Applicable Provisions Regarding Transfer Pricing Procedures

1. Affiliated enterprises is a special relationship as regulated in Article 18 Paragraph (4) of the Income Tax Law or Article 2 paragraph (2) of the Law on Value Added Tax and Sales of Luxury Goods.
2. Transfer Pricing is the determination of prices in transactions with affiliated parties.
3. Arm’s Length Principle is a principle that stipulates in the event that the conditions in transactions between affiliated parties are the same or comparable to the conditions in a transaction conducted between independent parties.
4. Transfer Pricing Document is documents produced by the Taxpayer as the basis for the application of the Arm’s Length Principles.
5. Business Group is a collection of tax subjects who carry out business activities consisting of parties who have affiliated relationships.
6. Parent Entity is a member of a Business Group that meets the following criteria:

• control directly or indirectly one or more other members in the Business Group; and
• has an obligation to prepare consolidated financial statements based on financial accounting standards applicable in Indonesia and/or based on provisions binding on issuers of stock exchanges in Indonesia.

In accordance with Article 1 Paragraph (6) of Minister of Finance Regulation Number 213 of 2016, transfer pricing document consists of:

1. Master Document (master file), is a document that contains information about the business group and at least contains the following:

• The structure and chart of the ownership of the business group and the country or jurisdiction of each member of the business group.
• Business activities carried out by the business group
• Intangible assets owned by the business group
• Financial and financing activities in the business group
• Consolidated financial statements of the parent entity and tax information related to affiliated transactions

2. Local Documents (local files), at least contain information about:

• Identity and business activities carried out by the Taxpayer.
• Information on affiliated transactions and independent transactions conducted by taxpayers.
• Application of the Arm’s Length Principle
• Financial information
• Non-financial events/events/facts affecting the formation of prices or profit levels.

3. Country-by-country reports (CbCR) must contain the following information:

• allocation of income, taxes paid, and business activities per country or jurisdiction of all members of a Business Group both domestic and abroad, which includes the name of the country or jurisdiction, gross turnover, profit (loss) before tax, Income Tax that has been deducted/ self-collected/paid, income tax payable, capital, accumulated retained earnings, number of permanent employees, and tangible assets other than cash and cash equivalents; and
• list of Business Group members and main business activities per country or jurisdiction.

Taxpayers who are obliged to produce TP Documentation are as follows:

1. Taxpayers who are obliged to produce master file and local file document:

• Taxpayers whose amount of net sales from previous fiscal year in one fiscal year is more than Rp50.000.000.000,00 (fifty billion rupiah);
• Taxpayers whose amount of affiliated transaction from previous fiscal year in one fiscal year:

• more than Rp20.000.000.000,00 (two billion rupiah) for tangibles transaction; or
• more than Rp 5.000.000.000 (five billion rupiah) for each service provision, interest payment, intangibles exploitation; or

• Taxpayers who have affiliated parties in countries or jurisdictions with income tax rate lower than income tax rate as stipulated in article 17 of income tax law.

2. Taxpayers who have obligation to produce master file, local file, and country by country report are as follows:

• Parent company of a group that earn more than Rp 11.000.000.000.000 (11 trillion rupiah);
• In the condition where a domestic taxpayer is a member of a holding of which the parent company is foreign taxpayer, the said domestic taxpayer shall submit country by country report insofar the domicile country or jurisdiction of the abovementioned foreign taxpayer:

• Does not require the foreign taxpayer to submit country by country report;
• Does not have a tax agreement with Indonesia; or
• Has agreement with Indonesia regarding the exchange of information, but the country by country report cannot be obtained by Indonesia from the domicile of the foreign taxpayer country or jurisdiction.

Exceptions for Taxpayers Who Are Required to Produce TP Doc

It is not mandatory to produce TP Doc for taxpayers who have affiliated transactions but are not included in the categories as mentioned. However, these taxpayers still have the obligation to apply arm’s length principle on affiliated transactions as regulated by laws.

1. Not attaching master file & local file overview (attachment B):

• In accordance with the provisions of Article 3 (7) of Law on General Provisions and Tax Procedures. Tax Return which is categorized as incomplete is subject to a fine of Article 7 paragraph (1) with a fine of Rp. 1.000.000,-
• After being reprimanded in writing and if not completed, a tax audit may be carried out. The results of the audits are issued on Notice of Tax Underpayment Assessment (SKPKB).

2. Not attaching CbC Report (Appendix E, F G).

• In accordance with the provisions of Article 3 (7) of Law on General Provisions and Tax Procedures. Tax Return which is categorized as incomplete is subject to a fine of Article 7 paragraph (1) with a fine of Rp. 1.000.000,-
• After being reprimanded in writing and not completed, a tax audit may be carried out. The results of the audits are issued on Notice of Tax Underpayment Assessment (SKPKB).

3. TP Doc requested by DGT, but submitted by Taxpayer beyond the time period.

• Not considered as TP Doc. The submitted TP Doc is considered solely as data.
• Testing on Arm’s Length Principle may be carried out by DGT, without considering TP Doc submitted..
• Issuance of Notice of Tax Underpayment Assessment (SKPKB).

4. TP Doc requested by DGT, but not submitted by Taxpayer

• Taxpayers are considered not fulfilling the obligation to produce TP Doc
• Testing on Arm’s Length Principle may be carried out by DGT, without considering TP Doc submitted.
• Issuance of Notice of Tax Underpayment Assessment (SKPKB).

5. Do not use the data and information available at the time of the transaction (for material files & local files);

• Taxpayers are considered not to apply the Arm's Length Principle.
• Testing on Arm’s Length Principle may be carried out by DGT, without considering TP Doc submitted.

Issuance of Notice of Tax Underpayment Assessment (SKPKB).

1. Transfer Pricing Documents must be made by the Taxpayer in Indonesian language. In the event that the Taxpayer has obtained a permit from the Minister of Finance to maintain bookkeeping in a foreign language, TP Doc must be accompanied by its translation in Indonesian. For taxpayers who are permitted to use currencies other than rupiah, the exchange rate used is the tax rate determined by the Minister of Finance for tax calculation at the end of the tax year.
2. Gross turnover is the gross amount of income received or earned in connection with the work, business or main activity of the Taxpayer deducted by discounts, rebates and other deductions.
3. In the event that a Taxpayer has more than one business activities with different business characteristics, local documents must be presented in a segmented manner according to the characterization of the business they have.
4. Master Documents and Local Documents must be produced based on data and information available at the time the Affiliated Transaction is made.
5. Master Documents and Local Documents must be produced based on available data and information until the end of the Fiscal Year.
6. Master Documents and Local Documents must be available no later than 4 (four) months after the end of the Fiscal Year.
7. Master Document and Local Document must be accompanied by a statement letter regarding the availability of the Transfer Pricing Document signed by the party providing the Transfer Pricing Document.
8. Master Documents and Local Documents must be summarized. The summary must be submitted as an attachment to the Annual Corporate Income Tax Return for the relevant Fiscal Year. For country-by-country reports for the 2016 Fiscal Year onwards, it must be submitted as an attachment to the Annual Corporate Income Tax Return for the following Fiscal Year.