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          DDTC’s to International Journals

          Indonesia: New Guidance for Transfer Pricing Audit Procedures
          Cindy Kikhonia Febby, S.Sos., DANNY DARUSSALAM Tax Center.

              he new guidance which came    special transaction such as transfer
              into force from July 1, 2013   pricing for intra group services, transfer
         Tprovides more clarity to the      pricing for intangible and interest
          Indonesian taxpayer on transfer pricing   payment.
          audit process as well as additional   PER-22 specifically states several
          information that taxpayers should keep   points that Indonesian taxpayers should
          ready when preparing and entering into   consider, these points are as follows:
          transfer pricing audit. However, certain     -  Detailed  additional  information
          information such as those relating   that will be required to be provided
          to supply chain management can be    during a transfer pricing audit;
          FKDOOHQJLQJ  DV WKH WD[SD\HU PD\ ÀQG LW     -  Providing  the  information  on
          GLIÀFXOW WR JHW GHWDLOV RQ EURDGHU JURXS   the supply chain relevant to
          information.                         the taxpayer’s business and the
                                               profitability of each of the entities
            On May 30th, 2013, Indonesia’s     (including foreign related parties)
          Director General of Taxes (DGT)      participating in the supply chain;
          commenced new Guidelines for Audits     -  Shorter  timelines  to  provide
          of Taxpayers with Special Relationships   information on audit assesment (7
          which  cover  in   PER-22/PJ/2013    days);                             This new regulation provides more
          (hereinafter: PER-22). PER-22 replaces     -  The use of profit split method;  detailed  guidance  for  Indonesian
          the previous guidance commenced by     -  Increased  focus  on  thin  taxpayers on the transfer pricing
          the DGT in 1993 with respect to transfer   capitalization  (debt  to  equity  audit process as well as additional
          pricing audits (Decree of the Directorate   ratios);                 requirements that taxpayers need to
          General of Taxes number KEP-01/      -  Use of segmented financial data;   consider when preparing for and entering
          PJ.07/1993).The implementation date for   and                        into a transfer pricing audit. However, the
          this new regulation is July 1st, 2013.    -  The use of additional financial   form relating to supply chain management
            PER-22 is divided into four chapters   ratios (profit level indicators).  can be challenging for taxpayers. In this
          i.e. first chapter, provides guidance                                form, taxpayers are required to identify
          in respect of the international trading   PER-22 requires six forms to be   the value chain for their business, the
          situation of multinational companies   completed by taxpayers and provided to   name of companies (whether located
          and how the affiliated transaction will   the Tax Auditor during an audit. These   in Indonesia or overseas) that perform
          be audited. The second part of this   forms will be required to be provided   each of the functions identified in the
          guidance provides that the phase of   by taxpayers within seven working days   value chain and the net operating profit
          transfer pricing assessment is divided   from the date of request by the auditor.   of each of the companies performing
          into two stages i.e the preparation stage   The six forms are address:  the functions. Indonesian taxpayers
          and the implementation stage.                                             may have difficulty in completing
          This section clearly elucidate the   No  Form       Information Required  this form due to their inability to
          implementation stages with the   1  Transactions  with  Requires the details of related   access broader group information.
                                          related parties
                                                        party transaction which comprises
          detailed explanation concerning               information relating to transacting   Further the information on supply
                                                        parties, amount, and method used
          characterization of the taxpayer              (similar with Form 3A disclosure).  chain may also be used by the tax
          transaction,  selecting  transfer                                         authorities to evaluate whether
          pricing method, and how to apply   2  Segmented  Requires the segmented financial   profit split method can be applied
                                                        data of the taxpayer.
          the arm’s length principle.  The   statements                             in the case of the taxpayer.
          third chapter of PER-22 outlined   3  Supply  chain  Requires to identifying the supply   Although PER-22 has begun
          the five transfer pricing method   management   chain for taxpayer business.  to provide better guidance for
          (Comparable Uncontrolled Price,   4  analysis  assets  This form contains the detailed   Indonesian taxpayers, but it is still
          Resale Price Method, Cost Plus   and risks analysis  checklist relating to of taxpayer’s   necessary to have more detailed
          Method and Transactional Net                  functions performed, assets used and   comprehensive information that
                                                        risks assumed.
          Margin Method and Profit Split   5  Entity    Concluding about the characterization   will provide more certainty for the
          Method) with the brief example on   characterization   of the taxpayer.   taxpayer. IT
          the application of each method.   form
          The fourth chapter provides   6  Comparability  Requires details on the comparability
                                                        of the selected comparable
                                          analysis form
          guidance on the treatment of                  companies.
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