Seminar:

Road to More Advanced

Transfer Pricing Practices

Indonesia adoption of the three-tiered

approach to TP documentation

Jakarta, 24 August 2017

 FELIC SETIAWAN
E: felic.setiawan@gnv.id
M: +62 82115111228

Felic is a Director at GNV Consulting and also a pioneer within Indonesia’s rapidly developing
transfer pricing environment. Felic graduated with Magna Cum Laude from the University at
Buffalo, State University of New York with a Bachelor’s Degree in Business Administration,
Finance concentration.

Before joining GNV Consulting, Felic served in the two of the Big 4 Firms, Deloitte and EY (Ernst
& Young) in Indonesia, specializing in transfer pricing for more than 7 years. Felic has been
actively involved in the formation and development of transfer pricing team in these firms.

During Felic’s professional career, he has been involved in various transfer pricing
engagements, involving the preparation of transfer pricing documentation, tax-effective supply
chain transformations, transfer pricing audit and dispute resolutions (i.e. objection and appeal
engagements), as well as a number of unilateral and bilateral advanced pricing agreement
applications. Felic has also been involved in various tax structuring or advisory and review
projects, mainly covering from the transfer pricing perspectives and international tax issues.

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Introduction

Highlights of the PMK 213

Content of the local file

Content of the master file

Content of the country-by-country report

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 1. Introduction
 What is three-tiered approach
to TP documentation

• It is a standardized approach to
transfer pricing documentation
developed by OECD/G-20 BEPS
Report Action 13 (finalized in
October 2015)

• It contains three reports, namely: (1)

Master File; (2) Local File; (3)
Country-by-Country (“CbC”) Report

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1. Introduction (Cont’d)
 What consist in the three-tiered TP documentation?
• Master File - containing standardized information relevant for all MNE
group members
• Local File – containing information specifically on related party
transactions of the local taxpayer
• Country-by-Country (“CbC”) Report – containing certain information
relating to the global allocation of economic activity within the MNE
group

 Regulation in Indonesia
• The three-tiered approach to TP documentation is Regulated in Indonesia
by The Regulation of the Ministry of Finance (“MoF”) No. 213/PMK.03/2016
(“PMK 213”) which came to force on 30 December 2016

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2. Highlights of the PMK 213
 Who should prepare the three-tiered TP documentation?

The master file and the local file should be prepared by taxpayers who fulfil
one or more of the criteria stated below:
• Taxpayers who earned a gross revenue of more than IDR 50,000,000,000 in
the previous fiscal year;
• Taxpayers who conduct related party transaction(s), in the form of tangible
goods transaction(s), of more than IDR 20,000,000,000 in the previous
fiscal year;
• Taxpayers who conduct related party transaction(s), in the form of
intangible goods transaction(s), service transaction(s), interest payment
transaction(s) or other related party transaction(s), of more than IDR
5,000,000,000 in the previous fiscal year for each transaction; or
• Taxpayers who conduct transaction(s) with related party(ies) located in a
jurisdiction with a lower Income Tax Rate than Indonesia.
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2. Highlights of the PMK 213 (Cont’d)
 Who should prepare the three-tiered TP documentation?

If the taxpayer is the subsidiary of an overseas entity, the CbC Report

should also be prepared if the country / jurisdiction where the ultimate
parent resides:
• Does not require the filing of country-by-country report;
• Does not have an agreement with Indonesia in relation to the exchange of tax
information; or
• The Directorate General of Tax (DGT) is unable to obtain the country-
by-country report from such country / jurisdiction despite the fact that
the country / jurisdiction has an exchange of tax information
agreement with Indonesia.

If the taxpayer is the ultimate parent, the CbC Report should also be
prepared if:
• Taxpayer earns a consolidated gross revenue of equal or more than IDR
11,000,0000,000,000 in that particular year 7
 2. Highlights of the PMK 213 (Cont’d)
 The three-tiered TP documentation matrix

Taxpayer who is an ultimate parent of the group

residing in Indonesia
Is your consolidated gross revenue of the group in the related fiscal year is equal or more
than IDR 11,000,000,000,000?
YES NO

PREPARE - Is your gross revenue more than IDR 50 billion in the previous year?
(1) Master File - Is there any sales/purchase of tangible goods of more than IDR 20
(2) Local File billion in the previous year?
(3) CbC Report - Is there any other related party transactions of more than IDR 5 billion
in the previous year?
- Are the transactions conducted with related parties located in the
jurisdiction with lower tax tariff?
YES on any of the above NO on all of the above

PREPARE No obligation to prepare the three-

(1) Master File tiered approach to TP documentation
(2) Local File 8
 2. Highlights of the PMK 213 (Cont’d)
 The three-tiered TP documentation matrix – Master and Local Files

Taxpayer is a subsidiary who has an ultimate

parent located overseas

- Is your gross revenue more than IDR 50 billion in the previous year?
- Is there any sales/purchase of tangible goods of more than IDR 20 billion in the
previous year?
- Is there any other related party transactions of more than IDR 5 billion in the
previous year?
- Are the transactions conducted with related parties located in the jurisdiction with
lower tax tariff?

YES on any of the above NO on all of the above

PREPARE No obligation to prepare the three-

(1) Master File tiered approach to TP documentation
(2) Local File
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 2. Highlights of the PMK 213 (Cont’d)
 The three-tiered TP documentation matrix – CbC Report

Taxpayer is a subsidiary who has an ultimate

parent located overseas

- Is your ultimate parent located in the jurisdiction that does not require
the submission of the CbC Report?
- Is your ultimate parent located in the jurisdiction that does not have any
exchange of tax information agreement with Indonesia?
- Is your ultimate parent located in the jurisdiction that have an
exchange of information agreement with Indonesia but the
Indonesian Tax Authorities are unable to obtain the CbC report from
that particular jurisdiction?

YES on any of the above NO on all of the above

PREPARE No obligation to prepare CbC Report

(1) CbC Report 10
2. Highlights of the PMK 213 (Cont’d)
 When to prepare the transfer pricing documentation?

Master file and local file

• Contemporaneous master file and local file should be prepared.
• The completed documentation should be readily available at the latest 4
months after the end of the fiscal year.

CbC Report
• should be prepared based on the data and information available at the end of
the fiscal year.
• The country-by-country report should be readily available at the latest 12
months after the end of the fiscal year.

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2. Highlights of the PMK 213 (Cont’d)
 Is the three-tiered documentation required to be submitted along with
the annual CITR?
Master file and local file
• No, however taxpayers are required to submit a declaration form (Appendix B of
the PMK 213)
• The declaration form mandates taxpayer to state the date of the availability of the
local and master files (note: the date should not exceed 4 months after the end of
the fiscal year)

CbC Report
• Yes, the CbC Report should be submitted along with the annual CITR in the
following year (e.g., CbC Report for fiscal year 2016 should be submitted along with
the 2017 annual CITR)

 What fiscal year that will be affected by PMK 213?

• Taxpayers who will be submitting their annual CITR after 30 December 2016
should follow the requirements stipulated within PMK 213 12
2. Highlights of the PMK 213 (Cont’d)
 Repercussions of not preparing the three-tiered TP documentation / not
preparing the three-tiered TP documentation in a timely manner

• Indonesian Tax Authorities deemed the related party transactions conducted by the
taxpayers to be not in accordance with the arm’s length principle.
• Speaking from experiences, Indonesian Tax Authorities may conduct their own TP
analysis and determine what would be the arm’s length amount for taxpayers’ related
party transactions.

 Language

• The documentations should be presented in Indonesian Language

• For taxpayers who obtain an approval for English bookkeeping, they can prepare the
documentation using English language along with the Indonesian translation.

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3. Content of the Local File
 The local file should at the least include the following information:

• Information on taxpayers’ identity and its commercial operation;

• Information on related party and independent transactions;
• Application of the arm’s length principle on the tested related party
transactions;
• Financial information of the taxpayers; and
• Non-financial situations which affect the profitability of the taxpayers

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4. Content of the Master File
 The master file should at the least include the following
information:

• Information on the group ownership structure along with the countries which
the entities are located
• Information on the commercial operation of each of the entity of the group
• Information on the intangible goods owned by the group
• Information of the financial activities and funding operation of the group
• Consolidated financial information of the ultimate parent
• Information on the Advance Pricing Agreement (“APA”) that any of the group
entity concluded

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5. Content of the CbC Report
 Template of the CbC report:
• CbC Working Papers

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5. Content of the CbC Report
 Template of the CbC report:
• CbC Report containing information on the revenue allocation, tax paid, and commercial
operation in each of the jurisdiction

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5. Content of the CbC Report
 Template of the CbC report:
• CbC Report containing information on the list of the group entities and its commercial
operation

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Questions
& feedback