A transfer pricing audit covering five financial years resulted in a tax refund of approximately SGD 5.88 million. Key lessons highlight the importance of evidence, documentation and proactive audit management.


We recently supported a commodity trading group in resolving a transfer pricing audit covering five financial years. The case concluded with a total tax refund of approximately SGD 5.88 million.

The central issue was whether the Singapore entity’s limited-risk role within the group’s value chain, and the profits it retained, were consistent with its functions, assets and risks (FAR). Following a detailed review of the facts, actual business operations and supporting evidence, the taxpayer’s transfer pricing position was accepted.

 

Key takeaways from this case:

  • The right questions help identify relevant evidence  
    Useful information may already exist within the business, although its relevance to the transfer pricing analysis may not be immediately apparent. Practical guidance and targeted questions can help a company draw on its knowledge of operations, identify the appropriate records and present an accurate account of what occurred.
     
  • Contractual terms are the starting point, but actual conduct is equally important  
    Agreements should clearly set out the allocation of risks and decision-making responsibilities. However, the analysis must also be supported by contemporaneous demonstrating how those arrangements operated in practice.
     
  • Engagement with IRAS should be managed proactively 
    Clear and timely responses, disciplined coordination of information, and a consistent focus on the underlying facts can help address queries efficiently and maintain a coherent position throughout the audit.
     
  • Commercial and industry context matters  
    Understanding the transactions, the business model and relevant industry practices was important in explaining the commercial rationale and assessing the transfer pricing position.
     

Collectively, these observations highlight the importance of experienced advisory support when managing a transfer pricing audit. An advisor who combines focused enquiry with a sound understanding of the business, industry dynamics and commercial context can help a company identify relevant evidence, address issues proactively and articulate a clear, fact-based position.

With FY2025 transfer pricing documentation due by 30 November 2026, this serves as a timely reminder that documentation should reflect the underlying facts and actual business operations. As an important first line of defence, transfer pricing documentation should be prepared with appropriate care, as inconsistencies may give rise to additional questions during an audit.

 

How RSM Can Help

RSM Singapore helps businesses prepare transfer pricing documentation, manage audit reviews and respond to enquiries from the Inland Revenue Authority of Singapore (IRAS). Our approach focuses on understanding the commercial realities of your business and ensuring that documentation is aligned with actual operations.

Our areas of transfer pricing expertise and the assistance we provide include:

  • Comprehensive TP compliance services including TP documentation (i.e. Master File and Local File) preparation
  • Operational TP support, model design, development of TP policies and governance process implementation
  • TP health-check analysis, identify risk exposures and preparation of audit defence documentation
  • Review and manage TP audits, addressing controversies and dispute resolutions
  • Preparation of unilateral, bilateral and multilateral Advance Pricing Agreements including negotiations with relevant tax authorities
  • Managing Country-by-Country Reporting compliance obligations    

Get in touch with one of our specialists for more information

Joanna Lam
Partner, Transfer Pricing
Prerna Prakash Bathija
Director, Transfer Pricing

Frequently Asked Questions

Tax authorities generally look beyond contractual arrangements to assess how transactions were actually conducted in practice. Taxpayers should therefore retain contemporaneous records which can demonstrate who made key decisions, how risks were managed and whether actual conduct was consistent with the documented transfer pricing position and in line with the intercompany agreements. Relevant evidence may include internal approvals, meeting records, email correspondences, management reports and transaction-level data. The golden test is whether the TP documentation and underlying contemporaneous evidence, when read together, present a clear and consistent account of the transactions without significant reliance on explanations which are reconstructed after the transfer pricing audit has commenced.

A FAR analysis examines the functions performed, assets used and risks assumed by each entity within the Group which is involved in the related party transaction. A FAR analysis sits at the core of a transfer pricing analysis as it establishes the economic substance of the arrangement - where key value adding activities are undertaken, where decisions are made and risks are controlled. In the course of a transfer pricing audit, tax authorities rely on a well-documented and robust FAR analysis to test whether the contractual allocation of responsibilities reflects actual conduct and whether the profits attributed to each entity are consistent with its contribution to value creation.

Based on our experience in handling multiple complex transfer pricing audits, one of the most commonly spotted red flags is inconsistencies between transfer pricing documentation and actual business operations. Scrutiny often increases when the transfer pricing documentation, intercompany agreements and financial outcomes do not align to a consistent story. Other common red flags include changes in the business models which are not sufficiently explained in the documentation, unexplained fluctuations in profitability, incomplete transaction records and limited evidence showing where key decisions were made or risks were controlled. Addressing these gaps before an audit begins can significantly strengthen the taxpayer’s ability to present a credible and evidence-based position.

Transfer pricing documentation is required to be prepared by the statutory deadline and on a contemporaneous basis. This means that the analysis and supporting information used to determine the pricing should exist when the related party transactions are entered into, rather than being prepared retrospectively.

In practice, tax authorities generally place greater reliance on contemporaneous documentation and may be less receptive to explanations or supporting materials which are developed only after an audit has commenced. Accordingly, taxpayers should ideally undertake the transfer pricing analysis and prepare supporting documentation before entering into a related party arrangement, so that the pricing position is supported by evidence available at the time the transaction is implemented. 

This provides stronger evidence that the pricing was determined based on information available at the time the transaction was contemplated and forms a more robust first line of defence in the event of a transfer pricing audit.