SINGAPORE: Aiming to have a better and well aligned relationship with western governments and as a response of the tax avoidance by western governments, the Singapore government has updated its guidelines on an accounting practice in order to deal with the crackdown by western governments on aggressive tax avoidance.
International taxation has come under scrutiny since a quirk of “transfer pricing” was found to have helped lower the tax bills of a number of multinationals, including Starbucks Corp, Google Inc and Amazon.com Inc.
Such issues prompted the Organization for Economic Co-operation and Development to call on governments to revise tax treaties, tighten rules and share more information, in a project due for completion by the end of this year.
In transfer pricing, a company sets a price for a good or service to be sold between two of its subsidiaries.
The company can use the price to minimize its tax bill by having a subsidiary in a low-tax jurisdiction such as Singapore sell products to a subsidiary in a higher-tax jurisdiction at a high price. This allows the company to book more of its profit in the low tax location.
From Jan. 6, the Inland Revenue Authority of Singapore (IRAS) will require related parties to keep contemporaneous records to support the pricing of such transactions.
The IRAS also detailed methods by which transactions are benchmarked to show that prices charged would be similar if the transactions had been with a party outside of the company.
The new guidelines are also much more specific about who is required to prepare transfer pricing documentation and its content, said Henry Syrett, a partner at audit firm EY.
Singapore has attracted many international companies thanks to generous tax incentive programs, a reliable legal system, skilled labor and high living standards.
