Indonesia Revises Transfer Pricing Regulation

(Sunnyvale, CA) – 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.

The transfer pricing method is now based on the most appropriate method, instead of the hierarchy based model.

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.

Please call /email to learn more on how to calculate tax adjustments based on Indonesia’s transfer pricing regulations.

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Published: January 12, 2012. The information provided on this page is intended merely to highlight issues for general information purposes only. It is not comprehensive nor does it provide legal advice. Any information is subject to change without notice. No liability whatsoever is accepted by Nair & Co.