Transfer Pricing
Country Summary

This document summarizes the transfer pricing requirements and regulations in Indonesia. Indonesia follows the OECD Transfer Pricing Guidelines to establish its transfer pricing policy and resolve disputes. The country has a legal framework consisting of various regulations that require taxpayers to maintain transfer pricing documentation. The rules apply to domestic and cross-border related party transactions and encompass master files, local files, and Country-by-Country Reports (CbCR). Indonesia’s Advance Pricing Agreement (APA) framework allows for three-year APA terms and rollbacks. A tax audit priority list includes indicators that lead to transfer pricing audits, and there are penalties for late payment or underpayment of taxes found during such audits.


Regulatory Framework and Compliance Requirements

Indonesia’s approach to transfer pricing adheres to the OECD Transfer Pricing Guidelines. The legal framework includes various regulations:

  • Article 18 of the Income Tax Law, enabling adjustments for non-arm’s length related party transactions.
  • DGT Regulation No. 43/2010, which deals with common business practices and arm’s length principles in transactions with related parties.
  • Regulation No. 69/2010 on Advance Pricing Agreement Procedures.
  • PER-22/PJ/2013 on Tax Audit Procedures for Taxpayers with Related Party Transactions.
  • Circular Letter SE-50/PJ/2013 on Technical Audit Guidelines for Taxpayers with Related Party Transactions.
  • Regulation No. 7/PMK.03/2015 on advance pricing agreement establishment and implementation.
  • Minister of Finance Regulation No. 213/PMK.03/2016 (PMK-213) implementing CbC Reporting, local files, and master files.
  • Regulation PER-29/PJ/2017 explaining CbC Reporting procedures.

Definition of Related Party

Indonesia’s transfer pricing rules apply to both domestic and cross-border transactions between parties with a “special relationship.” A “related party” is defined in Article 18, which includes ownership relationships, control, and family relationships.

Nature of Transfer Pricing Documentation

Transfer pricing documentation in Indonesia aligns with the OECD Guidelines. It mandates the provision of a Master File, a Local File, and Country-by-Country Reporting (CbCR).

Tax Havens & Blacklists

Indonesia does not maintain a list of tax havens.

Advance Pricing Agreement (APA)

Indonesia’s APA framework allows for three-year terms, including rollbacks if prior years are not under audit. Renewal can be done in the last fiscal year of the APA enactment. There is no fee for an APA application, and disclosures in the master file are required.

Audit Practice

The Directorate General of Tax (DGT) follows a tax audit priority list for transfer pricing concerns. Various indicators lead to such audits, including transactions with low effective tax rates, business schemes with no economic substance, significant affiliate transactions, and corporate restructuring events. Financial underperformance compared to the industry and repeated losses can also trigger audits.

Transfer Pricing Documentation

Transfer pricing regulations in Indonesia encompass local files, master files, and CbCR under PMK-213. These apply to companies with specific revenue thresholds and transactions with entities in lower-tax jurisdictions.

Choice of Transfer Pricing Method

Indonesia accepts several methods, including Comparable Uncontrolled Price (CUP), Resale Price Method, Cost Plus Method, Profit Split Method, and Transactional Net Margin Method (TNMM). The selection is based on available comparable data and facts.

Economic Analysis – Benchmark Study

Benchmark studies are considered crucial for determining arm’s length prices. Both internal and external comparables are used, and a range-based approach is employed based on the number of comparables available.

Inter-company (IC) Legal Agreement

Legal agreements formalizing relationships between group entities have lower significance since the 2017 OECD Guidelines emphasize the “conduct of parties.”

Production Process for TP Relevant Returns, Documents, Forms, and Financials

The document’s language is Indonesian. Upon request, transfer pricing reports (except CbCR) must be submitted per relevant tax laws.

Record Keeping

While Indonesia does not have specific rules, it generally requires documentation retention for up to 10 years.

Penalties and Interest Charges

Corporate income tax returns must include local, master files, and CbCR notifications. Failure to do so results in fines, and there are general penalties for late payment or underpayment discovered during transfer pricing audits. These can include fines and imprisonment in severe cases.

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