Strengthen Indonesia Transfer Pricing Position with Benchmark Analysis

Indonesia transfer pricing remains an important compliance consideration for multinational companies as Indonesia continues to strengthen its broader tax administration framework. A World Bank assessment found that corporate tax compliance remains a broader challenge in Indonesia, reinforcing the importance of maintaining well-supported tax positions and documentation. 

For multinational companies, related-party transactions require particular attention. Under PMK 172/2023, these transactions must follow the arm’s length principle based on their actual circumstances. This means pricing, commercial rationale, agreements, benchmarking, and actual business conduct should align. 

A defensible transfer pricing position can help companies support their related-party transactions before tax filing or in the event of potential scrutiny by the Directorate General of Taxes (DJP).

Key Takeaways

• Related-party transactions in Indonesia must comply with the arm’s-length principle under PMK 172/2023. 
• A defensible position requires pricing, commercial substance, functional analysis, documentation, and actual business activities to align. 
• Benchmark analysis can provide external market support for related-party prices, margins, interest rates, royalties, and other financial indicators. 
• Transfer pricing should be reviewed early, particularly before market entry, new transactions, major business changes, and year-end. 
• Benchmarking, transfer pricing analysis, and TP documentation work together to strengthen a company’s position before tax filing or potential DJP scrutiny. 

Which Related-Party Transactions Should Companies Review? 

Related-party transactions in Indonesia can cover goods, services, financing, intangibles, and other arrangements within a business group. Under PMK 172/2023, companies should assess both the commercial basis of these transactions and whether their pricing follows the arm’s length principle. 

Related-Party Transaction	Common Examples	Key Areas to Assess
Goods	Raw materials, components, finished products	Prices, margins, functions, and comparables
Services	Management, technical, IT, or support services	Actual provision, business need, benefits, and pricing
Financing	Intercompany loans and guarantees	Interest rates, terms, repayment capacity, and commercial rationale
Intangibles	Royalties, trademarks, technology, and software	Use, economic benefits, rights, and pricing
Asset Transfers and Restructuring	Transfer of assets, functions, or business activities	Commercial rationale, valuation, and expected benefits
Cost Contribution Arrangements	Shared development or group costs	Expected benefits and allocation of contributions

Identifying related-party transactions early helps companies determine the appropriate transfer pricing method, supporting evidence, and benchmarking requirements, ensuring compliance and reducing risks. 

What Makes a Transfer Pricing Position Defensible? 

PMK 172/2023 doesn’t formally define a transfer pricing position as “defensible.” In practice, a stronger position is one in which the analysis, pricing, documentation, and the actual transaction are consistent and supported by evidence. 

Documentation Matches Commercial Reality 

Contracts and transfer pricing documentation should reflect the actual transaction, including the functions performed, assets used, risks assumed, and business conditions. 

The Transaction Has Commercial Substance 

Certain transactions, including services, financing, intangibles, asset transfers, restructuring, and cost contribution arrangements, require additional analysis of their substance and commercial basis. 

Functional Analysis Supports the Pricing 

The roles, assets, and risks of each party should support how the entity is characterized and remunerated. Significant operational changes may require updating the analysis. 

READ MORE:

• Strengthen Tax Audit Readiness with Transfer Pricing 
• How TP Catalyst Enhances Your Business’s Transfer Pricing Strategy 
• The Role of Benchmarking Analysis in Transfer Pricing Documentation 

The Method Fits the Transaction 

PMK 172/2023 requires companies to analyze transactions and comparables before selecting and applying an appropriate transfer pricing method. The method should therefore reflect the current transaction rather than repeat the previous year’s approach. 

Supporting Records are Consistent 

Transfer pricing documentation should align with relevant records, such as: 

• Intercompany agreements 
• Invoices and financial records 
• Tax and financial reporting 
• Benchmarking and supporting calculations 
• Evidence supporting the underlying transaction 

InCorp Indonesia (an Ascentium Company) can support companies through transfer pricing reviews, documentation preparation, economic analysis, and alignment of related-party transactions. Talk to our team -> 

How Does Benchmark Analysis Support a Defensible Transfer Pricing Position? 

A benchmark analysis helps determine whether the price, margin, or royalty of a related-party transaction aligns with the arm’s-length principle, supporting a strong transfer pricing position. 

Under PMK 172/2023, companies must conduct a comparability analysis when applying the arm’s length principle. Benchmark analysis can provide external support by comparing the tested transaction or entity with sufficiently comparable independent transactions or businesses. 

Supports Arm’s Length Pricing 

Benchmarking provides an external reference for assessing whether related-party pricing or financial results fall within an arm’s length range. It helps companies support pricing decisions with market-based evidence rather than relying solely on internal policies or agreements. 

Strengthens Method Selection 

Comparable data should align with the selected transfer pricing method and the tested party’s functions, assets, and risks. A well-matched benchmark can make it easier to support the chosen method if the transfer pricing position is later reviewed. 

Identifies Pricing Gaps Early 

Benchmark analysis can be performed before or during the financial year to assess whether actual results remain aligned with the expected arm’s length position. This gives companies more time to investigate material deviations before year-end documentation is finalized. 

Supports Transfer Pricing Documentation 

Where a Master File or Local File is required, reliable benchmarking can strengthen the economic analysis supporting the company’s transfer pricing position. 

Even when formal documentation thresholds are not met, related-party transactions must still comply with the arm’s length principle. Benchmarking can therefore remain relevant when external support is needed for the applied pricing. 

InCorp Indonesia (an Ascentium Company) can conduct benchmark analysis and assess whether existing intercompany pricing remains consistent with the company’s functions, risks, and current Indonesian transfer pricing requirements. 

When Should Companies Review Their Transfer Pricing? 

Companies should review transfer pricing before issues arise during tax filing or DJP scrutiny. Under PMK 172/2023, the analysis should reflect information available when the related-party transaction occurs. 

• Before Market Entry: Establish an arm’s-length pricing policy before the Indonesian entity begins transacting with related parties. 
• New Transactions: Assess new services, goods, royalties, financing, or other intercompany arrangements before pricing is applied. 
• Business Changes: Update the analysis when restructuring, new functions, or changes in risk allocation affect the operating model. 
• Pricing Changes: Review material changes in fees, royalties, interest rates, or margins to confirm they remain commercially supportable. 
• Year-End Review: Compare actual results against the expected arm’s-length position and identify any material gaps. 
• Before DJP Scrutiny: Align agreements, documentation, financial data, and supporting evidence to prevent questions from arising. 

For companies with continuing related-party transactions, integrating transfer pricing into the annual tax and financial reporting cycle generally provides a stronger position than revisiting the analysis only when documentation becomes due. 

Build a Defensible Transfer Pricing Position with InCorp 

A defensible transfer pricing position starts with the right pricing approach, reliable benchmarking, and documentation that reflects the actual transaction. 

InCorp Indonesia (an Ascentium Company) can support businesses with: 

• Benchmark Analysis: Identify comparable independent transactions or companies to support arm’s length prices, margins, interest rates, or other financial indicators. 
• Transfer Pricing: Assess related-party transactions, pricing policies, and transfer pricing methods to support an arm’s length position. 
• TP Documentation: Prepare Master File and Local File documentation that reflects the company’s transactions, functions, risks, and supporting analysis. 

Strengthen your related-party pricing with benchmark analysis and transfer pricing support before gaps become harder to address. 

Frequently Asked Questions