A Key to Avoiding Tax Disputes: Transfer Pricing Documentation and Compliance in Indonesia

Corporate Secretary Service Indonesia – Should your business have anything to do with transactions with related parties, transfer pricing documentation and compliance in Indonesia absolutely have to meet these criteria. Understanding this point will help your company comply with tax laws and avoid unnecessary tax disputes.

This article explains the basics of transfer pricing documentation and compliance in Indonesia, what it is supposed to record and who should be responsible, as well as how best to go about meeting all your obligations on paper.

Why Is Transfer Pricing Documentation and Compliance In Indonesia So Important?

The main purpose of transfer pricing documentation is to prove that your transactions with related parties meet tax regulations. Non-compliance can mean punitive tax inspections, and fines. That’s why this issue is so important:

• Avoiding Tax Disputes: Neglecting to provide proper documentation can lead tax disputes with the Directorate General of Taxes (DGT). This will often involve serious penalties.
• Tax Transparency: Good transfer pricing documentation brings transparency to your enterprise, ensuring that its financial operations are clear and abide by both local tax laws
• Cost Saving: Keeping proper books can help your company avoid higher tax payments because of discrepancies or errors in transfer pricing practices.

Types of Transfer Pricing Documentation

Under PMK 213/2016, the transfer pricing documentation system is divided into three primary components:

Master File (MF)

The Master File (MF) provides information about the overall business group. It must be retained for up to four months after the fiscal year ends. Key elements include:

• Ownership structure of the group
• Intangible assets owned
• Business activities and financial operations
• Consolidated financial statements

Example: Sales transactions between branches within the same country, such as goods, services, or licenses.

Local File (LF)

The Local File (LF) contains information specific to local taxpayers and must be prepared within four months after the fiscal year ends. Key elements include:

• Taxpayer identity and business activities
• Transactions between related and unrelated parties
• Financial information related to local operations
• Application of the arm’s length principle

Example: Profit allocation for intangible assets like technology or trademarks.

Read Also: Why Professional Tax Services for Companies in Indonesia Are Essential?

Country-by-Country Report (CbCR)

The CbCR provides details of the allocation of taxes, income, and business activities for each country within the group. It must be submitted within 12 months of the fiscal year-end. Key information includes:

• Profit or loss before tax
• Income taxes paid or withheld
• Registered capital and number of employees
• Tangible assets excluding cash

Example: Reporting of taxes paid by your company’s branch in Indonesia compared to other international branches.

Documentation Requirements

Master and Local Files

Both the Master and Local Files must be prepared and available within four months after the fiscal year ends. You must submit them to the DGT upon request. They are obliged to give details of the transaction in Indonesian, or if the big boss is game, any foreign language.

Country-by-Country Report (CbCR)

CbCR should be submitted within 12 months after the close of a fiscal year, and must be made based upon data available at that time of the year. CbCR submission receipt included as an enclosure to the Annual Corporate Income Tax Return.

Helpful Hints for Complying with Transfer Pricing Regulations in Indonesia

• Keep Accurate Documentation: Maintain accurate and timely records of all related-party transactions to avoid penalties.
• Review Transfer Pricing Policies: Regularly review your transfer pricing policies to ensure they conform with the arm’s length principle.
• Consult with Experts: Consult tax professionals or corporate advisors that are able to assist you in preparing documentation that is compliant.
• Timely Submission of Reports: All reports, including the Master File, Local File, and CbCR, must be submitted within the deadlines laid down.

Transfer pricing documentation and compliance in Indonesia is essential for businesses which deal with related parties. Not only does it posses a barrier to tax disputes for your company but also ensures that you stay within the realms of local tax law.

By timely preparing and submitting the necessary documents, your business could avoid penalties and keep its financial transactions transparent. Companies operating in Indonesia should understand and adhere to transfer pricing regulations. Maintain comprehensive and compliant transfer pricing documentation to guard your business from unnecessary legal and financial risks.

Portcorp is here as a solution for your business, also when you need transfer pricing documentation and compliance in Indonesia. Portcorp is your comprehensive corporate secretary service in Indonesia. Our company secretaries will track deadlines and file paperwork so your business keeps running smoothly. Contact us now on +6221-5020-8090 for your business succeed in the future!