Tax & Accounting Blog

Indonesia Implements Three-Tiered Transfer Pricing Documentation Requirements

BEPS, Blog, Checkpoint, ONESOURCE, Transfer Pricing January 19, 2017

On December 30, 2016, the Indonesian Minister of Finance published PMK213/ PMK.03 / 2016, which provides details on the three-tiered transfer pricing documentation requirements (master file, local file and country-by-country (CbC) report) for related party transactions in accordance with BEPS Action 13.

The master file must include the following information about the group:

  • Ownership structure and charts, including each group member’s state/ jurisdiction.
  • Business activities.
  • Intangible assets.
  • Financial activities and financing.
  • Consolidated financial statements.

The local file must include the following:

  • Identification of entities and business activities.
  • Details of affiliated transactions.
  • Application of the arm’s length principle.
  • Financial information.
  • Non-financial events and facts that affect prices or profits.

Indonesian taxpayers are required to prepare a master and local file if any of the following conditions are met:

  • Conducts related party transactions (in the relevant fiscal year) and has gross income in the prior tax year of more than IDR50 billion.
  • Conducted related party transactions in the prior fiscal year with a value of:
    • More than IDR20 billion for transactions of goods or more than IDR5 billion for provision of services, interest payments, utilization of goods or other affiliated transactions.
  • Conducts transactions with related parties that are located in countries or jurisdictions with income tax rates lower than the Indonesian corporate income tax rate (25%). See Article 17 of the Income Tax Law.

Master and local file documentation must be provided no later than four months after the end of the tax year.

The CbC report must include the allocation of income, taxes paid and business activities per country or jurisdiction from all businesses, domestic and foreign, including the following:

  • Name of the country or jurisdiction, gross income, net income (loss) before tax, income tax paid, capital, accumulated retained earnings, number of permanent employees, and tangible assets other than cash and cash equivalents.
  • Group member list and main business activities per country or jurisdiction.

The taxpayer who is the parent entity of a group, which has consolidated gross income in the relevant taxable year of at least IDR11 trillion, is required to maintain the master file, local file and CbC report. Domestic taxpayers of the group that are domiciled in Indonesia must submit a CbC report if one of the following apply with respect to a country/jurisdiction where the parent entity is domiciled:

  • Submission of a CbC report is not required.
  • No agreement with the Indonesian government on the exchange of tax information.
  • Has an agreement with the Indonesian government on the exchange of tax information, but the report could not be obtained by Indonesia.

The CbC report shall be provided no later than twelve months after the end of the tax year. The report for the 2016 tax year and later years must be submitted as an attachment to the annual corporate income tax return for the following tax year.

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