Taxpayers conducting affiliated transactions are required to fulfill the transfer pricing documentation (TP Doc) requirements as stipulated in the Minister of Finance Regulation Number 172 of 2023 (PMK 172/2023). Enacted on December 29, 2023, this regulation categorizes TP Doc into three types: the master file, the local file, and the country-by-country report (CbCR).
The obligation to prepare the master file and local file is determined based on the gross turnover and the value of affiliated transactions in the preceding tax year. Taxpayers are obligated to prepare both documents if they meet at least one of four criteria.
First, the gross turnover in the preceding tax year exceeds IDR 50 billion. Second, the value of affiliated transactions involving the transfer of tangible goods exceeds IDR 20 billion. Third, the value of affiliated transactions involving services, interest payments, utilization of intangible assets, or other transactions exceeds IDR 5 billion. Fourth, the taxpayer conducts affiliated transactions with a party domiciled in a country or jurisdiction with a lower income tax rate than that of Indonesia.
Meanwhile, the obligation to prepare a CbCR has its own specific criteria. This obligation applies to the ultimate parent entity of a business group that has a consolidated gross turnover of at least IDR 11 trillion in the preceding tax year.
If the ultimate parent entity is domiciled abroad, the affiliated entity in Indonesia may be required to submit the CbCR locally (secondary local filing). This obligation applies if the group's consolidated gross turnover reaches the equivalent of EUR 750 million and the requirements for the exchange of information between Indonesia and the domicile country of the parent entity are not met. This condition can occur due to the absence of an automatic exchange of information mechanism or a failure in the exchange of information between tax authorities.
PMK 172/2023 also regulates the deadline for providing each type of document. The master file and local file must be available no later than four months after the end of the tax year. Meanwhile, the CbCR must be available no later than 12 months after the end of the tax year.
In addition to providing these documents, taxpayers must submit a summary of the master file and local file in their annual corporate income tax return (surat pemberitahuan/SPT) form. Within the Coretax administration system, the submission will follow the mechanism established by the Directorate General of Taxes (DGT).
The DGT oversees taxpayer compliance in fulfilling TP Doc obligations through tax audits. During this process, the DGT is authorized to request the TP Doc in both physical and digital formats. Taxpayers must submit the documents no later than one month from the date the request is delivered.
Documents that are not prepared or submitted in accordance with the provisions may be deemed as failing to meet the formal TP Doc requirements. This can result in the taxpayer being considered noncompliant with the arm's length principle. Consequently, the DGT can make tax corrections and impose administrative sanctions.
Also Read:
Transfer Pricing: 7 Affiliated Transactions at Risk of Tax Adjustment
Transfer Pricing: Applying the Arm’s Length Principle to Affiliated Transactions
Late Local File Preparation: Understanding the Risks and Next Steps
Writer: Yunianto Kurniawan | Editor: Thomas Rizal
