A Quick Glance at Indonesia’s Revised Transfer Pricing Regulation

03.02.2012 | Author: jackleen | Posted in Business and Industry
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A balance between the interests of multinational companies and the tax authorities amidst the continuing instability within the global economyhas become tremendously important. Transfer pricing is crucial in maintaining this balance. While it is a major tax issue for multinationals seeking to maximize tax efficiencies and limit double taxation, keeping up to speed with all of this change is a also challenge. With multinational corporations evolving into global enterprises, it is fast becoming a complicated and expensive task to comply with the differing landscape of legal precedents, regulations and local country nuances for transfer pricing issues. In intercompany transfer pricing every transaction needs to be analyzed under a different set of facts and circumstances.

Here’s a quick glance at the revised transfer pricing regulation in Indonesia

Indonesia’s revised transfer pricing (TP) regulation now differentiates between transactions with foreign and domestic related parties. The revised version is applied since November 11, 2011 and replaces the previous regulation that was issued on September 6, 2010.
The new regulation can be applied to a related party transaction for domestic related parties including permanent establishments to adjust differences in tax rates on final and non-final income tax among certain business sectors, sales tax on luxury goods and transactions with oil and gas companies that have contracts for production sharing. As an alternative to the hierarchy based model, the transfer pricing method is now based on the most appropriate method.

Arm’s length principle (ALP)

The Arm’s Length Principle is now being applied for a related party transaction whose value is more than IDR 10 billion.The use of incidental internal comparables which could be used only in an incidental related party transaction is now being recognized by the Directorate General of Taxation (DGT). The new regulation also lists more comparability factors for economic circumstances.Organizational structure should be considered while performing a functional analysis in supply chain management, toll/contract manufacturing and full fledge manufacturing.

The new regulation makes available additional details on the definition and the use of marketing and trade intangibles. Cost contribution arrangements between related parties have also been acknowledged by the new regulation.

In an international expansion, it is advantageous to have a trusted service provider can that can assist you in creating an appropriate tax and legal structure to optimize your new operating configuration. You can have unlimited assistance in aligning your tax profile and a good service provider would be focused on providing exceptional assistance in keeping you in tune with changing transfer pricing regulations, international accounting services, etc.

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