Requirements for Transfer Pricing Documentation in Commodity Marketing in Singapore


Requirements for Transfer Pricing Documentation in Commodity Marketing

Finally, the IRAS e-tax guide states that when a commodity trading entity meets the established criteria, it will be required to prepare their own Transfer Pricing Documentation (TPD) associated party transactions.

Even if a commodity trading entity does not meet these criteria, IRAS recommends it to still document it’s TPD in an effort to explain their activity if needed in the future.

If a commodity trading entity does not prepare a TPD, they can be fined up to SGD10,000.

What Are the Accepted Transfer Pricing Methods?

IRAS has made it clear that while it has no specific preference, there are five transfer methods that it deems acceptable, and taxpayers may choose their preferred method based on data available to them, and the general practices of their industry.

1. Comparable Uncontrolled Price (CUP) Method

Generally considered the most straightforward method, the CUP method is also usually the preferred method for most taxpayers. It takes a simpler and perhaps more elegant approach to reviewing the rates and conditions to make sure they are at arm’s length between any two parties. The CUP methods can also be used for quoted prices and comparable independent party transactions.

2. Transactional Net Margin Method (TNMM)

In the TNMM, the net profit needs to be determined within any controlled transaction. This net profit is then checked against net profits of other comparable uncontrolled transactions within the market. To adhere to the TNMM, these comparable transactions must share obvious similarities.

3. Profit Split Method (PSM)

The PSM will usually come into play when the parties involved cannot examine their transactions separately, due to other associated common transactions. In order to determine the profit split in the PSM, the parties must explore the terms and conditions of each controlled transaction. The resulting distribution of profits should be based on what would have been gained by independent businesses in a similar transaction.

4. Resale Price Method (RPM)

The RPM method takes the price a commodity is sold at, and then has its resale price lowered with a gross margin. This gross margin is determined by comparing it to other gross margins incomparable, uncontrolled transactions. Subsequent related expenses of the commodity’s purchase (e.g. duties and tariffs) are then deducted.

5. Cost Plus Method (CPM)

In order to compare gross profits to the sales costs of the commodity, the CPM uses the following criteria:

Step One: Establish any and all expenses incurred by the seller in a controlled transaction in order to sell the commodity to the buyer.

Step Two: Add an acceptable mark-up to these expenses to make a reasonable profit on those functions.

Step Three: The expenses plus mark-up give both parties the arm’s length price.

Readc more about Singapore Transfer Pricing Guidelines in Commodity Trading at Rikvin.


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