Introduction

Up until 2009, there had been frequent lamentations by commentators about the absence of an appropriate provision in Singapore mandating the adoption of arm's length price in related party transactions. Nevertheless, the Inland Revenue Authority of Singapore (IRAS) maintains that all related party transactions must comply with the arm's length standard. Especially in the context of related party transactions that involve at least one foreign entity, the IRAS takes the view that Singapore has always embraced the standard as part of its international obligations embodied in all the comprehensive Double Taxation Agreements (DTAs) that have been concluded with seventy jurisdictions. All these DTAs contain a fairly uniform requirement that mandates compliance with the arm's length standard for determining the payments between associated enterprises as well as payments of interest and royalty income between entities where a special relationship exists.

Notwithstanding the absence of a general provision in the Income Tax Act (ITA), there is a collection of disparate provisions that require some form of market value to be adopted in specific situations where the existence of relationships between certain parties are deemed to carry a risk that arrangements could be entered into between them to avoid the incidence of tax that would otherwise have fallen due had the parties dealt at arm's length with one another. Unfortunately, there is no general provision that defines ‘related parties’ or makes explicit reference to the notion of an arm's length price.