In Singapore’s increasingly globalized and group-structured business environment, related party transactions (RPTs) have become part of daily operations for many companies. From loans between subsidiaries to shared management fees or licensing agreements, these arrangements are legitimate — but they must be managed with proper documentation and fair pricing.

Failure to comply with transfer pricing regulations can lead to tax adjustments, penalties, and audit scrutiny by the Inland Revenue Authority of Singapore (IRAS).

Here’s what every SME owner or finance manager should understand about related party transactions, how transfer pricing rules apply, and how automation tools like ccMonet can help maintain compliance with ease.

1. What Are Related Party Transactions?

A related party transaction occurs when a company conducts business with another entity or individual it has a relationship with. These parties are connected by ownership, control, or family ties.

Examples include:

• A parent company providing loans to its subsidiary
• A director’s family-owned business supplying goods or services
• Management or technical fees charged between group companies
• Shared use of trademarks, property, or IT infrastructure

Such transactions are common — especially among SMEs with multiple entities or family-run structures. However, because they aren’t conducted at “arm’s length,” regulators pay close attention to ensure that income and expenses are reported fairly for tax purposes.

2. Why Transfer Pricing Rules Exist

Transfer pricing (TP) refers to the pricing of goods, services, or financing between related parties.
Singapore’s transfer pricing framework, governed by Section 34D of the Income Tax Act 1947, ensures that these transactions reflect arm’s length prices — meaning prices similar to those between unrelated entities in open market conditions.

This prevents companies from shifting profits to low-tax jurisdictions or underreporting taxable income in Singapore.

The Arm’s Length Principle

Under this principle, all related party transactions must be priced as if the parties were independent, each seeking to maximize its own profit.
IRAS expects all businesses — including SMEs — to justify that their prices, margins, and terms are commercially reasonable.

3. When Do SMEs Need to Prepare Transfer Pricing Documentation

While large multinationals have dedicated TP teams, SMEs are not exempt from compliance.

You must prepare Transfer Pricing Documentation (TPD) if:

• Your gross revenue exceeds S$10 million for the financial year; or
• You enter into related party transactions above IRAS-specified thresholds (e.g. S$1 million for goods, S$200,000 for services, S$1 million for loans).

Even if below these thresholds, IRAS encourages companies to maintain at least basic documentation to demonstrate arm’s length compliance in case of audit.

Documentation Must Include:

• Group and company structure overview
• Nature, value, and purpose of related party transactions
• Transfer pricing method and justification (e.g. comparable market rates, cost-plus, resale price)
• Benchmarking studies or third-party quotes supporting pricing

Failure to prepare adequate documentation can result in 5% surcharges on TP adjustments and potential penalties for non-compliance.

4. Common Related Party Transactions That Trigger IRAS Review

SMEs often underestimate how routine business activities can attract TP scrutiny. Watch out for these situations:

• Intercompany loans or advances without formal interest terms
• Shared costs (like administrative or marketing expenses) not supported by a cost allocation policy
• Management or consulting fees that lack service agreements or supporting evidence
• Royalty or licensing fees paid to related companies without benchmarking
• Cross-border transactions between Singapore and offshore affiliates

💡 Tip: Even small-value transactions should be backed by clear contracts and consistent pricing methods. IRAS focuses on intent, substance, and documentation — not just transaction size.

5. How to Stay Transfer Pricing Compliant

a. Maintain Clear Documentation

Keep a central file outlining all related parties, transaction types, and pricing methods. Update it annually, especially if business structures or pricing models change.

b. Use Written Agreements

Formalize every intercompany service, loan, or cost-sharing arrangement in a written contract. This demonstrates transparency and commercial intent.

c. Benchmark Your Prices

Use comparable third-party rates where possible. For example, interest rates on intercompany loans should align with market lending rates.

d. Align Accounting and Tax Records

Ensure related party transactions recorded in your books match what’s reported in IRAS filings and financial statements.

e. Monitor Thresholds

Once your company crosses S$10 million in annual revenue, prepare formal TPD every year. For smaller companies, maintain concise documentation to be audit-ready.

6. How ccMonet Helps SMEs Manage Related Party Transactions

Tracking and documenting related party transactions manually can be complex — especially when financial data is spread across multiple entities or spreadsheets.

ccMonet simplifies this through automation and expert oversight. SMEs using ccMonet can:

• Automatically identify intercompany transactions through AI-driven categorization
• Reconcile balances between related parties across entities
• Maintain digital copies of intercompany agreements and invoices
• Generate accurate reports for IRAS and auditor review
• Collaborate with ccMonet’s expert reviewers for compliance checks

By centralizing financial and compliance data, ccMonet ensures every transaction is traceable, transparent, and backed by evidence — reducing risks during audits or transfer pricing reviews.

7. Key Takeaways for SMEs

• Related party transactions are common but must follow the arm’s length principle.
• Transfer pricing documentation is required if revenue exceeds S$10 million or transactions exceed IRAS thresholds.
• Maintain contracts, benchmarks, and annual reviews for all intercompany dealings.
• IRAS penalties for poor documentation can include 5% surcharges on adjustments.
• Digital systems like ccMonet make monitoring and reporting simpler, helping SMEs stay compliant year-round.

Conclusion

Transfer pricing compliance isn’t just a big-company issue — it’s a responsibility every Singapore business must take seriously.
By keeping your related party transactions transparent, documented, and fairly priced, you protect your company from tax risks and enhance corporate credibility.

👉 Simplify intercompany compliance with ccMonet — your AI-powered platform for accurate bookkeeping, audit-ready records, and seamless financial governance.

‍