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Singapore’s transfer pricing regime.

IC Advisors Transfer Pricing Newsletter
August 2017

Hong Kong Transfer Pricing Update

Further to the consultation paper, the Inland Revenue Department (“IRD”) has set out draft transfer pricing regulations. The regulations proposed are in line with the BEPS action plans.

The IRD indicates its intention to implement three tier documentation requirements (i.e. Master file, local file and CBC Report) in line with BEPS measures for the taxpayers having related party transactions during the given financial year. In this regard, IRD proposes that such taxpayers will be required to prepare Master file and Local file if they fulfil two criteria mentioned below:
a. Based on the size of the business:
If the taxpayer fulfils any of the two conditions:
i. Total annual revenue of more than HK$200 million;
ii. Total assets are more than HK$200 million; or
iii. Taxpayer has employees more than 100

b. Based on the amount of related party transactions
If the related party transactions are above the threshold mentioned below:
i. Transfer of properties (other than financial assets and intangibles) – HK$220 million;
ii. Transaction relating to financial assets - HK$110 million;
iii. Transfer of intangibles – HK$110 million; and
iv. Any other transactions amounting to more than HK$44 million

Further, taxpayers having related party transactions above the thresholds but doesn’t qualify any of the criteria under size of the business, are still required to prepare local file. The threshold for CBC Report in line with BEPS action plan 13 (Transfer pricing documentation and Country-by-Country Reporting) is any entity being part of the Multinational Entity having total revenue of more than EUR 750 million.

The penalty for non-compliance of transfer pricing documentation requirements may go up to 300 percent of the tax undercharged. Furthermore, the draft regulations also seek to modify its Multilateral Instruments to include mutual agreement procedures (MAP) and advance pricing agreement (APA) in line with the BEPS measures.

Given that the IRD is also a member of Multilateral Competent Authority Agreements (MCAA) for exchange of information including CBC Report with other countries, implementation of local transfer pricing regulations is expected to add more scrutiny from IRD and more challenging for taxpayers.

Thai Transfer Pricing Guidelines
Currently, the transfer pricing regulations in Thailand are governed by Departmental Instruction No. Paw 113/2524, which is not a law. Hence, as a step towards introducing Transfer Pricing Guidelines, the Thai Revenue Department (“TRD”) has issued revised draft with some new provisions. The key changes are:

1. Definition of Related Entity has been expanded to include at least 50% direct or indirect capital shareholdings.

2. Taxpayers with income exceeding the threshold are required to submit the transfer pricing documentation within 60 days or extended period of 120 days from the date of receipt of notification of tax authority

3. Fine for non-submission of transfer pricing documentation or submitting incorrect information in transfer pricing documentation can go up to 200,000 Baht

4. The tax officer will be granted the power to adjust the assessable income if the taxpayer is deemed to have entered into related party transactions at a price which is not at arm’s length.

Malaysian Transfer Pricing Guidelines
The Malaysian Revenue Board (“MRB”) has announced changes to its Transfer Pricing Guidelines, issued in 2012. The changes introduced by MRB are in line with BEPS Action Plan 8-10 (Aligning Transfer Pricing Outcomes and Value Creation) and Action Plan 13 (Transfer pricing documentation and Country-by-Country Reporting). Hence, the MRB has updated/ newly introduced following Chapters of its Transfer Pricing Guidelines:
1. Chapter II – The Arm’s Length Principle (updated)
2. Chapter VIII – Intangibles (updated)
3. Chapter X – Commodity Transactions (newly introduced)
4. Chapter XI – Documentation (updated)

The changes made by the MRB are focused on aligning the value creation with the TP outcomes and risk and emphasizing on risk and rewards. Further, it also emphasis on the documentation with reference to related party transactions.

Dr Sowmya Varadharajan will be presenting at the following full day seminars:

  1. Transfer Pricing Documentation Masterclass on 23-24 August 2017, organized by CCH Wolters Kluwer

If you would like to attend any of these seminars, please send an email to sowmya@icadvisorsasia.com

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