Transfer Pricing Aspect of Intragroup Services


Transfer Pricing (TP) is a hot topic in Indonesia since the tax authority often raises challenges pertaining to affiliate transactions during tax audit, or during their formal procedure in obtaining information from the taxpayer.  One of the tax authority’s focus is the aspect of intragroup services.

On many tax audit occasions, intragroup services are a topic that sparks dispute between taxpayers and the tax auditors. In addition to TP Documentation, taxpayers - including multinational companies - are advised to start documenting their intragroup services in anticipation of TP scrutiny in future tax audits. 


Prevailing regulations

Taxpayers can refer to the prevailing TP regulations (PER-43/2010 as lastly updated with PER-32/2011), which have adopted OECD TP Guidelines in determining arm’s length principles.  Article 14 of PER-32 provides the following pointers:

  • Arm’s length principles must be applied in transactions related to services between affiliate entities;
  • The arm's length principle is deemed to be satisfied if the service is actually provided and the transaction is conducted between related parties as if it were conducted between independent parties.

Evidence or documentation is required to show that related services were actually incurred. The arm's length discussion will not begin if the provision of the related service is still in question.


Key Challenges 

Profiling the service provider and the service recipient is essential in the documentation defending intercompany services to demonstrate that the service is necessary, actually performed, and of economic value to the recipient to maintain or improve their business position.

Without the aforementioned profiling, the taxpayer may have difficulties countering the tax authorities' challenges. If the tax authority has access to the service provider's website or other sources of information, it may claim that the service provider does not have sufficient staff or is unable to provide its services. In other cases, it may arbitrarily claim that redundancy exists because the service recipient is actually able to perform the task in-house.



The usual documentation of service performance and activity report is required to document the intercompany services for defense to the Internal Revenue Service. If available, it is best to provide reliable documentation of costs incurred by the service provider. An agreed-upon procedure regarding such costs can be performed by an independent firm, which adds weight to the defense documentation.

Rödl & Partner Indonesia's transfer pricing team can assist you with all transfer pricing issues to ensure lower risk.

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