25 Sept 2013 N Vimala Devi Director of Taxes Singapore AGN World Conference 2013 Venice International Tax Committee session Singapore & Asia Pacific Transfer Pricing

Transfer Pricing  Singapore’s tax system  Why Singapore has become more vigilant?  Singapore TP overview  Asia Pacific TP overview  What is coming? BEPS……  How to manage TP? 2

Singapore’s Tax System  Territorial basis  Very low corporate tax rate at 17%  No Capital Gains Tax & No Estate duty  One tier corporate tax system  Exemption of foreign sourced dividend, service fee & branch profits  Wide network of more than 70 tax treaties 3

Why has Singapore become Vigilant ?  Assure OECD and the world, Singapore is not tax haven  Share information with other tax Jurisdictions  Defend against other aggressive tax jurisdictions  Protect its own tax base 4

Overview of Singapore TP  TP Guidelines issued in Feb 2006  Guidelines on APAs issued on 20 Oct 2008  TP Guidelines issues in Feb 2009 on related party loans and services  TP legislation Section 34D introduced to apply arm’s length principle – “Where 2 persons are related parties and conditions are made or imposed between the 2 persons in their commercial or financial relations which differ from those which would be made if they were not related parties, then any profits which would, but for those conditions, have accrued to one of the person, and, by reason of those conditions, have not accrued, may be included in the profits of that person and taxed in accordance with the provisions of this Act.” 5

Overview of Singapore TP  No tax return disclosure  Documentation is the best way to demonstrate to comply with arm’s length principle  No specific TP penalties or fine - general penalty regime is applicable  Both unilateral and bilateral APAs available 6

Overview of Singapore TP - TP Guidelines issues in Feb 2009 on related party loans and services  Acceptance of a 5% mark-up for provision of routine services, provided taxpayer does not render similar services to unrelated parties  For domestic loans within Singapore allow interest free loans (but apply interest restriction)  For cross border loan require arm’s length interest charge from 1 Jan

Overview of Singapore TP - Documentation to comply with arm’s length principle  Comparability analysis of nature of transaction  Functions performed, Assets employed and Risk undertaken by each party  OECD TP methodologies are accepted: CUP, Resale price, cost plus etc  For domestic loans within Singapore allow interest free loans (but apply interest restriction)  For cross border loan require arm’s length interest charge from 1 Jan

Overview of Singapore TP  Substantial related party transactions  Consistent losses or fluctuations in Profit Level  Outbound related party service charges  Inbound management or service charges  Transaction with related parties in lower tax countries (eg. HK, Cayman Islands, etc.) or between Singapore related entities with different tax rates 9

Overview of transfer pricing risks in Asia 10 CountryTP guidelines issuedDocumentation Rigour of audit program Overall TP risks Australia1997MandatoryHigh China2009MandatoryMedium – High Indonesia2010MandatoryMedium – High India2001MandatoryHighMedium – High Japan2001Highly recommendedHigh Korea1996Highly recommendedHigh Malaysia2003MandatoryMedium Philippines2013MandatoryLow - MediumLow – Medium Singapore2006RecommendedMedium Taiwan2004MandatoryMedium Thailand2002RecommendedMedium Vietnam2005MandatoryMediumLow – Medium

CountrySingaporeChina TP Guidelines issued Regulation / Guidelines Section 34D of the Singapore Income Tax Act Chapter 6: Special Tax Adjustments of the New Enterprise Income Tax Law (new EIT Law) and Implementation Rules (2007) Transfer Pricing Guidelines (in Guoshuifa [2009] No. 2) Documentation Recommended to discharge burden of proof. No related party transaction disclosure Mandatory; Detailed related party transaction disclosure as part of tax return; Thresholds apply Audit experience Medium – desk audits may carry transfer pricing questions Extensive with significant with intra-state variations APA? Only bi- / multilateral APAs; Unilateral APAs may be allowed in extreme circumstances Both multilateral, bilateral and unilateral Overall TP risksMediumHigh Key issues Review of domestic transactions due to partial exemption rules Significant values and volumes of related party transactions Consistent loss makers Automotive Loss makers Manufacturing entities – treatment of toll vs. contract manufacturing Location savings / market premiums Overview of Transfer Pricing in Asia 11

CountryIndonesiaIndia TP Guidelines issued Regulation / Guidelines Article 18 of the Income Tax Law DGT Regulation No. 43/2010 and DGT 32/2011 Section 92C of Income Tax Act, 1961; Sections 92D and E are also key for transfer pricing Documentation Mandatory; Related party transaction disclosure required Mandatory; 3CEB form to be submitted Audit experience Aggressive APA? APA regime introduced effective 1 Jan 2013 APA regime introduced in August 2012 Overall TP risks High Key issues declaration of consistent losses minimal taxes paid; tax refunds variations from commercial norms 36% of cases led to adjustments; total collection US$ 9.71 billion Marketing intangibles and market related activities Permanent establishment (“PE”) issues Separate vs. combined transactions Overview of Transfer Pricing in Asia 12

Transfer pricing cases in China Number of cases Approximate total adjustment (RMB millions)  First transfer pricing audit conducted in 1986  Audits focused on intangible goods, services, equity shares, as well as tangible goods

Key transfer pricing issues across Asia Pacific region  Comparable analysis  Contemporaneous data critical  Determination of functional risk profile of comparable companies as compared to the taxpayer  Impact of risk on functional characterization  Allocation of risk depends upon ability of parties to transaction to exercise control over risk. Core functions, key responsibilities, key decision making and level of individual responsibility for the key decisions are important factors to identity party which has control over the risks. 14

Coming soon : Base Erosion Profit Shifting (“BEPS”)  BRICS nations – Challenges MNE’s under BEPS to attribute profits to more than the functions, assets and risk analysis to:  Quantification and allocation of location rents arising from location savings e.g. Cheaper labor costs, real estate costs  Intangibles such as marketing intangibles, assembled work force, group synergies  OECD 2 nd draft proposals on BEPS currently under discussion and comments 15

Managing Transfer Pricing  Prevention is better than cure  Start at the beginning  Engage the right stake holders  Select correct and apt comparable  Documentation is key  Implement plan on the ground  Align form and substance 16

THANK YOU N Vimala Devi DID: MOBILE: This presentation is for information only and not for any other purposes. Please feel free to contact me if you need any specific professional advice relating to your circumstances. 17 BSL… Your One-Stop Solutions Provider