Transfer pricing energy destination markets in Southeast Asia
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Transfer pricing energy destination markets in Southeast Asia

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Southeast Asia is a major energy and resource destination market, but its varied geopolitical structure gives rise to a number of unique TP challenges. Deloitte’s Jee Chang See and Avik Bose discuss.

With a combined GDP of $2.6 trillion and a fast-growing market covering more than 630 million consumers, Southeast Asia, which is comprised of Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, is one of the world's most dynamic regions. In terms of energy and resources (E&R), the region represents one of the fastest growing markets of the global energy system, with energy demands having grown by 60% over the past 15 years. In its 2040 outlook, the International Energy Agency (IEA) estimates that Southeast Asia's energy demand will grow by almost two-thirds, which represents one-tenth of the rise in global demand for energy.

These factors make Southeast Asia a major destination for global E&R multinational corporations (MNCs) that compete with home-grown industries. These established businesses, which follow distinct operating models coupled with complex transfer pricing (TP) policies, often draw the attention of the local revenue authorities. This article highlights some of the major TP challenges facing the E&R sector in Southeast Asia.


Singapore is a major global energy trading hub and the world's third largest oil refining center. Energy and resources firms in Singapore are often awarded incentivised tax rates (depending on their operating profile and other conditions) that usually become the focus of other revenue authorities in the region and elsewhere. This exposes cross-border, related-party transactions with Singapore to greater scrutiny. In the past, this has led to TP adjustments initiated by overseas revenue authorities, and opened several mutual agreement proceedings (MAPs) with the Inland Revenue Authority of Singapore (IRAS).

With the introduction of mandatory TP documentation requirements in 2014, the IRAS now requires all taxpayers (including incentivised entities) to adhere to the arm's-length standard and maintain TP documentation, with severe penalties imposed for non-compliance.

The primary reason for the IRAS to mandate TP requirements for incentivised companies, including those in the E&R sector, is to protect Singapore's tax base and ensure that the country does not lose its fair share of tax. As a result, advance pricing agreements (APAs) have become common in the E&R sector, covering profit split pricing models, financing transactions, and regional headquarters service transactions, among others.


The E&R sector in Malaysia is dominated by the oil and gas (O&G) industry. There are more than 3,500 O&G businesses in Malaysia comprising international oil companies, independents, and both service and manufacturing companies that support the needs of the O&G value chain both domestically and regionally.

Many major global machinery and equipment (M&E) manufacturers have set up a base in Malaysia to complement home-grown M&E companies, while other Malaysian O&G companies are focused on key strategic segments such as drilling, engineering, fabrication, offshore installation, and operations and maintenance.

The primary TP issues encountered in the O&G industry involve cost sharing mechanisms when resources are shared across multiple lines of business in the downstream sector. The revenue authorities have questioned the methodology applied in splitting these costs, and the recharge at cost without the application of a mark-up. While similar mechanisms apply to upstream businesses, they have received less attention, most likely due to the joint venture nature of production-sharing contracts in Malaysia.

The Inland Revenue Board (IRB) has also questioned the treatment of intangibles and payments for the use of trademarks/tradenames, most recently in a restructuring where the intangibles were centralised in Europe.

Malaysia has an active APA regime that was introduced in 2009, with the revenue authority actively encouraging taxpayers to apply for APAs. Although the Malaysia tax authorities are largely focused on unilateral APAs, they are encouraging applications for bilateral/multilateral APAs, and a few bilateral APAs are under negotiation already.


Indonesia is a net exporter of energy, but its imports of oil (and oil products) have been rapidly increasing in recent years. Indonesia is also the world's fourth-largest producer of coal and a top coal exporter. It is also Southeast Asia's biggest gas supplier, with exports accounting for roughly 45% of its production. Therefore, the major E&R players will generally have their upstream activities located in the country.

The primary TP issues involving Indonesia have involved the pricing of resource sales to related parties and intragroup service charges. Usually, the business models used most frequently in Southeast Asia involve setting up a regional headquarters (RHQ) and trading center in Singapore, while upstream locations like Indonesia function under operational directions from the Singapore RHQ.

In many cases, the revenue authorities in Indonesia will use the comparable uncontrolled price (CUP) method, and consider prices from local commodities indexes as a proxy (which may lead to disputes with taxpayers).

Adjustments from indexed prices have also come under challenge from the revenue authorities. The payment of service charges to RHQ are scrutinised routinely, and disallowed unless direct benefits to the payor can be demonstrated. However, the fact that Indonesia has an active APA regime, and the fact that there has been a steady increase in the number of APA applications over the past two years, may provide solace to taxpayers and reduce litigation with the revenue authorities.

The Philippines and Thailand

The revenue authorities in these two countries lack an industry-focused approach, and therefore their TP issues are quite generic. The number of TP audits in both countries is significantly increasing, and with Thailand introducing TP regulations effective from the 2019 financial year, the number is expected to rise further.

Loss-making entities and entities with low profitability are frequently the subject of inquiries by the revenue authorities. The transactional net margin method (TNMM) is often adopted by tax authorities to test the adequacy of profits from a local TP perspective. Local comparable companies are used for benchmarking, and regional comparables are not accepted. Intragroup service fee payments are commonly challenged by the tax authorities, and taxpayers are required to establish the benefits received from such services.


Companies in the O&G sector in Vietnam are always required to be incorporated as a joint venture with a government enterprise, and their revenue transactions are exempt from local TP regulations. The major TP issues that arise involve the service charges paid by the Vietnamese entity (if any) to its group companies. These are usually in the nature of technical fees or management fees. The tax authorities routinely challenge those service charges, and taxpayers are frequently denied deductions.

The Southeast Asia outlook

It is apparent that transfer pricing issues are still evolving in most Southeast Asian countries. However, countries like Indonesia, Malaysia and Singapore, which are major E&R activity hubs in the region, offer more stability and reduced chances of litigation though their active APA regimes.

© 2019. For information, contact Deloitte Touche Tohmatsu Limited.This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms or their related entities (collectively, the "Deloitte network") is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

See Jee Chang



Deloitte Singapore

Tel: +65 6216 3181

Jee Chang See is a partner who leads the transfer pricing practice in Deloitte Singapore. He has more than 20 years of experience in taxation, and previously worked for the Inland Revenue Authority of Singapore (IRAS) for more than 10 years.

At the IRAS, Jee Chang was tax director of the tax policy and international tax division, where he served as Singapore's competent authority, responsible for the negotiation of advance pricing arrangements, the settlement of TP disputes, and conducting tax treaty negotiations. He led the IRAS team responsible for formulating the policy and technical considerations for implementing a TP regime in Singapore. In that role, he was vitally involved in developing the Singapore TP guidelines that were issued in 2006. Finally, he served as the key technical resource person in the IRAS with regard to TP matters.

Jee Chang now serves major MNE clients, many of which are Singapore-based regional headquarters.

Jee Chang has been nominated as a leading Singapore tax advisor by International Tax Review, as well as the Euromoney/Legal Media guide to the world's leading tax advisors.

Jee Chang is a chartered accountant with the Institute of Singapore Chartered Accountants, and an accredited tax advisor with the Singapore Institute of Accredited Tax Practitioners.

Avik Bose



Deloitte Singapore

Tel: +65 6216 3369

Avik Bose is a director in Deloitte Singapore. He has over 15 years of experience in Big Four accounting firms in transfer pricing and various aspects of taxation. He has been involved in advising leading multinationals in automobiles, aerospace, shipping, IT, oil and gas, pharmaceuticals, real estate, financial services, and consumer goods.

Avik's experience includes TP planning structures for various types of business models, supply/value chain realignments, IP valuation, structuring and pricing intercompany financial transactions, and planning and executing global documentation projects for taxpayers in various industries. Avik has represented his clients before revenue authorities in several MAP and APA cases and in tax courts.

Avik is a frequent presenter at TP forums and has written articles for international tax publications. He has conducted training sessions on the latest TP issues with revenue authorities in the region.

Avik is a chartered accountant by profession and has a masters degree in commerce.

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