Singapore legislation
Regulation 21
Regulation 21
Arm’s length requirement for certain transactions
Subregulation 1
This regulation applies to a constituent entity of an MNE group if the constituent entity has entered into a transaction (called in this regulation the relevant transaction) with another constituent entity of the MNE group located in a different jurisdiction from the firstmentioned constituent entity, and the relevant transaction is —
not made under arm’s length conditions; or
not accounted for in the same amount for both constituent entities.
Subregulation 2
This regulation also applies to a constituent entity of an MNE group if the constituent entity has entered into a transaction for the sale or transfer of an asset (also called in this regulation the relevant transaction) with another constituent entity of the MNE group located in the same jurisdiction, a loss arising from the relevant transaction is included in the FANIL of the constituent entity, and the relevant transaction is not made under arm’s length conditions.
Subregulation 3
Where this regulation applies to a constituent entity of an MNE group, the FANIL of the constituent entity must be adjusted so that the financial outcome of the relevant transaction is accounted for in the same amount for both constituent entities that are parties to the relevant transaction, and as if the relevant transaction were made under arm’s length conditions.
Subregulation 4
Where, for any financial year, a relevant transaction is between a relevant constituent entity (A) and another constituent entity (B), and a tax adjustment is made for A by the taxation authority of the jurisdiction where A is located in connection with transfer pricing, but no corresponding adjustment is made for B in the jurisdiction where B is located, no adjustment is to be made under paragraph (3).
Subregulation 5
For the purpose of Part 3 of the Act, where the Comptroller disagrees with the application of paragraph (3) by any constituent entity, the Comptroller may adjust the FANIL of that constituent entity to reflect the financial outcome of the relevant transaction if the relevant transaction were made under arm’s length conditions.
Subregulation 6
In paragraph (4), a constituent entity of an MNE group is a “relevant constituent entity” for a financial year if —
it is located in a jurisdiction with a nominal income tax rate below 15% for that financial year;
where it is not a special entity — the effective tax rate (as determined under section 17) for the constituent entities (not being special entities) of that MNE group located in that jurisdiction for any of the previous 2 financial years is less than 15%;
where it is a stateless entity — its effective tax rate (as determined under section 22) for any of the previous 2 financial years is less than 15%;
where it is a minority-owned constituent entity — the effective tax rate (as determined under section 23) for the constituent entities of that MNE group that are minority‑owned constituent entities located in that jurisdiction for any of the previous 2 financial years is less than 15%; or
where it is an investment entity or insurance investment entity — the effective tax rate (as determined under section 24) for the constituent entities of that MNE group that are investment entities or insurance investment entities located in that jurisdiction for any of the previous 2 financial years is less than 15%.
Subregulation 7
In this regulation, “arm’s length conditions”, in relation to a transaction between constituent entities of the same MNE group, means conditions which would be made or imposed between them in their commercial or financial relations if they were not constituent entities of the same MNE group and dealing independently with one another in comparable circumstances.
Subregulation 8
In the application under regulation 10(2) of this regulation to a standalone JV or an entity of a JV group, the standalone JV or entity is a “relevant constituent entity” for a financial year if the effective tax rate (as determined under section 25) for the standalone JV or entities of the JV group located in that jurisdiction for any of the previous 2 financial years is less than 15%.