Valuation and consulting for financial reporting, federal, state and local tax, investment and risk management purposes.Valuation Advisory
The Indonesian tax authority (“DGT”) issued DGT Regulation No. PER-02/PJ/2019 (“PER-02/2019”) concerning procedures for the Submission, Receipt and Processing of Tax Returns (“SPT”) which came into effect on January 23, 2019. According to a later redistributed version of PER-02/2019 clarifying certain inconsistencies between the requirements of various transfer pricing reporting regulations, it was reiterated that only the following would be required for submission with the annual tax return:
PER-02/2019 had earlier required transfer pricing documentation consisting of Master file, Local file and CbC report to be attached to the annual tax return (i.e. submitted to the DGT as part of the tax return), contradicting other existing regulations such as MOF Regulation No. PMK-213, which covers transfer pricing tax regulation specifically and is a superior level of regulation than PER-02/2019. While the clarification addressed the earlier inconsistency issues, the issuance of PER-02/2019 does indicate that the DGT will likely take a stricter approach to the timing of preparation of the transfer pricing documentation in future.
Some leeway was afforded to taxpayers for documentation for the financial year 2016 (FY2016) and 2017 (FY2017), but for financial year 2018 (FY2018) and future years, the DGT is likely to request for submission of transfer pricing reports earlier – possibly shortly after the due date for submission of the tax return (i.e. four months after the year-end). Such requests for submission of transfer pricing reports usually only provide a 14-day deadline for compliance. The risk is that if the transfer pricing documentation cannot be provided to the DGT in that timeframe, and hence was not actually “available” within four months of the year-end as required under PMK-213, then the DGT can conclude that no such documentation exists and can proceed to make transfer pricing adjustments based on their own analyses, which will inevitably be to the detriment of taxpayers.
Therefore, it is even more important now for taxpayers to comply with the tight deadlines for preparation of their annual transfer pricing documentation in accordance with the Indonesian regulations. The timelines and regulations are summarized below for reference.
Overview of Indonesia Transfer Pricing Documentation Relevant Requirements and Timelines
Under MOF Regulation No. PMK-213 and DGT Regulation No. PER-29, companies that meet certain criteria are to maintain three tiers of transfer pricing documentation:
Also, with effect from FY2016, any company will need to prepare transfer pricing documentation (Master and Local file) if it has related party transactions and:
The Master file and Local file must be prepared and available within four months of the end of the fiscal year, even if a time extension is obtained for the submission of the tax return for that year. For example, companies with a year-end of December 31, 2018 will need to have their transfer pricing reports prepared and “available” by April 30, 2019. The summary (ikhtisar) form confirming the content of the Master file and Local file as well as the date when the files are available, are to be submitted with the annual tax return. The taxpayer is also required to prepare/have a “Statement Letter” to be signed by the preparer of the Master file and/or Local file stating when the reports are “available.” This “Statement Letter” is to be attached to the Master file and Local file.
Furthermore, a domestic taxpayer who qualifies as the parent entity of a business group having consolidated gross revenue of IDR 11 trillion would be required to prepare and submit the CbC report and additional “working papers” in XML Schema Electronic Format.
PER-29 stipulates that the notification form and/or the CbC report as well as the “working papers” must be submitted to the DGT through DJP online, the DGT’s official website or manually to the tax office. This should be done no later than 12 months (for financial year ended 2017 and onward) after the fiscal year end of the taxpayer.