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Keeping up to pace with transfer pricing developments in Asian countries

, EY, Singapore

Recent international tax developments in Asia reflect the growing focus on transfer pricing, in tandem with global developments. This summary highlights recent key transfer pricing policy announcements in the region and discusses the potential local impact of country-by-country reporting (CBCR) under BEPS Action 13.


Singapore first issued its transfer pricing guidelines in 2006. On 6 January 2015, Singapore released revised guidelines which consolidated all previously issued transfer pricing guidance into one and contained updated positions on specific issues.

One salient issue concerned transfer pricing documentation. The revised guidelines require taxpayers to prepare contemporaneous transfer pricing, which is defined as documentation prepared no later than the date of filing of the tax return for the relevant financial year. The revised guidelines also state the consequences of not preparing adequate documentation. This includes penalties under prevailing record keeping laws, upward adjustments in the event the IRAS establishes that taxpayers have understated their profits through improper transfer pricing and the possibility that the Inland Revenue Authority of Singapore (IRAS) may not support Mutual Agreement Procedure (MAP) and Advance Pricing Arrangement (APA) applications.

The revised guidelines clearly reinforce the expectation from IRAS that taxpayers should observe compliance with the arm's length principle, legislated under Section 34D of the Singapore Income Tax Act in 2009, in a timely and comprehensive manner.


Subsequent to the formal introduction of transfer pricing guidelines in 2012, a transfer pricing documentation requirement has been introduced in Malaysia from 2014. This is in the form of an additional question in the Income Tax Return (Form C) that requires taxpayers to indicate if documentation has been prepared for the relevant year of assessment. Although the response is simply in the form of a "Yes" or "No", it means that the taxpayer would need to prepare contemporaneous documentation as an annual tax compliance requirement and ensure that the documentation is in place prior to filing the annual tax return.

Contemporaneous documentation means transfer pricing documentation which is brought into existence when a person is developing or implementing any controlled transaction and where there are material changes in the period, the documentation should be updated prior to the due date for furnishing a tax return for that period.


On 7 May 2015, the Thai Cabinet approved a draft transfer pricing Act that will add specific transfer pricing provisions to the Revenue Code. A key provision of the draft Act is a requirement that transfer pricing disclosures must be filed with the tax authorities within 150 days from the due date of the corporate income tax return filing. The disclosure statement must contain descriptions of related party relationships and the transfer pricing methods used. Failure to comply with the requirement may result in monetary penalties not exceeding THB 400,000.

Under the draft Act, the Thai Revenue Department is granted the authority to adjust related party transactions that are not entered into on an arm's length basis. Two or more entities are considered to be related if they form a special relationship, whether directly or indirectly, with regard to ownership, management or control. The draft Act is currently undergoing the legislative process. Once passed into law, it will provide clearer guidance on the transfer pricing regime in Thailand.


Numerous transfer pricing guidance has been issued by the Indonesia tax authorities in the past six years, and currently comprehensive guidance may be found on many areas such as related party transactions disclosures, documentation requirements and APAs.

The next transfer pricing guidance that is likely to be issued by the Indonesia tax authorities, either by the end of the year or early next year, concerns Indonesia's position on CBCR. It is expected that Indonesia may apply CBCR with effect from 2017 and it will be applicable for corporate groups with revenues above a certain threshold. The CBCR reports are likely to be provided to the Directorate General of Tax at the federal level rather than at the individual tax auditor's level, as it is expected to be used for risk profiling rather than directly in the course of tax audits.

Sri Lanka

Sri Lanka's transfer pricing regime is one that is still being developed, but recently it has witnessed a number of key developments. The Commissioner General of Inland Revenue recently published a gazette dated 25 March 2015 requiring taxpayers to submit details of transactions with associated parties to the Inland Revenue Department as part of the tax return under section 107 of the Inland Revenue Act. Such details include the transfer pricing method adopted to determine compliance with the arm's length principle. In other words, taxpayers are advised to prepare transfer pricing documentation prior to filing the tax return.

There is also a requirement under the gazette for an auditor to certify that all transactions are carried out on an arm's length basis and that the relevant documentation has been checked by the auditor. This certificate is in addition to the certificate that is to be submitted by a company's Directors as a part of the Director's Report in the company's annual accounts that all transactions between associated parties are carried out on an arm's length basis.


While individual countries in the region continue to develop and enhance their transfer pricing regimes, it would be difficult to ignore the local impact of the CBCR proposal under Action 13 of the Organization for Economic Co-operation and Development (OECD)'s Base Erosion and Profit Shifting (BEPS) Action Plan.

The proposed CBCR contains a secondary reporting mechanism, whereby the obligation for filing CBCR and automatically exchanging such information is shifted to the "next tier parent country", in the event that the "ultimate parent country" of a multinational enterprise does not implement CBCR or does not have an effective mechanism for exchange of information. What this means is that even if the "ultimate parent country" chooses not to adopt CBCR, it would not prevent the information of companies of which it is an "ultimate parent country", to be submitted to other countries. Thus, it may serve well for countries in the region that may not have contemplated adopting CBCR previously, to now contemplate whether it would be in their interest to adopt CBCR, in view of this secondary reporting mechanism. And if the decision is to adopt CBCR, then the timing of its implementation will be crucial as the OECD's CBCR proposal recommends that the first CBCR would be required for fiscal years beginning on or after 1 January 2016.


Transfer pricing continues to feature prominently as the tax systems of countries in the region continue to evolve. However, tax systems do not operate in isolation and the local impact of international developments, in particular the CBCR proposal under the BEPS Action Plan, would most certainly need to be considered in every tax jurisdiction, earlier rather than later.