Singapore transfer pricing alert: IRAS clarifies SBC treatment for cost-plus service providers from YA 2026
IRAS has clarified how share-based compensation (SBC) should be treated for Singapore service providers applying a full cost mark-up under the Transactional Net Margin Method (TNMM). The key point is that SBC remains part of the transfer pricing cost base, but from YA 2026 taxpayers may apply a practical concession when determining the billable service income.
Before YA 2026, IRAS’ position was that SBC should be included in the transfer pricing cost base and marked up where it relates to employees providing intra-group services, whether the SBC was:
- Charged to and recognised by the service provider ("incurred SBC");
- Should have been charged by the parent or related party ("uncharged SBC"); or
- Recognised as a notional accounting expense under financial reporting standards but not charged ("notional SBC").
From YA 2026, IRAS will allow the practical concession below.
What changes from YA 2026?
From YA 2026, taxpayers may exclude uncharged and notional SBC from final service income, even though those amounts remain in the cost base for determining the mark-up.
Example: a Singapore service provider incurs $200,000 of direct operating costs and $10,000 of SBC, with a mark-up of X%.
| SBC Scenario | Treatment: YA 2025 and before | Treatment: YA 2026 onwards |
| Incurred | • Cost Base: $210,000 • Service Income: $210,000 + (X% on $210k) | • Cost Base: $210,000 • Service Income: $210,000 + (X% on $210k) (No change) |
| Uncharged | (same as above) | • Cost Base: $210,000 • Service Income: $200,000 + (X% on $210k) (The $10k uncharged cost is omitted from the service income/revenue base) |
| Notional | (same as above) | • Cost Base: $210,000 • Service Income: $200,000 + (X% on $210k) (The $10k accounting entry is omitted from the service income/revenue base) |
Why this matters
The clarification is relevant for multinational groups with Singapore entities operating cost-plus or TNMM-based intra-group service models. While IRAS continues to treat SBC as a real service cost that must be included in the mark-up base, the YA 2026 concession allows uncharged and notional SBC to be excluded from the billable service income.
Groups should review intercompany service agreements, cost base definitions, accounting segmentation, recharge calculations, billing mechanics and transfer pricing documentation ahead of YA 2026 filings.
The update is particularly relevant for regional headquarters, shared service centres, technology and R&D hubs, financial services and fund management businesses with employee share-based compensation in their service cost base.
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