Transfer Pricing Methods in Indonesia: Guide for Multinational Businesses

Transfer pricing methods determine how multinational companies price goods, services, and intangibles between related entities. Getting it right is critical, especially in Indonesia, where tax authorities scrutinize related party transactions closely. 

This guide will break down the regulatory landscape, accepted pricing methods, and tips for choosing the best approach. 

Indonesia’s Regulatory Framework on Transfer Pricing 

Multinational businesses operating in Indonesia must comply with a comprehensive regulatory structure to uphold arm’s-length pricing and transparency in related‑party transactions. Key elements include: 

Legal Foundation 

• Guided by the Income Tax Law No. 36/2008, Minister of Finance Regulations PMK‑213/2016 (documentation), PMK‑172/2023 (arm’s length rules), plus the Director General of Taxes’ guidelines PER‑43/PJ/2010, PMK‑22, and PMK‑49. 
• Aligned with OECD Transfer Pricing Guidelines and domestic debt‑equity ratios, financial transactions, and intangible asset valuation regulations. 

Arm’s Length Principle 

• All related‑party transactions must reflect pricing comparable to independent-market deals, using CUP, RPM, CPM, TNMM, and PSM methods. 
• Financial transactions and intangible asset valuations are subject to special ex‑ante analysis under PMK‑172. 

Transfer Pricing Documentation 

• Mandatory Master File, Local File, and Country‑by‑Country Report (CbCR) depending on group size and turnover thresholds. 
• Must be prepared within 4 months after the fiscal year-end; CbCR due within 12 months. 
• In 2025, the Directorate General of Taxes enforces completeness, relevance, and timeliness—particularly Price‑Setting Reports must be in place before transactions occur. 

Advance Pricing Agreements (APA) & Mutual Agreement Procedures (MAP) 

• Indonesia allows unilateral, bilateral, or multilateral APAs under PMK‑22/PMK‑49, with rollbacks covering up to five fiscal years. 
• Offers MAP resolution for cross-border transfer pricing disputes. 

Enforcement and Penalties 

• The DGT actively audits related-party deals and may apply secondary adjustments as constructive dividends, which can result in withholding taxes and penalties. 
• Red flags include large intra-group services, intangible use, loans, losses, and activities involving low-tax jurisdictions.

READ MORE:

• Transfer Pricing Documentation (TP Doc): What You Need to Know
• Important Qualities to Look For in a Transfer Pricing Service Provider in Indonesia
• Transfer Pricing in Indonesia: An Obligation to Implement the Arm’s Length Principle

5 Accepted Transfer Pricing Methods in Indonesia 

Indonesia embraces the five OECD-aligned transfer pricing methods, with a preferred hierarchy under the DGT policy, ensuring fair pricing for related-party transactions. 

Comparable Uncontrolled Price (CUP) Method 

This method compares the price of internal related-party transactions to identical or similar uncontrolled market transactions. It is most reliable when high-quality comparables exist, such as routine commodity sales. 

Resale Price Method (RPM) 

It is ideal for distributors and resellers who do not add substantial value. It determines the transfer price by subtracting an arm’s-length gross margin from the resale price charged to unrelated buyers. 

Cost Plus Method (CPM) 

It is best suited for manufacturers or service providers. It adds an appropriate markup to production or service costs. The key is benchmarking the markup against independent transactions. 

Transactional Net Margin Method (TNMM) 

Compares the tested party’s net profit margins (relative to costs, sales, or assets) with independent benchmarks. Favored when gross margin data is insufficient; typically applied to the simpler transactional party. 

Profit Split Method (PSM) 

Used for highly integrated operations where both parties make unique contributions. It allocates combined profits based on relative economic value derived from a detailed FAR (Functions-Assets-Risks) analysis. 

By understanding these methods and their hierarchy, multinationals can select the most defensible transfer pricing method to align with Indonesian regulations and support robust documentation. 

How to Choose the Right Transfer Pricing Method 

Selecting the appropriate transfer pricing method requires careful evaluation of key factors related to the analyzed transaction. The goal is to choose the method that delivers the most accurate and reliable results, not simply the most convenient one. When determining the best method, consider the following: 

• The strengths and weaknesses of each method 
• How well the method fits the nature of the transaction (via functional analysis) 
• The availability of reliable comparable data 
• The degree of similarity between the controlled and comparable transactions

How InCorp Indonesia Helps You Stay Compliant 

InCorp Indonesia (an Ascentium Company) offers full-spectrum transfer pricing services to help businesses meet Indonesia’s complex tax regulations while saving time and costs. 

End-to-End Advisory and Documentation 

Our services cover every critical area: 

• Transfer Pricing Documentation (TP Doc): We prepare compliant reports that support your related-party transactions and meet local and OECD standards. 
• Planning & Benchmarking: We set fair prices using reliable market data through TP Catalyst, ensuring accurate benchmarking. 
• Transaction Review: We assess and structure intra-group transactions to reduce audit risks and prevent tax reassessments. 
• Audit Defense: Are you facing a tax audit? We provide hands-on support to defend your transfer pricing methods and manage authority queries. 

TP Catalyst Certified for Accuracy and Confidence 

As a TP Catalyst-certified advisory, we deliver high-quality reports with defensible pricing strategies that withstand scrutiny. Our tools ensure precision and compliance with minimal manual effort. 

Save Time and Optimize Costs 

Working with InCorp Indonesia (an Ascentium Company) helps you streamline compliance, reduce administrative burden, and avoid penalties, ultimately saving time and money. 

Partnering with a certified advisor like InCorp Indonesia ensures you stay ahead of regulatory expectations. Our team delivers peace of mind and tangible savings from documentation, audits, planning, and policy.

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Frequently Asked Questions