The Inland Revenue Authority of Singapore (IRAS) has significantly stepped up its risk-based compliance audits. Finance teams and business leaders must ensure their accounting treatments align strictly with tax rules before filing.
Here is a quick look at the top three areas IRAS is scrutinising, and what happens if you are not compliant.
1. Transfer Pricing (TP) and Non-Compliance Penalties
IRAS actively audits related-party transactions to ensure compliance with the arm’s length principle.
- Mandatory TPD: Businesses with gross revenue exceeding S$10 million (or that were required to prepare Transfer Pricing Documentation (TPD) in the prior year) must complete contemporaneous TPD before the tax filing due date.
- Exemptions: Specified transactions falling below threshold limits (e.g. S$15 million for related-party loans, and S$2 million for service fees and royalties from YA 2026) may be exempt from detailed TPD.
- Penalties and surcharges:
- Failure to prepare, retain (for 5 years), or submit TPD within 30 days of request carries a fine of up to S$10,000 per offence under Section 34F.
- IRAS also imposes a strict, non-deductible 5% surcharge on any upward transfer pricing adjustments made during an audit.
2. Unpaid Accruals
Under Singapore tax law, expenses are only deductible if they are genuinely incurred, with a definitive legal liability to pay.
IRAS is flagging long-outstanding balances, such as accrued director fees, management charges or bonuses, that sit on the balance sheet for multiple Years of Assessment without cash settlement. If an accrual is deemed contingent or lacks genuine payment intent, IRAS will disallow the tax deduction and reassess prior tax years.
3. Capital Accounts and Non-Income-Generating Assets
Balances in capital and intercompany accounts are under close review, particularly interest-free or low-interest loans extended to directors, shareholders or related companies.
- Loans to directors: Interest savings on advances provided to directors in their employee capacity are treated as taxable benefits-in-kind (BIK) and must be reported in Form IR8A using IRAS benchmark interest rates.
- Corporate interest adjustments: If a company incurs bank interest expenses while advancing interest-free funds to related entities or directors, IRAS requires an interest adjustment, disallowing a proportionate share (or all) of the company’s bank interest tax deductions.
Worried About Your Tax Risk? We Can Help
Navigating IRAS audit requirements requires a proactive review before the tax submission deadline.
If you are uncertain whether your company meets the transfer pricing threshold, have long-standing accruals on your books, or carry interest-free intercompany balances, reach out to our tax specialist team today. We can help review your positions, prepare compliant TPD, and safeguard your company against costly penalties.