Transfer Pricing Documentation (TP Doc): What You Need to Know

In today’s global economy, multinational enterprises (MNEs) frequently transact with related parties across international borders. Indonesia has established comprehensive transfer pricing regulations to ensure these transactions are fair and to prevent profit shifting. A key element of these regulations is the Transfer Pricing Documentation (TP Doc), which proves that intercompany transactions comply with tax laws. 

This article explores the fundamentals of TP Doc in Indonesia, detailing its significance, benefits, requirements, and the importance of professional services in its preparation. 

What is Transfer Pricing and Why Does It Matter 

Transfer pricing involves the methods and rules used to determine the pricing of transactions and transfers between affiliated entities within the same corporate group. These transactions may include goods, services, royalties, or financing arrangements between related parties, such as subsidiaries, branch offices, or parent companies. Two parties are considered related if: 

• One controls the other directly or indirectly (e.g., a head office and a branch). 
• Both are controlled by the same company (e.g., sister companies under one parent). 
• There is a familial relationship between the people in charge of the business. 

These rules help ensure that each company pays the correct amount of tax in the appropriate country and prevent businesses from unfairly shifting profits. 

READ MORE:

• Tax Compliance in Indonesia: A Comprehensive Guide for Businesses and Individuals
• Pre-Tax Litigation Explained: Processes, Benefits, and Insights
• Understanding Indonesia’s Double Tax Avoidance Agreements

Benefits of Transfer Pricing Documentation 

Preparing proper TP Documentation provides several significant benefits for multinational companies, including: 

• Optimizing Global After-Tax Income: This enables companies to legally reduce their overall tax burdens and retain a greater portion of their net income. 
• Securing a Competitive Position: Ensures fair pricing strategies and market competitiveness. 
• Evaluating Performance of Overseas Branches: Acts as a tool to measure the efficiency and profitability of foreign subsidiaries. 
• Reducing Financial Risk: Minimizes exposure to tax audits, penalties, and compliance issues. 
• Managing Cash Flow Between Entities: Helps control and plan the movement of funds within different branches. 
• Lowering Tax and Customs Duties: This helps identify opportunities to reduce tax liabilities and import duties legally compliantly. 
• Avoiding Government Intervention: Reduces the chance of being targeted for profit shifting or manipulation investigations. 

TP Doc Requirements in Indonesia 

Indonesia has recently updated its transfer pricing rules under Regulation PMK-172, which brings several significant changes that businesses need to understand: 

More Detailed Local File 

The local file must now include more in-depth information, such as: 

• Key factors used for industry analysis 
• Clear explanations of the terms and conditions of transactions 
• More thorough comparability analysis 

This ensures that the documentation better reflects the economic realities of related-party transactions. 

Tighter Submission Deadlines 

Companies must now submit both the master file and the local file within one month after receiving a request from the tax authority. Missing this deadline means the documentation might not be considered, increasing the risk of tax adjustments. 

Updates to Country-by-Country Reporting (CBCR) 

• Businesses acting as the parent company must submit a CBC report if their group’s revenue exceeded IDR 11 trillion in the year before the report. 
• The current method of calculating revenue encompasses both business and non-business income and must account for any returns or discounts. 
• The definition of a parent company now depends on ownership, not just control. 
• Currency conversion for the report uses the exchange rate as of January 1, 2023. 

These updates aim to improve transparency and align Indonesia’s transfer pricing rules with global standards. 

Why Should You Use Professional TP Doc Services in Indonesia? 

You might know how vital transfer pricing documentation is as a business owner. But have you considered the benefits of letting experts handle it? Here’s why using a professional TP Doc service can be a smart move: 

Expert Help and Compliance 

Transfer pricing rules are complex and frequently subject to change. Professionals stay updated and know how to keep their documents aligned with the law. This helps avoid mistakes, saves time, and protects you from fines or legal trouble. They can also help you spot and fix any risks in your intercompany transactions, keeping your business safe and well-prepared. 

Save Time and Money 

Creating TP Docs takes a lot of time, especially if you have offices in different countries. By outsourcing, your team can focus on growing the business instead. Experts also utilize specialized tools that expedite the process and minimize errors, resulting in cost savings on staffing or software. 

Reduce Risk 

Good TP Documentation is a strong defense if you face a tax audit. It clearly shows how you set your prices and why. Professionals help ensure your documentation is solid, consistent, and ready for tax questions, lowering your risk of problems. 

Simplify Your TP Doc Process with InCorp 

Accurate Transfer Pricing Documentation (TP Doc) is essential for staying compliant and effectively managing tax risks. As Indonesia tightens its regulations, expert support is more valuable than ever. 

Using a professional service ensures your documents meet current regulations, reduce errors, save time, and offer peace of mind during audits. InCorp Indonesia (an Ascentium Company) provides reliable services and holds TP Catalyst Certification, reflecting our commitment to high-quality, internationally compliant documentation for global tax authorities. 

• Local Expertise: In-depth knowledge of Indonesian transfer pricing laws and regulations. 
• Complete Service: End-to-end support for TP documentation, audits, and tax reporting. 
• TP Catalyst Certified: Certified to deliver high-quality, internationally aligned documentation. 

Fill out the form below to simplify your transfer pricing process and fully comply.