At the end of 2016, the Minister of Finance of the Republic of Indonesia issued a regulation no. PMK-213 in the year 2016 that enacted the types of documents and/ or additional Information that must be prepared by Taxpayers conducting related party transactions.
This regulation (i.e. PMK-213) become the legal basis for the preparation of Transfer Pricing Documentations (TPD), guidelines for the information that is required in the TPD and preparation timeline.
Relevant Laws, Regulations and Provisions
Article 18 paragraph 3 of the Income Tax Law mentioned that the Director General of Taxation (DGT) has the authority to re-determine the amount of income and deductions and determine debt as capital to calculate the amount of Taxable Income for Taxpayers who have special relationships with other Taxpayers in accordance with the arm’s length principle that is not influenced by special relationships using the price comparison method between independent parties, the resale price method, the cost-plus method, or other methods.
Transfer Pricing Documentation Requirements
According to PMK-213, TPD shall consisted of the following reports:
Local Files should contain Taxpayer information regarding:
If a Taxpayer has more than one business activity with different business characteristics, local files must be presented in a segmented basis according to the business characteristics.
Master Files should contain Taxpayer’s Business Group information such as:
CbCR should contain information as follows:
TPD must be prepared by the Taxpayer in Indonesian language.
If the Taxpayer has received permission from the Minister of Finance to carry out bookkeeping in a foreign language and in a currency other than rupiah, the TPD can be made in accordance with the foreign language stated in the permit for carrying out bookkeeping and accompanied by a translation in Indonesian language.
Flowchart of TPD Requirements
Similar with other Asia Pacific countries, the Indonesian Ministry of Finance have issued transfer pricing regulation in Indonesia to combat the base erosion and profit shifting practice via non-arm’s length related party transactions. The Indonesian transfer pricing regulation is aligned and adopted many aspects from the international guidelines such as the OECD Transfer pricing Guidelines. For MNE group operating in Indonesia, ensuring full compliance with TPD requirements will be crucial to mitigate potential tax risks.