Indonesia Introduces Three-Tiered Approach to Transfer Pricing Documentation

Indonesia Introduces Three-Tiered Approach to Transfer Pricing Documentation

Sri Wahyuni Sujono
6/7/2017
Indonesia Introduces Three-Tiered Approach to Transfer Pricing Documentation

The Ministry of Finance (“MoF”) has released Regulation No.213/PMK.03/2016 (‘PMK 213”) which came to force on 30 December 2016 and introduces the three-tiered approach to Transfer Pricing Documentation(TPD). This is a standardized approach to transfer pricing documentation developed by OECD/G-20 BEPS Report Action 13 (finalized in October 2015).

The three-tiered TPD under PMK 213 consists of the following document requirements:

  1. A “Master file” that consists of standardized information relevant for all MNE group
  2. A “Local file” that consists of information specifically on related-party transactions of the local taxpayer; and/or
  3. A Country-by-country (“CbC”) Report that consists of certain information relating to the global allocation of economic activity within the MNE group

 

Coverage of TP Documentation

Who should prepare the two-tiered TP documentation?

The Master and local files must be prepared by taxpayers that fulfill one or more of the criteria stated below:

  • Taxpayers that earned gross revenue of more than IDR 50,000,000,000 (fifty billion rupiah) in the previous fiscal year; or
  • Taxpayers that conduct related-party transaction(s), in the form of tangible goods transaction(s), of more than IDR 20,000,000,000 in the previous fiscal year; or
  • Taxpayers that conduct related-party transaction(s), for each transaction pertaining to services, interest payment, intangible goods or other related-party transaction(s), of more than IDR 5,000,000,000 in the previous fiscal year; or
  • Taxpayers that conduct transaction(s) with related party(ies) located in countries or jurisdictions with a lower Income Tax Rate than that of Indonesia.

Who should prepare the three-tiered TP documentation?

The Master file, local file and CbC report must be prepared by:

  • A Taxpayer that is the parent entity of a group of entities with consolidated gross revenue of at least IDR 11,000,0000,000,000 (eleven trillion rupiah) in that particular year; or
  • Taxpayers that are subsidiaries of a parent entity and the country / jurisdiction where the parent entity resides:
  1. Does not require the filing of CbC report;
  2. Does not have an agreement with Indonesia in relation to the exchange of tax information; or
  3. Has an exchange of tax information agreement with Indonesia, but the CbC report cannot be obtained by the Indonesian government from that country or jurisdiction

 

Timeline and Requirements for Transfer Pricing Documentation

Master file and local file

  • Must be available no later than 4 months after the end of the fiscal year; however, these files do not have to be submitted except when requested by the DGT
  • Must be prepared based on the data and information available at the time related-party transactions are conducted (Contemporaneous). In the absence of such, the Taxpayer will be considered not to have applied the arm’s length principle.
  • Taxpayers must provide a summary of the information stated in the Master file and the Local file (using the format attached in PMK 213)
  • Taxpayers have to attach the summary and sign the statement letter concerning the time of the availability of such documents along with Corporate Income Tax Return (CITR).

 

CbC Report

  • Must be available no later than 12 months after the end of the fiscal year.
  • Must be prepared based on the data and information available at the end of the fiscal year. In the absence of such, the Taxpayer will be considered not to have applied the arm’s length principle.
  • From fiscal year 2016 onwards, the CbC Report must be submitted as an attachment to the following CITR.

 

Other Important Highlights

Language

PMK 213 stipulates that TP Documentation that consists of Master file, local file and CbC Report must be provided in the Indonesian language. For Taxpayers who have approval from the Minister of Finance to use a foreign language and currency other than Rupiah, the TPD can be prepared using that foreign language; however, it has to beaccompanied with the translation into Indonesian.

Penalties

Penalties as stipulated in General Procedure and Tax Provision Law are imposed for Taxpayer with the following conditions:

  • Failure to perform contemporaneous in maintaining the master file and local file
  • Failure to maintain datas and informations related to CbC Report until the end of the fiscal year.
  • Failure to provide the documents or provide documents beyond the required time line in the event of compliance monitoring, tax audit, tax audit preliminary vidence or investigation when the DGT request the Master file and Local file.
  • Failure to submit the summary of the information stated in the Master file and the Local file as the attachment of the CITR.
  • Failure to submit the CbC report as the attachment of the CITR.

 

SF