FAQ

Simply stated, tax authorities are concerned about multinationals underpaying taxes through incorrect transfer prices.

• Transfer pricing audits can result in substantial tax and penalties on a global basis.
• Over 100 countries now see transfer pricing enforcement as a top return on investment in auditing resources.
• Transfer pricing impacts a company’s global effective tax rate.
• Transfer pricing also affects FDII, GILTI, and BEAT calculations under US tax reform.

We find that many companies can optimize cashflow with a strategic review of transfer prices. Furthermore, US tax reform provides new opportunities to reduces taxes payable through transfer pricing strategies.

Companies that do not charge arm’s length prices are at risk of substantial additional income tax, interest, and nondeductible penalties.

• Tax auditors can raise substantial tax revenues through transfer price adjustments.
• Two (or more) tax authorities can audit the same transactions.
• Companies can face a double taxation problem – if one tax authority makes a transfer pricing adjustment, a company may not necessarily receive a refund on the tax already paid overseas.
• Resolution of transfer pricing audits regularly require five-plus years of management time and resources.

TP Regulation:

Domestic Regulation

• Pasal 18 (3) UU PPh
• Pasal 2(1) UU PPN
• PMK-213/2016
• PMK-22/2020
• PER-43 stdtd PER-32/2011
• PER-22/2013
• SE-50/2013

International Regulation

• UN TP Manual
• OECD TP Guidelines

Taxpayer which conducts a Related Party Transaction with:

• Annual gross turnover in the preceeding Fiscal Year more than Rp50,000,000,000.00 (fifty billion rupiah);
• Annual value of Related Party Transaction in the preceeding Fiscal Year:
• More than Rp20,000,000,000.00 (twenty billion rupiah) for tangible goods transaction; or 2. more than Rp5,000,000,000.00 (five billion rupiah) for each of service provision, interest payment, utilization of intangible goods, or any other Related Party Transactions; or c. Related Party in a country or jurisdicton with Income Tax rate lower than Income Tax rate as referred to in Article 17 of Law Number 7 of 1983

(Based on Regulation of The Minister of Finance of The Republic of Indonesia Number 213/PMK.03/2016)

When two or more associated companies enter into a mutual contract during an international transaction in order to apportion a particular cost incurred in relation with a benefit, service or facility offered by any one or all of the companies, such a cost shall be calculated considering the arm’s length price of the particular benefit, service, or facility, as applicable.

An international Transaction is defined as any transaction between two or more associated companies situated in different countries in terms of a property that is tangible or intangible, a service offered by the company, or any form of lending of money, etc. It is compulsory that at least one of the participants involved in the transaction is a non-resident of Indonesia. However, a transaction that has been carried out by two non-resident Indonesia, where one of them possesses a permanent setup in Indonesia and whose income is taxable from Indonesia, such a type of transaction is also considered as ‘International Transaction’.

Based on The Indonesian Minister of Finance Regulation number PMK-22/PMK.03/2020, the transfer pricing methods that are applied in Indonesia:

1. Comparable uncontrolled price method
2. Resale price method
3. Cost-plus method
4. Other methods :

• profit split method
• comparable uncontrolled transaction method
• transactional net margin method
• tangible asset and intangible asset valuation
• business valuation

Based on Indonesian Minister of Finance Regulation number 213/PMK.03/2016 (PMK-213) titled “The type of additional documents and/or information mandatory to be kept by taxpayers who conduct transactions with affiliated parties and its procedures the taxpayers required to prepare the transfer pricing documents shall consist of three structures:

• Master documents;
• Local documents; and/or
• Country by country reports.

APA (https://www.pajak.go.id/id/apa-map)

1. Indonesian taxpayer may apply for an APA to Director General of Taxes concerning a Related Party Transaction based on:

• Taxpayer’s initiative, in form of Unilateral APA or Bilateral APA; or
• Written notification from Director General of Taxes in relation with a Bilateral APA application that is requested by a non-resident taxpayer to the Competent Authority of Treaty Partner.

A Bilateral APA application requested by a non-resident taxpayer to the Competent Authority of Treaty Partner will not proceed to the next stage if the Indonesian taxpayer does not similarly request for APA.