Transactions bietween related parties must be consistent with the principle of fairness. if a principle of fairness is not followed, the DGT may be authorized to recalculate the value of the taxable income or deductible costs arising from all such transactions by applying the principle of fairness.
Under all laws that have been stipulated and General Provisions and Tax Procedures, the government requires documentation of special transfer pricing to prove the fairness of related party transactions.
The Ministri of Finance has issued a regulation starting from December 30, 2016 regarading transfer pricing documentation, which requires Taxpayers with certain criteria to prepare transfer pricing documentation, namely Master File, Local File, and Country-by-Country (CbC) Report.
a detailed transfer value disclosure is required in CIT returns, which includes the following:
The nature and value of a transaction with a related party.
A pricing method has been determined by which transfer is applied to the transaction and several reasons for choosing that method.
Whether a company has prepared transfer price documentation.
However, MAP will also be able to result in a difference of opinion after the decision on the tax appeal case has been made. The law of a taxation authorizes the DGT to enter into Advance Pricing Agreements (APAs) with taxpayers and/or tax authorities of other countries regarding the application of the principle.
A Transaction must be under strict control including the payment of royalties and fees for technical or management services, intercompany services, transaction royalties and some financing, and exports to several related parties.
If there is a person who is required to do tax and does not have documentation available to support this transaction, there is
a high risk that any deductions for payment will be rejected in full. In this case, the time limit of 30 days in which a person is a taxpayer to show everything he has and documents requested by the Indonesian Tax Office (ITO) during the audit is strictly enforced.
Any documentation provided after the 30 day deadline is ignored by the ITO in its decision-making process.
The ITO began issuing a questionnaire to several unaudited taxpayers that focused primarily on the issue of transfer prices. It is possible that an information collected by the ITO from this questionnaire will lead to a follow-up investigation or audit in some cases.
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