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