Many foreign companies that are considering expanding their businesses far and beyond to other countries such as Indonesia often encounter increasing international tax compliance issues and challenges. For most foreign companies in Indonesia, it is almost unattainable to keep pace with all regulations and tax requirements that change constantly, depending on the country’s economic conditions. With all the best interests in mind for your business to cut down on tax liability, there is a very fine line between legal tax avoidance and illegal tax evasion with inadequate transfer pricing rules. Companies that do not comply with the transfer pricing rules will need to face serious negative consequences, such as tax disputes and penalties and putting yourself in a world of trouble.
This article helps you to navigate this complex subject and be aware of the important qualities to look for in a transfer pricing service provider in Indonesia.
What Is Transfer Pricing?
Transfer pricing is the general term involves the pricing (or setting the price) of trade of goods or services in intra-firm and cross‐border transactions between related parties.
The related parties can be between two companies or a company and an individual. Both parties can benefit from the transfer pricing method.
In general, transfer pricing is all about profits and tax. It helps simplify and streamline the accounting process, thus improving business efficiency.
Through transfer pricing, resources such as manpower can be saved, allowing businesses to focus on business strategies that lead to greater profitability.
Penalties of Non Compliance
Transfer pricing regulations and penalties are different from country to country. In Indonesia, companies that fail to submit, delay submission, or submit incorrect disclosures of trade transactions caused by the transfer pricing non-compliance, may face costly transfer pricing audits, huge amounts of additional tax penalties and liabilities.
To avoid serious penalties, you will need a transfer pricing service provider with transfer pricing expertise to make all the right moves for you.
Important Qualities of a Transfer Pricing Service Provider
A reliable transfer pricing provider analyses business transactions between your companies in Indonesia.
Your business can receive tax cuts through legal transfer pricing method, while at the same time limiting your exposure and risks as much as possible.
Some critical qualities of a transfer pricing service provider include the following:
1. Staying Up-to-Date with All Regulatory Changes
Your transfer pricing provider should be able to keep pace with the most updated developments in regulations in different countries as well as the global market.
Cekindo can help you plan strategically for all your transactions and make sure you are in compliance with the regulations through transfer pricing method.
2. Connected with Diverse Experts
A transfer pricing provider has to provide you all expert advice, even very specific expertise, through the connection with international professionals for assistance on such enquiries.
3. Displaying Extensive Experience
A good transfer pricing service provider should display extensive experience in many areas, including:
- Strategic international tax consulting and planning
- Tax services including asset reporting and foreign bank account
- Foreign tax credit planning
- Cross-border tax restructuring and planning
- International acquisitions and mergers
Transfer Pricing in Indonesia
The Minister of Finance of Indonesia issued the PMK-2132016 stating that every affiliated transaction in Indonesia is required to provide documents known as TP Doc. This regulation applies to both local and international companies.
All taxpayers must maintain 3-tier documentation and submit the documents in Indonesian language, as required in the legislation:
- Master File
- Local File
- Country-by-Country Report (CbCR)
Transactions that meet the following conditions must comply to the TP Doc requirements:
- Gross revenue exceeding IDR 50 billion in the previous year
- Services, royalties interest and other transactions exceeding IDR 5 billion in the previous year
- Tangible goods transactions exceeding IDR 20 billion in the previous year
- Affiliated transactions with a related party located in a region or country with tax rate lower than that of Indonesia
How Cekindo Can Help
Our transfer pricing services are designed to comply with Indonesian statutory requirements and international practice while at the same time being tailored to your business needs. Get in touch with us today to know more about our transfer pricing services.