Key Takeaways from the guidelines issued by the Singaporean Tax Authorities

Atishay Jain | Last updated: 12 April 2021

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Quick Summary

Singapore is a popular choice for multinational corporations (MNCs) to establish regional hubs and headquarters. New guidelines from Singaporean tax authorities clarify how to determine arm's length remuneration for these entities, emphasising their critical contribution to value creation beyond just functions, assets, and risks (FAR). The guidelines detail four types of centralised activities and provide specific transfer pricing methodologies for each.

1) Singapore is the preferred destination for the MNC's / MNE groups for setting up hub or HQs for APAC regions. The said guidelines provide for the determination of remuneration for such hubs/ HQs on arm's length basis;

2) Services provided by such hubs/HQs are critical to the operations carried on by the subsidiaries or fellow AE's. Accordingly, while determining the Arms length remuneration due consideration should be given to the HQ's/ Hub's contribution to the value creation. Such contribution should not be merely based on Functions, Assets and Risk (FAR) carried, but also on the economic significance of those functions performed;

Singapore Tax Guidelines for MNC Hubs and HQs

3) The Guidelines discuss 4 types of centralized activities undertaken by HQs

(i) Principal in distribution, manufacturing or research and development arrangements;

(ii) Activities relating to core business processes;

(iii) Activities relating to administrative, technical, financial, commercial, management, coordination and control functions; and

(iv) Shareholder activities;

For each type of transaction, an indicative FAR analysis, as well as appropriate TP methodology, has been prescribed.

Hope you will find the above useful!

The IRAS e-Tax Guide has been enclosed below

The author can also be reached at atishayjain1882@gmail.com

Attached File : 2686985_44457_etaxguide__tp_for_headquarters_19_mar_2021_docx.pdf

FAQ :

The guidelines aim to clarify the determination of remuneration for MNC hubs and headquarters set up in Singapore on an arm's length basis.

Singapore is a preferred destination for MNC groups to set up hubs or headquarters for their APAC regions.

Remuneration should be determined on an arm's length basis, giving due consideration to the hub's contribution to value creation, which includes the economic significance of functions performed, not just FAR.

The four types are: Principal in distribution, manufacturing or R&D; Core business processes; Administrative, technical, financial, commercial, management, coordination and control functions; and Shareholder activities.

For each type of transaction, an indicative FAR analysis and appropriate transfer pricing methodology have been prescribed.