Overview of the transfer pricing documentation requirements in Indonesia

In Indonesia, transfer pricing compliance is regulated by the Directorate General of Taxes (DGT) under the Ministry of Finance (MoF). In accordance with Base Erosion Profit Shifting (BEPS) Action 13, Indonesia has adopted a three-tiered documentation, in which a proper transfer pricing documentation is supposed to comprise Master File, Local File and Country-by-Country Report (CbCR).

Transfer pricing documentation in Indonesia is governed by Regulation No. 213/PMK.03/2016 (PMK-213) issued by the Indonesian Ministry of Finance, which states that taxpayers that have met the threshold must prepare and maintain transfer pricing documentation that demonstrates the arm's length nature of their related party transactions.

Thresholds

A taxpayer is required to prepare Master File and Local File if:

The annual gross revenue in the previous fiscal year exceeded IDR 50 billion; or
The value of annual related-party transactions in the previous fiscal year exceeded:

- IDR 20 billion for transactions involving the transfer of tangible assets; or
- IDR 5 billion for each transaction involving services, interest payments, intangibles or other
transactions defined as high-risk transactions; or

The related party is based in a country or jurisdiction with a lower rate of Corporate Income Tax (CIT) than the rate applicable in Indonesia (22 percent).

Deadlines

Master File and Local File must be prepared within 4 months after the end of the fiscal year and be submitted within 14 days after receiving a Request Letter for Explanation on Data and/or Information (SP2DK), and within 30 days after being requested by tax authorities during a tax audit.

Taxpayers must also submit a Transfer Pricing Documentation (TPD) form to the tax authorities no later than the deadline for filing the tax return. The TPD form contains a summary of the transfer pricing documentation and must be filed with the taxpayer's annual Corporate Income Tax return.

CbCR reporting duties

In addition to the Master File and Local File, a CbCR and additional "working papers" are required from the parent entity of a group of companies if a domestic taxpayer qualifying as the parent entity of the group has a consolidated gross turnover of at least 11 trillion rupiah.

The regulation may apply to corporations in Indonesia with subsidiaries abroad, even if they are not the parent entity. Liable taxpayers have 12 months from the end of the fiscal year to file their CbCR. An Indonesian entity that is part of a group of companies not falling under the aforementioned categories is also required to file a CbCR reporting form within 12 months after the end of the fiscal year.

Conclusion

It is important for taxpayers in Indonesia to ensure that their related party transactions are conducted at arm's length and that they have proper transfer pricing documentation in place to demonstrate compliance with the regulations.

Failure to comply with Indonesia's transfer pricing regulations can result in significant tax liabilities and penalties.