Indonesia revises tax rules on transfer pricing

JAKARTA • Indonesia has revised tax rules for transfer pricing documentation to match global standards and curb practices of tax avoidance, an official with the tax office said yesterday.

A finance minister's decree signed last year but made available to the public only last week called for firms doing cross-border transactions with affiliates to prepare transfer pricing documents detailing global structure and payments.

"This is so that taxpayers can explain to the tax office that its special transaction with an affiliate is still within fair boundaries," said Mr John Hutagaol, head of the international department at the finance ministry's tax office.

The decree rules that a multinational group with an annual consolidated turnover of not less than 11 trillion rupiah (S$1.2 billion) must prepare a country-by-country report, on top of some files on local businesses, with details on how much tax the group pays in each country of operation, what kind of business it does, its turnover, balance sheets and global structure.

The group must also prepare a master file and a local file, which should include its Indonesian company's structure, business activity, assets and other financial files.

The documents can be kept by the firm, but must be made available to the authorities upon request, Mr Hutagaol said.

He said hundreds of companies operating in Indonesia will be affected by the rules, which took effect at the beginning of the year.

The country-by-country documentation of transfer pricing is endorsed by the Organisation for Economic Co-operation and Development (OECD), as part of plans to combat practices of base erosion and profit shifting.

As of Dec 7, the OECD said 50 countries, including emerging markets like Brazil, China, India and South Africa, signed agreements on exchange of such reports.

Indonesia is offering a tax amnesty programme to settle previous tax avoidance in exchange for some penalties. The programme ends in March.


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A version of this article appeared in the print edition of The Straits Times on January 10, 2017, with the headline Indonesia revises tax rules on transfer pricing. Subscribe