IRAS does not have a specific preference for any one method. Instead, the method that produces the most reliable results, taking into account the quality of available data and the degree of accuracy of adjustments, should be selected.
Taxpayers may also choose other more appropriate methods or use a combination of various methods to comply with the arm’s length principle. Whichever method the taxpayer chooses, transfer pricing documentation should be maintained to demonstrate that its transfer prices are established in accordance with the arm’s length principle.
As per the OECD guidelines, the selection of method should always aim for the most appropriate method for a particular transaction. The most appropriate method is that method which, given the facts and circumstances of the transaction under review, provides the most reliable measure of an arm’s length result. In determining the reliability of a method, the two most important factors to be taken into account are:
(i) the degree of comparability between the controlled and uncontrolled transactions;
(ii) the coverage and reliability of the available data.
Since the selection of the most appropriate method involves a test of relative merit, a method that may not be perfect is not considered inappropriate, unless some other method can be shown to be more reliable or to provide a better estimate of an arm’s length result.
