inland Revenue Authority of Singapore signaling continuous attention on transfer pricing even under this incalculable environment, taxpayers must ensure any modifications to their transfer pricing arrangements due to COVID-19 are properly considered, supported by synchronous proof and are correctly documented with the use of sound transfer pricing principles. Professional accounting services in Singapore can help taxpayers with this necessity and welcome them to discuss how the guidance may affect their business.