Indonesia - Potential changes to transfer pricing regulations 

Background

The 2010 Indonesian transfer pricing regulations confirmed application of the:

• Arm’s length principle
• A basic requirements that prices comply with the arm’s length principle
• Transfer pricing documentary requirements

The transfer pricing regulations were updated in November 2011 to align them more closely with OECD Transfer Pricing Guidelines by using a “most appropriate method” (rather than a hierarchical approach) when selecting a transfer pricing method.

Future potential changes to transfer pricing regulations

In November 2012, officials from the Directorate General of Taxation informally presented proposals for future changes to the transfer pricing regulations. These would include:

• An expanded definition of “related party”
• Increases to the thresholds of controlled transaction amounts subject to the transfer pricing regulations
• Amendments relating to the domestic related-party transaction requirements
• Separate vs. combined transactions approaches—i.e., the arm’s length principle would apply on a transaction-by-transaction basis except when transactions are so closely linked or continuous that they cannot be evaluated adequately on a separate basis
• New segment financial information requirements
• Measures for determining the arm’s length nature of intellectual property transfers
• New contract manufacturer and commodity exporter focus
• The “most appropriate method” approach, with the CUP method always preferable whenever possible

No significant changes are expected in relation to the documentation requirements.

Other proposed measures would concern Mutual Agreement Procedure (MAP) revisions and Advance Pricing Agreement (APA) rules.

Read a November 2012 report [PDF 1.15 MB] prepared by the KPMG member firm in Indonesia: Potential Changes to Indonesian Transfer Pricing Regulations

Contact a tax professional with KPMG's Global Transfer Pricing Services.