If your Singapore company enters into transactions with related parties — whether a parent company, subsidiary, or fellow group entity — you are operating in transfer pricing territory. And from the Inland Revenue Authority of Singapore’s (IRAS) perspective, those transactions must be priced as if they were conducted between independent, unrelated parties dealing at arm’s length.

Transfer pricing has historically been seen as a concern for large multinational corporations. That perception is outdated. IRAS’s increasing audit activity, the publication of the Eighth Edition of Singapore’s Transfer Pricing Guidelines in November 2025, and the extension of documentation obligations to mid-sized companies mean that Singapore businesses of almost any scale with cross-border related-party dealings need to understand what is required and what the consequences of non-compliance are.

This guide covers the essentials: the arm’s length principle, documentation thresholds, exemptions, the safe harbour rules, and what IRAS looks at during a transfer pricing audit.

The Arm’s Length Principle: Singapore’s Foundation

Section 34D of the Income Tax Act 1947 requires that where a Singapore taxpayer enters into a transaction with an associated person (a related party), the income or deduction arising from that transaction must reflect what would have been the case if the transaction had been conducted between independent persons dealing under comparable circumstances.

This is the arm’s length principle — and it is not optional. IRAS has the power to make adjustments to a company’s tax return to reflect arm’s length pricing, even where the company has not applied the principle correctly. Penalties for non-compliance can be significant.

An “associated person” for transfer pricing purposes is broadly defined. It includes any entity where one controls the other, or where the same person controls both. This covers parent-subsidiary relationships, sister companies within the same group, and even certain partnerships and trusts where the same parties hold interests.

Who Must Prepare Transfer Pricing Documentation?

The requirement to prepare contemporaneous Transfer Pricing Documentation (TPD) applies to companies that meet both of the following conditions:

  • Annual gross revenue exceeding S$10 million; and
  • Related-party transaction values exceeding the applicable exemption thresholds for specific transaction types.

For companies below S$10 million in annual gross revenue, there is no mandatory TPD obligation — although the arm’s length principle still applies and IRAS can still challenge non-arm’s length pricing.

Updated Thresholds from YA 2026

As of Year of Assessment (YA) 2026, the IRAS has updated the exemption thresholds for certain related-party transactions. Companies meeting the S$10 million revenue threshold do not need to prepare TPD for a particular transaction category if the related-party transaction value in that category falls below the applicable threshold:

  • Sale or purchase of goods: No exemption threshold (TPD required for all goods transactions if revenue exceeds S$10 million)
  • Provision or receipt of services, royalties, leases, guarantees: Transactions below S$2 million per category per year (increased from S$1 million from YA 2026)
  • Loans: Loans not exceeding S$15 million — a safe harbour interest rate is available (see below)

Companies that fall within these exemptions are still required to apply the arm’s length principle; they simply do not need to prepare a formal TPD for those transaction types.

The Arm’s Length Range and Acceptable Methods

IRAS accepts five internationally recognised transfer pricing methods for establishing that a transaction is priced at arm’s length:

  • Comparable Uncontrolled Price (CUP): Compares the price in the related-party transaction to prices in comparable transactions between independent parties.
  • Resale Price Method (RPM): Starts with the resale price to an independent party and works back to determine the arm’s length purchase price.
  • Cost Plus Method (CPM): Adds an appropriate markup to the supplier’s costs.
  • Transactional Net Margin Method (TNMM): Compares the net profit margin earned in the related-party transaction to margins earned in comparable independent transactions.
  • Profit Split Method: Divides the combined profit from the related-party transaction between the parties in a way that reflects how independent parties would have divided it.

IRAS expects companies to select the most appropriate method given the facts and circumstances of their transactions, and to document the rationale for their selection.

Safe Harbour: The Indicative Margin for Related-Party Loans

One of the most practical concessions available is the IRAS indicative margin for related-party loans. Under this safe harbour, a company can determine an arm’s length interest rate for an intercompany loan by adding IRAS’s published indicative margin to a specified base reference rate.

Eligibility conditions apply: the loan must not exceed S$15 million in principal, it must be a Singapore dollar or foreign currency loan between related parties, and the borrower must not have a credit rating lower than a specified level. If these conditions are met, the company does not need to perform a separate benchmarking analysis for the interest rate — it can simply use the safe harbour rate and this will be accepted by IRAS.

IRAS publishes updated indicative margins periodically. Companies should check IRAS’s transfer pricing page for the current margin applicable to their loan currencies.

What Transfer Pricing Documentation Must Contain

Where TPD is required, it must be prepared on a contemporaneous basis — that is, it must exist at the time the tax return is filed. IRAS has stated that documentation prepared after the fact, or in response to an audit, does not satisfy the contemporaneous requirement.

A compliant TPD file typically contains two tiers of documentation, aligned with the OECD’s Base Erosion and Profit Shifting (BEPS) Action 13 framework:

  • Master File: A high-level overview of the multinational group’s business, including value chain analysis, group structure, significant intangibles, and group-wide transfer pricing policies. Required for Singapore entities that are part of a multinational group with group revenue exceeding S$1.125 billion (or its equivalent) and where Singapore is not the ultimate parent or surrogate parent jurisdiction.
  • Local File: Entity-level documentation covering the Singapore company’s specific related-party transactions, the methods used to price them, financial analysis and benchmarking, and the conclusion that the prices are arm’s length.

In addition, Country-by-Country Reporting (CbCR) applies to Singapore-headquartered multinational groups with consolidated revenue exceeding S$1.125 billion.

Penalties for Transfer Pricing Non-Compliance

IRAS takes transfer pricing compliance seriously. The consequences of getting it wrong include:

  • Transfer pricing adjustments: IRAS can adjust the company’s taxable income to reflect arm’s length pricing, resulting in additional tax payable.
  • Surcharge: A 5% surcharge applies to transfer pricing adjustments made by IRAS (this is in addition to the tax on the adjusted income).
  • Penalties for failure to prepare contemporaneous TPD: A penalty of up to S$10,000 applies for each failure to prepare required documentation.
  • Additional interest: Interest on underpaid tax runs from the original due date.

Companies that proactively prepare robust TPD before filing are in a much stronger position if IRAS queries a transaction, as the documentation itself demonstrates good faith and the contemporaneous reasoning behind pricing decisions.

Transfer Pricing and the IRAS Eighth Edition Guidelines (2025)

The Eighth Edition of IRAS’s Transfer Pricing Guidelines, published in November 2025, introduced several significant updates that businesses should be aware of:

  • Refinements to guidance on how to handle hard-to-value intangibles, with greater alignment to OECD guidance
  • Expanded guidance on financial transactions, including guarantees, cash pooling, and hedging arrangements
  • Clarification on the application of the profit split method in highly integrated operations
  • An OECD-aligned simplified approach for certain low-risk transactions, reducing the documentation burden for routine service arrangements between related parties

If your company’s TPD was prepared under earlier guidelines, it is worth reviewing whether it remains compliant under the Eighth Edition framework.

Practical Steps for Singapore SMEs and MNCs

Whether you are an SME with a parent company overseas or a Singapore regional headquarters with multiple subsidiaries, here is what you should do now:

First, map your related-party transactions. Identify every transaction type with every related party — goods, services, loans, royalties, management fees, guarantees — and the aggregate annual value of each.

Second, assess your documentation obligations. Apply the S$10 million revenue threshold and the per-category exemption thresholds to determine which transactions require TPD.

Third, prepare or update your TPD. For transactions requiring documentation, ensure you have a contemporaneous Local File that covers the comparability analysis, method selection, and arm’s length conclusion. For intercompany loans under S$15 million, consider using the IRAS safe harbour margin.

Fourth, review your intercompany agreements. Transfer pricing starts with the legal agreements between related parties — if your agreements don’t reflect how transactions actually function in practice, your pricing analysis will be undermined. Ensure your agreements are up to date and reflect the economic substance of each arrangement.

If this feels like a complex undertaking, the team at Raffles Corporate Services works with Singapore companies on transfer pricing readiness, documentation, and intercompany agreement reviews. You should also ensure your broader corporate tax filing obligations and annual compliance deadlines are accounted for alongside your transfer pricing obligations.

Conclusion

Transfer pricing compliance in Singapore is no longer a niche concern for large multinationals — it is a core tax obligation for any Singapore company transacting with related parties. With the updated thresholds effective from YA 2026, the new Eighth Edition Guidelines, and IRAS’s track record of auditing intercompany arrangements, there has never been a more important time to ensure your transfer pricing house is in order.

If you need support with transfer pricing documentation, intercompany agreements, or corporate tax compliance in Singapore, reach out to the team at Raffles Corporate Services.

— The Editorial Team, Raffles Corporate Services