MoF Regulation No. 213/PMK.03/2016 dated 30 December 2016
The New Regulation on
Transfer Pricing Documentation
AN OVERVIEW OF PMK-213
The Indonesian Ministry of Finance has recently issued a new regulation No. 213/PMK.03/2016 (“PMK-213”) on 30 December 2016, which requires Taxpayers to prepare transfer pricing documentation (“TP Doc”).
TYPES OF TP DOCS
PMK-213 classifies TP Doc into three types:
- Master File
Master File consists of Information concerning the overall group entities including information on the group structure and ownership chart, operational aspects of business activities, related- party consolidated business report and tax information of affiliated transactions, assets intangible as well as financial activities and funding. - Local File
Local File consists of information on the domestic Taxpayers and detail information on their related party transactions, Taxpayer specific business operations, applying arm’s length principle and ordinary practice business as well as financial information and affiliated transactions, including the transfer pricing. - Country by Country Report (“CbCR”)
CbCR consists of the financial and tax information of the group entities in the respective countries/jurisdictions. The report requires group entities to report information on its affiliated parties, including amount of revenue, profits, income tax paid and accrued, employees, retained earnings and assets. In addition, information regarding functions performed and business activities by each entity in a particular tax jurisdiction must also be disclosed.
WHICH TAXPAYER IS ELIGIBLE?
- a two-tiered TP Doc (Master File and Local File)
Taxpayers who conduct affiliated transactions with the following criteria must prepare a two- tiered TP Doc:
• Taxpayers with a gross revenue in previous Fiscal Year more than IDR 50,000,000,000 (fifty billion rupiah); or
• Taxpayers with an accumulated affiliated transactions in previous Fiscal Year amounting to more than IDR 20,000,000,000 (twenty billion rupiah) for tangible assets transaction or more than IDR 5,000,000,000 (five billion rupiah) for intangible assets transaction, services, interest payments or other affiliated transactions; or
• If there are transactions conducted with affiliated companies that are tax resident in a jurisdiction with a lower statutory tax rate than Indonesia which is 25%. - a three-tiered TP Doc (Master file, Local File and CbCR)
Taxpayers who conduct affiliated transactions with the following criteria must prepare a three- tiered TP Doc:
• Taxpayers that are parent entity of a group of entities with a consolidated gross revenue in one tax year of at least IDR 11,000,000,000,000 (eleven trillion rupiah); or
• Taxpayers that are subsidiaries of one or more parent entities that are tax resident in a jurisdiction which does not obligate CbCR, or does not have an exchange of information agreement with Indonesia but a CbCR cannot be obtained by Indonesia from such jurisdiction. - Ineligible Taxpayer
Taxpayers who do not meet those criteria to prepare TP Docs are still required to apply for arm’s length principle and ordinary practice business in its affiliated transactions in conformity with the prevailing tax regulation
DOCUMENTATION DEADLINE
PMK-213 requires the documentation of Master File and Local File to be made within 4 months after the end of the Tax Year while CbCR should be ready within 12 months after the end of the Tax Year commencing from 2016 and submitted on 31 December 2016. CbCR must be filed along the tax return of the subsequent Tax Year.
The table below is summary of the deadline of Transfer Pricing Documentation Reporting at the latest:
Example:
Indonesian company, PT ABC is part of the business group ABC Ltd that conducts affiliation transaction with the fiscal year starting from 1 January to 31 December.
From the financial statements of PT ABC, it can be inferred that:
Based on the above information, the obligation of PT ABC to prepare the TP Doc is as follows:
Fiscal Year 2017:
As the total gross revenue in Tax Year 2016 is more than IDR 50.000.000.000,00 (fifty billion rupiah), PT ABC is required to prepare Master File and Local File for Tax Year 2017 and pricing documentation such transfer shall be provided no later than 30 April 2018.
Fiscal Year 2018:
As the value of gross revenue in the taxable year 2017 is no more than IDR 50.000.000.000,00 (fifty billion rupiah) and there are no tangible goods affiliation transactions exceeding IDR 20.000.000.000,00 (twenty billion rupiah), PT ABC is not required to prepare the transfer pricing documentation for Tax Year 2018.
Fiscal Year 2019:
Although total gross revenue in Tax Year 2018 is no more than IDR 50.000.000.000,00 (fifty billion rupiah), there are still affiliation Transactions in the form of royalty payments with a value of more than IDR 5,000,000,000.00 (five billion rupiah), PT ABC still must prepare the master file and local file for tax year 2019 and TP Doc must be provided no later than 30 April 2020.
Example:
PT DEF is a multinational company that was established in Indonesia on 1 October 2016, has affiliated transaction and the Company’s Fiscal Year is from 1 January to 31 December.
PT DEF report on the amount of gross income for the Tax Year for October and December 2016 amounting to IDR 20,000,000,000.
In accordance with reporting and the transaction mentioned above, the calculation of gross to determine to create TP Docs are:
- 3 months gross revenue of IDR 20,000,000,000
- Annualized gross revenue of IDR 20,000,000,000 x 12/3 = IDR 80,000,000
PT DEF is required to prepare Master File and Local File for the Tax Year 2017 because the total gross revenue for tax year 2016 is more than IDR 50,000,000,000. The documents must be provided no later than 30 April 2018.
Example 3
PT XYZ is an Indonesian company that has a Business Group and reported consolidated gross turnover for the Business Group as follows:
a. Tax Year 2016 amounting IDR 11,000,000,000,000.
b. Tax Year 2017 amounting IDR 9,000,000,000,000.
c. Tax Year 2018 amounting IDR 12,000,000,000,000.
Based on the above information, XYZ is required to prepare TP Docs only for Fiscal Year 2016 and Fiscal Year 2018. This is due to the consolidated gross turnover for the business group in the Tax Year 2017 was not reached IDR 11,000,000,000,000.
To report Fiscal Year 2016 TP Doc must be provided no later than 31 December 2017 and must be submitted as an attachment of the Annual Corporate Income Tax Return for Fiscal Year 2017.
To report Fiscal Year 2018 TP Doc must be provided no later than 31 December 2019 and must be submitted as an attachment to the Annual Tax Corporate Income Tax for Fiscal Year 2019.
ACCEPTABLE LANGUAGES
The regulation requires that all TP Docs must be prepared in Bahasa Indonesia. TP Doc in foreign language and other currencies other than Rupiah is permitted should the Taxpayers has obtained the approval from the Minister of Finance (MoF) in maintaining its accounting records in foreign language and other currencies other than Rupiah and the documents must be accompanied with a translation in Bahasa Indonesia.
FAILURE TO COMPLY
These following conditions result in failure to comply PMK-213:
- TP Docs (Master File and Local File) that are not based on Ex Ante and Contemporaneous availability data and information causes the Taxpayers are deemed to not apply the arm’s length principle;
- The taxpayers that do not attach in its Annual Corporate Tax Return the summary of Master File, Local File and CbCR are deemed to have not submitted the Income Tax Return;
- Late submission of TP Doc when requested by DGT during monitoring, audit, preliminary tax crime investigation, or tax crime investigation is not considered as TP Doc (TP Doc is deemed as Data), while if the Taxpayers are not submitted at all when requested by DGT, the Taxpayers are deemed to not comply the TP Docs;
OTHER ISSUES
Following the recommendation of BEPS (Base Erosion and Profit Shifting) Action Plan 13 concerning TP Doc and CbCR, the threshold of amount Affiliated transaction stated in PMK-213 is minimum of IDR 11 trillion or equivalent to 750 million Euros. However, the Government still needs to review the PMK-213 because there are still obscurities that need to be clarified.
Firstly, there are discrepancies between the PMK-213 and DGT Regulation No. PER-43/PJ/ 2010 (“DGTR-43”), as lastly amended by the DGT Regulation No. PER-32/PJ/ 2011 (“DGTR-32”). In DGTR-32, the Taxpayers conducting transaction with its affiliated company with a value of not more than 10 billion in a Tax Year, do not need to apply TP Doc. Meanwhile, in the PMK-213 there are several criteria that require Tax Payer to prepare TP Doc as the basis for the application of the arm’s length principle. Furthermore, in PMK-213, liability coverage of preparing TP Doc was not confirmed by cross border whereas the regulation includes domestic transactions, whereas in DGT Regulation, the Government limits the liability determination TP
covers only transactions made domestic Taxpayer or a permanent establishment in Indonesia with Offshore Taxpayer. There needs to be in anticipated of increased cost of compliance and the availability of comparable data. TP Doc obligations for domestic transactions (without a safe harbor) in the form of a distinction Taxpayer or low risk sector will raise the cost and lead to injustice for obedient Taxpayer.
Secondly, the availability of data with the deadlines is very tight. At the same time, the provisions regarding the availability of the Master File and Local File no later than four months after the end of the Tax Year is also rather tough because of the financial statements of the audit result has not been completed and comparative data usually has not been available.
Thirdly, the consideration of ex post evidence should be based on a determination that such evidence is necessary to be taken into account to assess the reliability of the information on which ex ante pricing has been based. Where the tax administration is able to confirm the reliability of the information on which ex ante pricing has been based, then adjustments based on ex post information should not be made.
In evaluating ex ante pricing arrangements, the tax administration is entitled to use the ex post evidence about financial outcomes to inform the determination of the arm’s length pricing arrangements, including any contingent pricing arrangements that would have been made between independent parties at the time of the transaction. Based on the above explanation, the policy to determine ex ante pricing arrangements is perceived unfair and difficult for the taxpayer to obtain comparable data in the beginning unless the tax authorities can provide comparative data on a timely basis or can allow using comparative data from the previous year.
However, to answer all the problems above, we wait for the development of TP Doc through the issuance of DGT regulation as a technical guidance of PMK-213 and will be published in the short time.
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