Transfer Pricing In Indonesia
Indonesia was one of the earliest countries in Asia to focus on transfer pricing. Indonesia first required enterprises to reflect transfer pricing in 1993, then issued transfer pricing rulings in 2001, and later issued a transfer pricing taxation reporting form in 2009.
Indonesia’s Foreign Investment Law requires foreign owners to utilize a Perseroan Terbates (PT) company. The PT is subject to transfer pricing audits, but domestic Indonesian companies also can be subject to transfer pricing audits. Indonesia authorizes the cost plus method as an alternative transfer pricing method, but in fact Indonesia favors the cost plus method.
The taxpayer is to ascertain the normal markup from products sold by the taxpayer to unrelated third parties e.g., in-house comparables, and from products sold by one independent party to another independent party e.g., external comparables. Indonesia also takes into account commission structures and gross revenue percentages for a similar business.
Special transfer pricing factors apply in Indonesia. The taxpayer in Indonesia must allocate overhead costs in determining costs. In contrast, other countries seeking to apply transfer pricing considerations fail to address the specifics of the cost allocation issues. Thus, for example, the taxpayer in Indonesia must reflect direct labor and direct materials in determining costs, but other countries, for the most part, fail to address the treatment of direct and indirect costs. Businesses are to reflect data in domestic Indonesian Rupiah and/or United States dollars.
Indonesia has issued a mandatory form to taxpayers as a special attachment. The broad categories are the following:
- The company’s description in detail
- Comparative analysis
- The determination of fair price