Singapore clarifies transfer pricing for share-based compensation.
The Inland Revenue Authority of Singapore (IRAS) released the Ninth Edition of its Transfer Pricing Guidelines on 4 June 2026, introducing new guidance on how share-based compensation (SBC) costs should be treated when a Singapore entity applies the Transactional Net Margin Method (TNMM) to price intercompany service transactions. The change takes effect from Year of Assessment (YA) 2026.
For multinational groups with Singapore service entities whose employees receive equity-linked remuneration, the update directly affects how intercompany service fees are computed and documented.
Share-based compensation costs in intercompany services pricing
Where a Singapore company provides services to a related party and uses a full cost mark-up as its profit level indicator under TNMM, the question of which costs belong in the base affects the fee charged and the taxable outcome.
IRAS has clarified its position across three scenarios:
- The SBC cost is incurred and charged by a related party to the Singapore entity
- The cost should have been charged to the Singapore entity by a related party but was not charged and is not recognised in the Singapore entity’s accounts.
- The cost is not charged by related parties but recognised in the Singapore entity’s financial statements as a notional amount under applicable financial reporting standards
IRAS confirmed that from a technical transfer pricing perspective, SBC costs should be included in the cost base across all three scenarios.
Practical relief for uncharged and notional costs
While the technical position treats all three scenarios identically, IRAS has introduced a practical concession. With effect from YA 2026, uncharged share-based compensation costs and notional SBC costs may be excluded from service income. For incurred SBC costs, the treatment remains unchanged.
IRAS has provided a table in the newly added paragraph 5.120 for further explanation.
| SBC cost type and scenarios | In cost base? (YA 2025 & before) | In service income? (YA 2025 & before) | In cost base? (From YA 2026) | In service income? (From YA 2026) |
|---|---|---|---|---|
| (A) Incurred SBC | ✓ Yes | ✓ Yes | ✓ Yes | ✓ Yes |
| (B) Uncharged SBC | ✓ Yes | ✓ Yes | ✓ Yes | ✗ No (concession) |
| (C) Notional SBC | ✓ Yes | ✓ Yes | ✓ Yes | ✗ No (concession) |
The below example clarifies it further, the SBC cost should always be included in the cost base to determine the arm’s length mark-up but maybe excluded from actual invoicing for uncharged and notional SBC. From transfer pricing perspective, SBC cost should always be included in the calculation.
| Scenario A incurred SBC | Scenario B uncharged SBC | Scenario C notional SBC | |||
|---|---|---|---|---|---|
| Scenario A incurred SBC | Scenario B uncharged SBC | Scenario C notional SBC | |||
| From YA 2026 | From YA 2026 Concession applies | From YA 2026 Concession applies | |||
| Base service cost (a) | SGD 200,000 | Base service cost (a) | SGD 200,000 | Base service cost (a) | SGD 200,000 |
| SBC cost (b) | SGD 10,000 | SBC cost (b) | SGD 10,000 | SBC cost (b) | SGD 10,000 |
| Cost base (for mark-up) (CB) | SGD 210,000 | Cost base (for mark-up) (CB) | SGD 210,000 | Cost base (for mark-up) (CB) | SGD 210,000 |
| Mark-up 10% on $210,000 (c) | SGD 21,000 | Mark-up 10% on $210,000 (c) | SGD 21,000 | Mark-up 10% on $210,000 (c) | SGD 21,000 |
| SBC excluded from invoice | (SGD 10,000) | ||||
| Service income invoiced (SI) (a + b + c) | SGD 231,000 | Service income invoiced (SI) (a + c) | SGD 221,000 | Service income invoiced (SI) (a + c) | SGD 221,000 |
| Effective net margin (rounded)(SI – CB)/SI | ~ 9.1% | Effective net margin (SI – CB)/SI | ~ 5.0% | Effective net margin (rounded)(SI – CB)/SI | ~ 5.0% |
Transfer pricing policies to review from YA 2026
Multinational groups where Singapore service entities provide intragroup services and employees participate in group equity schemes should assess whether their current policies and documentation reflect the updated guidance. Groups should confirm how share-based compensation costs are classified in their Singapore entity’s accounts, whether existing intercompany service agreements are consistent with the YA 2026 position and whether transfer pricing documentation requires updating accordingly.
