In BFC v Comptroller of Income Tax  SGCA 39, the Court of Appeal held that discounts and redemption premiums in relation to two bond issues were not deductible on the grounds that they were capital in nature. The characterisation of the borrowing costs followed the underlying purpose for which the bonds were issued. In this case, the bonds were meant to raise funds to be employed as capital and hence the related borrowing costs were of a capital nature.
On 1 September 2014, the Inland Revenue Authority of Singapore ("IRAS") released and invited comments by 24 September 2014 on its proposed update to Section 4 of the existing Singapore Transfer Pricing Guidelines relating to the transfer pricing documentation, which was first published in 2006.
While the stated objective of the proposed update is to provide a more comprehensive guidance on transfer pricing documentation, the breadth of the changes proposed suggests a more fundamental shift and the tightening of the transfer pricing documentation requirements in Singapore. It may also be seen as Singapore's response to the rapidly changing and increasingly challenging transfer pricing environment.
The release of the proposed updated guidelines ahead of the much anticipated announcements by the Organisation for Economic Co-operation and Development ("OECD") on transfer pricing related issues, including the Country-by-Country-Reporting initiative, also suggests that Singapore considers it appropriate and timely to signal its strong endorsement of the OECD's approach of aligning profits to the place where substance resides and economic value is created. Having robust contemporaneous transfer pricing documents and greater transparency of related party information will help establish whether this is the case or not.