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Attorney at Law (Austria)
Update on the Singapore Transfer Pricing Guidelines
- ASEAN Newsflash - Q3 2026
- Clarifying the treatment of share-based compensation (SPC) costs
- Application of the arm´s length mark-up
The Inland Revenue Authority of Singapore (IRAS) published the 9th Edition of the Singapore Transfer Pricing Guidelines (the Guidelines) on 4 June 2006. The change in this edition is a new FAQ clarifying the treatment of share-based compensation (SPC) costs in the cost base used to determine the service income of intra-group services priced under the Transactional Net Margin Method (TNMM) with a cost-plus mark-up.
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Allocation of SBC
In the latest edition of the Guidelines, IRAS has reaffirmed their stand that SBC is remuneration for employee services and must therefore form part of the Singapore service provider’s cost base when applying the arm’s length mark-up.
SBC must be included in the cost base for calculating the arm’s length mark-up in these scenarios:
- Incurred: charged by the related party and recognized in the Singapore entity’s accounts;
- Uncharged: should have been charged by the related party but is neither charged nor recognized in the accounts; or
- Notional: not charged by the related party but recognized in the Singapore entity’s accounts in accordance with the relevant Financial Reporting Standards.
Notwithstanding this, IRAS has introduced a concession with effect from YA 2026 wherein taxpayers must still include SBC costs in the cost base for purposes of deriving the arm’s length mark-up.
However, the SBC amount for uncharged and notional SBC amounts may be excluded from the calculation of service income.
Treatment of SBC before and after YA 2026
The following table summarizes the treatment of SBCs before and after YA 2026.
| YA 2025 and before | From YA 2026 | |||
| To include in cost base | To include in service income | To include in cost base | To include in service income | |
| Incurred | Yes | Yes | Yes | Yes |
| Uncharged | Yes | Yes | Yes | No |
| Notional | Yes | Yes | Yes | No |
With this clarification and concession, Singapore service entities having uncharged or notional SBC costs may report lower taxable service income.