Week 6

Question 1

What are the 2 approaches in resolving double taxation arising from TP disputes? Elaborate on each approach.

Answer 1

Reactive Approach - Negotiation with TP auditors, Legal remedies via appealing with tax courts, Mutual Agreement Procedure

Proactive Approach - Advanced Pricing Agreement, Safe harbour rules (taxpayers adopt the profit margins prescribed for certain of IC services and get TP certainty for a certain period. Although these profit margins are typically on the slightly higher side but taxpayer benefits from simplified TP compliance and no litigation.

Question 2

What is Mutual Agreement Procedure?

Answer 2

MAP is a dispute resolution facility within DTAs. It is a facility through which IRAS and the relevant foreign CA resolve disputes regarding the application of the DTA. Usually, a MAP is entered in to between 2 CAs but is possible for IRAS to enter into a multilateral MAP involving 3 or more CAs.

Can request for MAP when:

1. Double taxation has occured
2. Should be initiated with the CA within the prescribed timeframe in the DTA. Generally, 3 years from the Date of the Notice of Assessment
3. A double tax agreement must be in place with the foreign jurisdiction(s) to allow the application of the MAP

Question 3

What is Advanced Pricing Agreement?

Answer 3

An APA is a dispute prevention facility which is an arrangement between IRAS and the taxpayer or the relevant foreign competent authority to agree in advance a
set of criteria to ascertain the transfer pricing of their taxpayers’ RPTs for a specific period of time covered. It provides taxpayers with certainty on their transfer pricing to avoid double taxation.
The benefits of APAs include:

1. Provide certainty through prescribed guidance on the determination of acceptable transfer prices between related parties.
2. Bilateral and multilateral PAs eliminate double taxation risks when taxpayers comply with the APA terms and conditions agreed between IRAS and the relevant foreign CAs.
3. Avoid lengthy transfer pricing audits and penalty payments

Question 4

Describe the types of APA available and support with reasons

Answer 4

There are different type of APAs as follows:

1. Unilateral APA is an agreement between IRAS and taxpayer.
2. Bilateral APA is an agreement between IRAS and a foreign CA.
3. Multilateral PA is an agreement between IRAS and more than 1 foreign CA.

Unilateral PA suitable when:

1. TP situation does not affect the foreign tax authority
2. The affected related party is a tax resident of a country where Singapore does not have a DTA
3. DTA partner has no APA program

Typically, unilateral APA takes a short time to conclude when compared to bilateral/multilateral APA.

Cons: non binding on the foreign CA and there is lower level of assurance against double taxation as the foreign tax authority can disregard the APA and make TP adjustments.

Bilateral/multilateral APA suitable when:

1. TP situation also affect the foreign tax authorities,
2. The affected related parties are tax residents of countries where Singapore has a DTA

Binding on foreign CA and hence provide more tax assurance for the Group.

If the taxpayer has the time and resources, a bilateral/multilateral APA is preferred for the added
assurance to avoid double taxation.

Question 5

Who can apply for MAP/APA?

Answer 5

MAP, Bilateral or Multilateral APA:

1. Must be Singapore tax residents or;
2. Foreign tax residents with a Singapore branch where application must be made by the head office that its home country has a tax treaty with Singapore and head office must be tax resident in home country

Unilateral APA:
Singapore taxpayers, regardless of whether a Singapore tax resident

Question 6

What is the MAP Process and APA Process

Answer 6

MAP Process:
Notification of Intent
Pre-filing meeting
Submission of MAP application 
Review and negotiation
Implementation

APA Process:
Submission of pre-filing materials
Pre-filing meeting
Submission of APA application
Review and negotiation
Implementation

Question 7

What is Year End Adjustments at year end closing of

accounts?

Answer 7

Taxpayers make adjustments to their
actual result at the year-end closing of their
accounts to arrive at the arm’s length price for
the related party transactions.

Upon making the adjustments, taxpayers will
report the arm’s length results for tax purposes
even though they differ from the actual results.

IRAS will accept year-end adjustment when the following
conditions are met:
1. Taxpayers must have in place TP analysis and contemporaneous TPD to establish arm’s length price.
2. Taxpayer must make year end adjustments symmetrically in the accounts of the affected related party.
3. Taxpayer must make the adjustments before filing their tax returns.

Question 8

What is Compensating Adjustments?

Answer 8

Where taxpayers have entered into APA with IRAS, the APAs will have stipulated arm’s length prices where taxpayers find their actual results differing from arm’s length prices provided in the APA agreement.

In such circumstances, taxpayers should make compensating adjustments in accordance with the terms in the APA agreement to derived the arm’s length price.

Question 9

What is Self-initiated retrospective adjustment?

Answer 9

Taxpayer may review their past transfer prices with related party to make retrospective upward or downward adjustments in the past financial statement to arrive at the desired arm’s length prices. Taxpayer may review their past transfer prices for reasons below:

1. To comply with group global TP policy which was not accounted for previously
2. To reflect revisions in TP analysis.
3. To avoid potential TP adjustments by tax authority
4. To account for arm’s length charge for transactions previously overlooked.

IRAS will not allow downward adjustment unless the adjustments are due to an error or mistake under S93A(1A) of the ITA and supported with contemporaneous TPD

Question 10

What is Corresponding adjustments arising from TP

adjustments by tax authority?

Answer 10

To eliminate double taxation, IRAS may agree to reduce the profits of the taxpayer. Such downward adjustment is known as corresponding adjustments.
Taxpayer may seek double taxation relief through MAP provided in the DTA. IRAS will only consider making corresponding adjustments to eliminate double taxation when:
1. There is a DTA between Singapore and the foreign jurisdiction of the tax authority making the TP adjustment
2. Taxpayers applied for MAP provided in the DTA and such application was accepted by IRAS and the foreign tax
authority.