Indonesia
1. TP legislation/guidelinesIncome Tax Law in particular Decision No. KEP-01/PJ.7/1993 and Circular No. SE.04/PJ.7/ 1993 of the Director General of Taxes (DGT) dated March 9, 1993 regulates TP. A new Income Tax Law implemented in January 2001 contains TP provisions in Article 18. Circular letters related to TP are SE-01/PJ.7/2003 dated April 1, 2003 (revised), SE-02/PJ.7/2005 dated March 31, 2005, SE-10/PJ.04/2008 dated December 31, 2008.
2. TP documentation required to be filed with tax return
No specific TP documents are required to be filed except for attachments related to special relationship transactions and list of investments in affiliated companies and receivables from/payables to shareholders and/or affiliated companies.
3. TP audits done by tax authority
Tax authorities can conduct special audits if there are indications of TP. These special audits will be done based on risk analysis on data and information filed.
4. Advance Pricing Arrangement
APA is available. DGT is authorized to make arrangements with taxpayers and work together with tax authorities of other countries to determine transaction prices between related parties, which are valid for 2 years, and monitor their implementation and renegotiate after this period expires. APA is not made retrospectively.
5. Mutual Agreement Procedures
MAP are available as explained in point 4.
6. Basis to recover intra-group service charges
Allocation of such charges is allowed as long as they are in proportion to the benefits gained and do not represent duplication of expenses. Head office expenses which are allowed to be allocated to subsidiaries do not include interest on funds used by head office, except for banking industry, and royalty/rent on head office assets
7. Cross border management fee charges
Such charges that are allowed are charges related to operations or permanent establishment activities which amounts are determined by the DGT. These charges are subject to withholding tax of 20% or applicable tax treaty rates.
8. Inter-company loans
DGT has the authority to classify such loans as capital paid up to prevent the possibility of payments of capital in disguise. The determination can be done based on indication of unusual ratio of capital to loan as compared capital to loan ratio in the case of arm’s length transactions. If this is the case, interest is not allowed to be deducted and will be treated as dividend in disguise. Withholding tax of 20%, or lower rates applicable under tax treaty provisions, is charged on interest payments made to non-residents. There is no thin capitalization rule.
9. Transfer pricing penalties
DGT has the authority to adjust related party transactions in the case of impropriety and/or taxpayers do not adhere to APA. In this case, DGT will recalculate the taxable amounts and/or taxable income already reported and paid, and determines the tax that should be due.
Updated: Aug 2011
This publication has been prepared for the purpose of quick information dissemination to our counterparts in other Countries. Its contents should not be used as a basis for advice or formulating decisions under any circumstances.
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