Indonesia Issues New Transfer Pricing Regulation
The Minister of Finance (MoF) has issued a regulation regarding the implementation of the arm's length principle in related party transactions.
The regulation provides guidance on the application of the arm's length principle, transfer pricing documentation requirements, corresponding adjustments, advance pricing agreements and mutual agreement procedures.
MoF Regulation No.172 Year 2023 regarding the Implementation of Arm's Length Principle in Related Party Transactions (PMK-172) came into effect on 29 December 2023 and revoked the following:
- MoF Regulation No. 213/PMK.03/2016 regarding transfer pricing documentation;
- MoF Regulation No. 49/PMK.03/2019 regarding procedures for implementing mutual agreement; and
- MoF Regulation No. 22/PMK.03/2020 regarding the guidelines for implementation of advance pricing agreements.
The contents of the revoked regulations above are consolidated into PMK-172. Some of the key updates made in PMK-172 are as follows:
- the requirement to conduct preliminary stage analyses for specific related party transactions including for other financial transactions;
- the obligation of taxpayers to provide transfer pricing documentation within 1 month upon request by the Directorate General of Taxes (DGT), during a tax audit and compliance monitoring processes in addition;
- guidance on the process for requesting corresponding adjustments in relation to transfer pricing adjustments for transactions between domestic taxpayers;
- DGT's obligation to issue a written notification letter within 1 month to mutual agreement procedure or advance pricing agreement applicants, to notify whether the application can proceed or not. Otherwise, the application is deemed approved to proceed and the DGT must issue a notification of approval to the taxpayer; and
- additional conditions for taxpayers applying for advance pricing agreement and removal of sanctions related to advance pricing agreement implementation.