As global business structures become increasingly complex, tax authorities are intensifying their focus on transfer pricing. In Indonesia, Transfer Pricing Documentation (TP Doc) is a vital compliance tool for companies involved in related-party transactions.
This article will help you properly understand and manage TP doc to avoid penalties and ensure transparent tax reporting for your business.
TP Doc is a mandatory report used to determine transfer pricing prepared by taxpayers engaging in transactions with related parties. TP Doc helps prevent tax disputes by providing a transparent record of transfer pricing practices.
Maintaining a comprehensive TP Doc is not only a regulatory requirement but also a strategic tool to:
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Transfer Pricing Documentation (TP Doc) in Indonesia is regulated by both national laws and international standards to ensure fair pricing in transactions with related parties.
Here are the key regulations governing TP Doc:
Based on PMK 213/2016, TP Doc consists of three-tiered documents, such as:
The Master File provides a high-level overview of the multinational enterprise's global operations and transfer pricing policies. It includes:
Master files should be prepared within four months after the fiscal year-end and submitted upon request by the tax authorities.
The Local File contains detailed information on the local entity's intercompany transactions. It encompasses:
This file should be prepared within four months after the fiscal year-end and submitted upon request by the tax authorities.
The CbCR provides a breakdown of the multinational enterprise's global allocation of income, taxes paid, and specific indicators of economic activity. This includes:
Read more: Understanding the key of transfer pricing methods
CbCR must be submitted no later than 12 months after the end of the fiscal year.
| Business Type | Documents |
|---|---|
| Revenue > IDR 50 billion | Master File & Local File |
| Goods transactions > IDR 20 billion | Master File & Local File |
| Services/interest/intangibles > IDR 5 billion | Master File & Local File |
| Deals with low-tax jurisdictions | Master File & Local File |
| Group revenue ≥ IDR 11 trillion (parent company) | Master File, Local File & CbCR |
| Subsidiary with non-compliant parent | Master File, Local File & CbCR |
Not all companies in Indonesia need to prepare Transfer Pricing Documentation (TP Doc). The requirement depends on their income and the size of their related-party transactions.
Companies must prepare a Master File and Local File if they meet any of these conditions:
Different from the master file and local file, companies should prepare the CbCR if:
Indonesia follows five primary methods to determine fair prices in transactions between related parties, such as:
This method compares the price charged in a related-party transaction to a similar deal between independent parties.
Example: A company sells a product to its parent at the same price it charges outside customers.
It starts with the price of a product sold to an outside buyer and then subtracts a standard profit margin to find the right transfer price.
Example: A distributor buys from its parent and sells to customers. The profit margin is removed to set the transfer price.
The C+ method begins with the cost of making a product or service and adds a standard markup.
Example: A factory sells to its parent company. It calculates its cost, adds a markup, and that's the transfer price.
Used when both parties contribute significantly. It splits the total profit based on each party's role and contribution.
Example: Two companies co-develop a product and split the profit based on how much they each did.
This method looks at the net profit margin from a transaction and compares it to what similar independent companies earn.
Example: A service company charges its parent and verifies if its profit margin aligns with industry norms.
Creating accurate Transfer Pricing Documentation (TP Doc) is essential for compliance with Indonesian tax regulations. Here's the breakdown of the key steps to prepare TP Doc for your business:
Begin by identifying all transactions with related parties. These may include:
Choose the most suitable transfer pricing method based on the transaction type and available data.
Read more: Understanding the key of transfer pricing methods
Once the method is selected, compile the TP Documentation (Master File, Local File, and CbCR, where applicable). You also need to ensure these when preparing the documentation:
All TP Documentation must be prepared in Bahasa Indonesia. If the original documents are in a language other than English, a translation must be provided upon request by the tax authorities.
Regularly review and update the TP Documentation to reflect any changes in business operations or intercompany transactions.
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Navigating Indonesia's complex transfer pricing landscape requires expertise and a deep understanding of both local regulations and international standards.
Ascentium Indonesia offers comprehensive transfer pricing solutions to ensure compliance, minimize tax risks, and support your business's cross-border operations.
Why trust Ascentium Indonesia as your transfer pricing partner?