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New export revenue rules to tackle transfer pricing, Airlangga says
According to the senior economy minister, the new policy requiring businesses to park 100 percent of their forex earnings domestically for at least one year aims to curb transfer pricing, while the President said it would boost the country’s forex reserves and ensure that its natural resources benefited the people.
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Coordinating Economic Minister Airlangga Hartarto speaks to reporters on Dec. 3, 2024, while leaving his office at the Ali Wardhana building in Central Jakarta. (JP/Deni Ghifari)
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oordinating Economy Minister Airlangga Hartarto has defended the new policy on export revenue (DHE), which requires firms to keep 100 percent of their foreign exchange earnings in domestic banks for at least a year, as a government effort to mitigate the practice of transfer pricing.
The policy was intended “so there is no transfer pricing,” Airlangga said on Monday, as quoted by Detik.com, adding that Malaysia, Thailand and Vietnam already had rules in place that were similar to the new policy, which is set to go into force on March 1.
For example, the policy would prevent cases “of exporting from Indonesia [priced at] US$50, [and] the other country imports [for] $70, meaning there’s $20 parked [elsewhere]”, he said.
Read also: Govt to require exporters to keep 100% earnings onshore for a year
Transfer pricing is defined as an accounting practice that “allows for the establishment of prices for the goods and services exchanged between subsidiaries, affiliates, or commonly controlled companies that are part of the same larger enterprise”, including “divisions of the same company”, “to reduce the overall tax burden of the parent company”, according to Investopedia.
Under the prevailing regulation issued in 2023, exporters engaged in the oil and gas, mining, plantation, forestry or fishery sectors with over $250,000 in forex earnings are required to deposit at least 30 percent of their export earnings in Indonesian banks for a minimum of three months.
The new, more stringent regulation applies only to the mining industry, however.
