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Indonesian transfer pricing outlook 2023: Trends to watch
The increased use of big data and emerging technology has advanced transfer pricing practices.
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A building of the Directorate General of Taxation in Jakarta. (kontan.co.id/File)
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ransfer pricing is the process of setting prices for goods and services between related parties, such as companies within the same multinational group. However, these prices may not be the same as what would be agreed upon by independent parties, and this can lead to profit shifting and tax avoidance.
To prevent this, tax authorities regulate transfer pricing to ensure that prices or profits are set as if the companies were independent, in order to uphold fairness and reflect the value creation of the products.
Since joining the Organization for Economic Cooperation and Development and the Group of 20 Inclusive Framework (OECD/G20 IF) in 2016, Indonesia has adopted Base Erosion and Profit Shifting (BEPS) Action Plans to counteract tax avoidance by multinational groups. These plans include regulations addressing transfer pricing issues, such as Finance Ministry Regulation No. 213/2016 on transfer pricing documentation in accordance with Action Plan 13, and Finance Ministry Regulation No. 22/2020, which implements the “arm's length” principle in line with Action Plan 8-10.
The most recent changes to transfer pricing regulation in Indonesia were made from Law No. 7/2021 on tax regulation standardization, as well as Government Regulation (PP) No. 50/2022 and PP No. 55/2022.
While the new regulations provide general provisions related to transfer pricing, such as the definition of special relationships and the application of the arm's length principle, it does not provide specific details on how to implement these provisions. On the other hand, the increased use of big data and emerging technology has advanced transfer pricing practices.
These followings are developments to be expected in 2023:
The first of such provisions is the tax treatment of secondary and corresponding adjustments, and the impact of transfer pricing adjustments on value-added tax (VAT). Secondary adjustments are additional adjustments, such as the imposition of additional withholding tax made to the same taxpayer after primary transfer pricing adjustment.
