TRANSFER PRICING DOCUMENTATION REQUIREMENT FOR TAXPAYERS WITH

RELATED-PARTY TRANSACTIONS

PMK 213/PMK.03/2016 (SS/TXALERT/01/2017)

Timeline of Indonesian Transfer Pricing Regulations

Year Regulations

2008 Amended Indonesian Income Tax Law effective January 1, 2009 containing Transfer Pricing

(TP) provisions in Article 18

2009 PER 39 – Disclosure Forms for related party transactions added into Corporate Tax Return

2010 PER 43 – Implementing regulation for Arm’s Length Principle

PER 48 – Technical Guidance on Mutual Agreement Procedure (MAP)

PER 69 – Advance Pricing Agreement (APA)

2011 PER 32 – Amendment to PER 43

2012 S 479 – Guidance on submission of TP documentation

2013 PER 22 – Examination guidelines for related party transactions

SE 50 – Tax Audit guide on transfer pricing

2014 PMK 240 – MAP implementation regulation

2015 PMK 07 – APA implementation regulation

2016 PMK 213 – Guidance on types of additional documents and/or information

which are mandatory to be kept by Taxpayers who conduct transactions with related

parties, and its procedures

11 Establish methods to

collect and analyse data

on BEPS and actions to

address it

12 Require taxpayers to

disclose their aggressive

tax planning

arrangements

13 Re-examine transfer

pricing documentation

14 Make dispute

resolution mechanisms

more effective

15 Develop a multilateral

instrument to modify

bilateral tax treaties

8 Consider transfer

pricing for intangibles

9 Consider transfer

pricing for risks and

capital

10 Consider transfer

pricing for other high-

risk transactions

7 Preventing the

artificial avoidance of

PE status

6 Preventing treaty abuse

1 Addressing the tax

challenges of the digital

economy

2 Neutralising the

effects of hybrid

mismatch

arrangements

3 Designing effective

Controlled Foreign

Company (CFC) rules

4 Limiting base erosion

via interest deductions

and other financial

payments

5 Countering harmful

tax practices, taking

into account

transparency and

substance

OECD / G20 Base Erosion Profit Shifting (BEPS) 15

Action Plans

Implementation of BEPS Action 13 in Indonesia Through PMK 213/2016

PMK 213/2016 provides new guidance that stipulates the type of additional documents and/or information which is mandatory to be kept by Taxpayers who conduct transactions with related parties.

PMK-213, which has immediate effect from its stipulation date of December 30, 2016, has

made significant changes to: • Who needs to prepare transfer pricing documentation

• What comprises transfer pricing documentation

• When transfer pricing documentation needs to be prepared

PMK-213 does not revoke nor replace the current Transfer Pricing regulation issued by the Directorate General of Taxation under PER 32/PJ/2011 j.o PER 43/PJ/2010.

The issuance of PMK-213 marks the beginning of a new era for transparency in related party transaction disclosures and contemporaneous transfer pricing documents requirement in Indonesia.

Types of Transfer Pricing Documents Required

Master File

(Dokumen Induk)

Local File

(Dokumen Lokal)

CbCR

(Laporan per Negara)

Consisting of high level information concerning the MNE global operations and

transfer pricing policies.

Consisting of information on the taxpayer specific business

operations, financial information and affiliated transactions,

including the transfer pricing analysis of the covered affiliated

transactions.

Consisting of information of amount

of revenue, profits, income tax paid

& accrued, number of employees,

retained earnings & assets. Functions

performed & business activities by

each entity in a particular tax

jurisdiction must also be disclosed.

1. Who are required to prepare Master File (MF) & Local File (LF)?

No NOT REQUIRED to have TP doc

Yes

Required to have TP Doc

(MF & LF)

Covering all transactions with related

parties

Yes Affiliated

transactions of tangibles > Rp. 20B

No

Yes

No

Yes

Affiliated trx of service, interest, intangibles, or

others > Rp. 5B

No

Based

on

Pre

vio

us

Fis

cal Y

ear

Ongoin

g

Fis

cal Y

ear

Ongoin

g

Fis

cal Y

ear

No

MF

LF

Gross turnover > Rp. 50 Billion

Taxpayer has transactions

with affiliates?

Affiliated party resides in a country with tax rate < Art. 17 tax rate

NOT REQUIRED to have TP doc

GROSS TURNOVER:

is the income received from main business activities of the

Taxpayer, before any sales discounts and other reduction.

If during a Fiscal Year the taxpayer has < 12 months of operation, gross turn over is

calculated by annualizing the income received during that

year.

2. Who are required to prepare CbCR? (1)

Primary Filling Mechanism

Parent Entity of a

Business Group is Indonesian tax resident

Consolidated gross turn over of a FY is ≥ Rp. 11 T?

No

Yes

Has transactions with affiliates?

MF, LF, CbCR are REQUIRED

Yes

CbCR is NOT required

No

CbCR is REQUIRED

2. Who are required to prepare CbCR? (2)

Secondary Filing Mechanism

Indonesian Taxpayer is an affiliate of an MNE which Parent is a

foreign tax resident

The country where Parent Entity resides requires CbCR?

CbCR is REQUIRED

No

CbCR is NOT required

Parent country has exchange of information agreement for CbCR

with Indonesia?

No

No

Yes

CbCR can be obtained by Indonesian Tax Authority?

Yes

Yes

Requirement to Apply Arm’s Length Principle

Taxpayer having

related party transactions

Required to prepare TP Doc based on

PMK 213/PMK.03/2016

Not required to prepare TP Doc

based on PMK 213/PMK.03/2016

Taxpayer MUST apply Arm’s Length Principle in

transacting with related parties

1

2

CONCLUSION: Regardless whether a Taxpayer is required to prepare TP Doc, as long as the Taxpayer has related party transactions, the Arm’s Length Principle must be applied, and the Taxpayer may be asked to show that the transfer price is at Arm’s Length.

Example 1 (MF and LF Requirement):

PT Ancora Mining Indonesia is an Indonesian company that is a part of Ancora Mining International

business group, and performs related party transactions in a given fiscal year (Jan 1 to Dec 31).

2016 2017 2018

Tangible Assets transactions:

Affiliated 5.000.000.000 5.000.000.000 4.000.000.000

Non affiliated 70.000.000.000 40.000.000.000 45.000.000.000

Total Gross Revenue 75.000.000.000 45.000.000.000 49.000.000.000

Royalty Fee (paid to Parent company

based in Singapore)

0 0 7.500.000.000

2017 MF LF Must be available the

latest on April 30, 2018 Gross revenue 2016 > Rp. 50B

2018

LF Gross revenue 2017

< Rp. 50B, tangible assets transactions

with related party < Rp. 20B

2019 MF LF

Must be available the

latest on April 30, 2020 Gross revenue 2018

< Rp. 50B, but Royalty transaction

> Rp. 5B *Reference for 2016 is financial conditions of FY 2015.

MF

CbCR

Example 2 (CbCR Requirement):

PT. Global Sejahtera is an Indonesian company that fulfills the requirements of a

Parent Entity. As the Parent Entity, PT. Global Sejahtera reported the consolidated

gross revenue for the business group as follows:

2016 CbCR

Must be ready by December 31,

2017

2017

2018 Must be ready by December 31,

2019

Consolidated Gross

Revenue < Rp. 11 T

Consolidated Gross

Revenue > Rp. 11 T

CbCR

Year 2016 2017 2018

Consolidated Gross Revenue

12.000.000.000.000 10.000.000.000.000 13.000.000.000.000

Consolidated Gross

Revenue > Rp. 11 T

Master File

Maste

r F

ile

Information on the MNE Business Group, should cover at the minimum :

Organizational and ownership structure, and

countries or jurisdictions of each member

Business activities of group members

Intangibles owned

Intercompany financial & financing activities

Consolidated financial statement of the Parent

Entity and tax information pertaining to related

party transactions

Refer to Attachment C PMK 213/PMK.03/2016

Local File

Lo

cal

File

If having >1 business activity

with different category

Local file is segmented in accordance to

the categories of business activities

Information on the Taxpayer,

should cover at the minimum:

Business activities of the taxpayer

Information on related party transactions &

transactions with independent parties

Application of Arm’s Length Principle

Financial information

Non-financial events that have implication on

pricing or profit margin

Refer to Attachment D PMK 213/PMK.03/2016

CbCR

Cb

C-R

Provides information on:

• Allocation of revenue

• Tax paid

• Business activity per country or jurisdiction of all members of the Business Group, either in Indonesia or

abroad, which includes:

Country name / jurisdiction

Gross revenue

Profit before tax

Income tax with-held/collected/self-paid

Income tax payable

Share capital

Retained earnings

Number of permanent employees

Tangible assets other than cash & cash equivalents

List of members of the Business Group, and its

main business activity, per country or jurisdiction

Attachment E of PMK-213

CbCR Workingpaper

A

B

Attachment F of PMK-213

Information A

Attachment G of PMK-213

Information B

Information in CbCR is

used only for the

purpose of determining

the risk of BEPS

Requirements on Preparing and Documenting TP Doc

Ma

ste

r F

ile

Lo

cal

Fil

e

Cb

CR

Based on data &

information that is

available when

transaction is executed

Based on data &

information that is

available when

transaction is executed

Based on data &

information that is

available until the

end of Fiscal Year

Must be available the

latest within 12

months after end of

FY

If these requirements are not fulfilled, will be assumed as not applying the

Arm’s Length Principle

Must be attached with Statement Letter indicating the date when

the TP docs are completed, and must be signed by parties

preparing the TP docs.

Ex-Ante Ex-Ante

Contemporaneus Contemporaneus

Must be available the latest within 4 months

after end of FY

Must be available the latest within 4 months

after end of FY

Filing of TP Docs

Maste

r F

ile

Lo

cal

File

Cb

CR

Synopsis Attachment B

PMK 213/PMK.03/2016

As Attachment

for CITR

of the

corresponding

Fiscal Year

As

Attachment

for CITR

of the

following

Fiscal Year

Attachment E

Attachment F

Attachment G

PMK 213/PMK.03/2016

Documented by Taxpayer, and must be

provided to DGT if requested

Statement Letter

stating availability

of MF

Statement

Letter stating

availability of LF

2018

*Master/Local File must not be submitted along Tax Return, but must be submitted upon

DGT‘s request and attached with statement letter indicating when such documentation

was created.

2016 2017

April: Synopsis of Master/

Local File to be

submitted along with

FY 2016 Tax Return*

April: CbCR FY 2016 to

be submitted along

with FY 2017 Tax

Return

All transfer pricing documentation must be written in Bahasa Indonesia.

Documentation in foreign language and foreign currency is permitted by approval from

the Minister of Finance, but such documents must be accompanied with a translation in

Bahasa Indonesia.

Timeline & Language

Follows General Provisions and Tax Procedure Law, but specifies non-compliance

events as follows:

Non-Compliance Events Consequences

Article 3

Transfer Pricing documentation is not based on contemporaneous data and information .

Article 5

Non-compliance during monitoring, tax audit,

or preliminary/tax crime investigation.

Article 7

Failure to submit statement letter and/or CbC

report during tax return filing.

Artic le 3(3)

Deemed as not to have applied the

arm’s length principle.

Article 5(3)

In case of late submission, TP Doc cannot

be considered in the remaining course of

the ongoing procedure.

Article 5(4)

In case of failure of submission, deemed

as to have not prepared TP Doc.

Article 7(2) & (3) Tax return is considered incomplete.

Administrative Sanctions

APPENDIX

DETAILS OF MASTER FILE (1) Structure and ownership chart of MNE, and the country or jurisdiction of each MNE member:

1 List of shareholders and percentage of ownership, as well as list of Board of Directors & Commissioners of each MNE member;

2 Ownership chart of the MNE showing overall share ownership relation between the members;

3 Geographic location (country or jurisdiction) of each MNE member.

Business activities performed by MNE business group:

1 List of MNE members and the business activities performed by each member;

2 Important drivers of business profit for each MNE member;

3 A description and graphic/diagram of the supply chain for the MNE’s 5 largest products and/or service offerings, and any products or other services offered by the MNE that amounts to 5% or more of the MNE’s turnover;

4 A list and brief description of important service agreements between members of the MNE, including a description of the capabilities of the principal locations providing important services, and transfer pricing policies for allocating service costs and determining prices to be paid for intra-group services;

5 A description of the main geographic markets for the MNE’s products and services;

DETAILS OF MASTER FILE (2) 6 A brief written functional analysis of the MNE which covers function,

assets, and risks performed by the MNE, and discusses the contribution of value creation by individual entities within the group;

7 A description of important business restructuring transactions, acquisitions, and divestitures occurring within the past 5 (five) years.

Intangibles owned by MNE:

1 A general description of the MNE’s overall strategy for the development, ownership, and exploitation of intangibles, including location of principal R&D facilities and location of R&D management.

2 A list of intangibles or groups of intangibles of the MNE that are important for transfer pricing purposes, and which entities legally own them.

3 A list and brief description on the parties within MNE members that contribute to the development of intangibles;

4 A list of important agreements among members of the MNE related to intangibles, including cost contribution arrangements, principal research service agreements and license agreements.

5 A general description of the group’s transfer pricing policies related to R&D and intangibles.

DETAILS OF MASTER FILE (3) 6. A general description of any important transfers of interests in

intangibles among the MNE members during the fiscal year concerned, including the entities, countries, and compensation involved.

MNE’s intercompany financial activities:

1.

A general description of how the group is financed, including important financing arrangements with unrelated lenders;

2.

The identification and description of any members of the MNE that provide a central financing function for the group, including the country under whose laws the entity is organized and the place of effective management of such entities;

3. A general description of the MNE’s general transfer pricing policies related to financing arrangements between members.

Consolidated financial statements of the Parent Entity and tax information pertaining to related party transactions:

1. The MNE’s annual consolidated financial statement for the fiscal year concerned, both prepared for external and internal purposes;

2.

A list and brief description of the MNE group’s existing unilateral advance pricing agreements (APAs) and other tax rulings related to the allocation of income among countries.

DETAILS OF LOCAL FILE (1) Local entity identity and business activities:

1. A description of the management structure of the local entity, a local organization chart, and a description of the individuals (either residing locally or abroad) which are the related parties of the local entity, and the country(ies) in which such individuals maintain their principal offices;

2. A detailed description of the business and business strategy pursued by the local entity including an indication whether the local entity has been involved in or affected by business restructurings or intangibles transfers in the present or immediately past year, and an explanation of those aspects of such transactions affecting the local entity;

3. A detailed description of business environment, including key competitors.

Related party transactions & transactions with independent parties:

1. Transaction scheme and description;

2. Transfer pricing policy that has been implemented for the past 5 (five) years;

3. Description of each transaction and reasons why the transaction was executed;

4. Nominal amount of transaction that is detailed by type of transaction and transacting party;

DETAILS OF LOCAL FILE (2) 5. Information about transacting party for each type of transaction, and

description of relationship between Local Entity with each transacting party;

6. Information in a table format which at the minimum provides number & date of invoices, name of transacting party, country of transacting party, product name, product specification/quality, quantity, price per unit (using the smallest size / measurement base that is commonly used), and date of delivery, in the case where the Local Entity has related party transactions for products categorized as commodities;

7. Copies of agreements pertaining to transactions that have material nominal amount.

Application of Arm’s Length principle:

1. Detail description on comparability analysis for every related party transaction executed by the Local Entity, which includes analysis on product or service characteristics, functional analysis (function, asset, and risk), terms & conditions of contracts, business strategy, economic landscape, including multi-year comparability analysis on the changes occurring throughout the years being compared;

2. Detail description on the business characteristics of the Local Entity based on the result of functional analysis;

DETAILS OF LOCAL FILE (3) 3. Explanation on the transfer pricing methodologies selected for each

type of related party transaction, reasons why such methods are selected, and reasons why the selected methods are superior from other methods;

4. Explanation on enterprise selected as the tested party in applying the transfer pricing methodology, and the reasons for selections, and financial ratios and indicators used in the application of the transfer pricing methodologies if the Local Entity uses transfer pricing methods that are based on gross or net profit margin;

5. Summary of assumptions used in applying the transfer pricing methodology;

6. Explanation of the reasons for performing a multi-year analysis;

7. List and description of selected comparable uncontrolled transactions (internal or external), and detail explanation on criteria used in searching for comparables, and the source of such information;

8. A summary of financial information used in applying the transfer pricing methodology, including segmented financial statements if the Local Entity has more than 1 (one) business characteristic;

DETAILS OF LOCAL FILE (4) 9. Explanation on application of transfer pricing methodology based on

selected comparable, price or profit range used, and reference point within the price or profit range that is used as the basis for determining transfer price;

10. Description of any comparability adjustments performed, and an indication of whether adjustments have been made to the results of the tested party, the comparable uncontrolled transactions, or both;

11. Conclusion on whether the transfer price has or has not been in-line with the Arm’s Length Principle;

12. Copy of existing Advance Pricing Agreement (APA) owned by any members of the MNE, and other tax rulings pertaining to the Local Entity’s related party transactions.

Financial Information

1. Annual local entity financial accounts for the fiscal year concerned. If audited statements exist they should be supplied and if not, existing unaudited statements should be supplied;

2. Segmented financial statements based on business categories, if the Local Entity has more than 1 (one) business categories;

3. Information showing how the financial data used in applying the transfer pricing method may be tied to the annual financial statements;

DETAILS OF LOCAL FILE (5) 4.

Summary schedules of relevant financial data for comparables used in the analysis and the sources from which that data was obtained.

Others

Information on nonfinancial events / facts that influence the transfer price.

Synopsis of MF & LF – Attachment B of PMK-213

CbCR Working Paper – Attachment E of PMK-213

CbCR Information A – Attachment F of PMK-213

CbCR Information B – Attachment G of PMK-213

CbCR Information B – Attachment G of PMK-213 (continued)

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TAX ALERT SS/TXALERT/01/2017 March 1, 2017

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