As one of the designated Key Partners of the OECD, Indonesia has implemented some of the OECD’s Action Plans into its prevailing laws and regulations, including Action 8-10 concerning Transfer Pricing and Action 13 concerning Country-by-country Reporting. This publication will briefly discuss the Transfer Pricing regulations in Indonesia.

Regulation Framework

The backbone of the transfer pricing regulation in Indonesia is regulated under Article 18 paragraph (3) of the Income Tax Law which recognizes the arm’s-length principle. Aside from this, the government, through the Minister of Finance (MOF) and the Directorate General of Taxation (DGT) has also issued several other regulations, among others (i) MOF Regulation PER-43/PJ/2010, as amended by MOF Regulation PER - 32/PJ/2011, (ii) MOF Regulation No. 213/PMK.03/2016 (PMK 213), (iv) DGT Regulation PER-22/PJ/2013 (DGT 22), (v) MOF Regulation Number 22/PMK.03/2020 (PMK 20), (vi) MOF Regulation No. 213/PMK.03/2016, and (vii) DGT Regulation No. 29/PJ/2017. The latest is the regulation concerning country-by-country reporting which also intertwine with the transfer pricing regulations.

The key regulations concerning transfer pricing in Indonesia are among others:

a. the DGT is authorized to recalculate the income, deduction and loan of related parties’ transactions,
b. taxpayers who fulfill certain criteria must submit certain documents for transactions with related parties, and
c. related parties’ transactions must use the arm’s length principle.

Introduction to Indonesian Transfer Pricing

a. Special Relationship
The Income Tax Law uses the term “special relationship” in transfer pricing regulations in Indonesia. The explanation concerning special relationship is regulated under Article 18 paragraph (4) of the Income Tax Law. It states that a special relationship is deemed to exist if:

  • a taxpayer owns directly or indirectly a minimum 25% capital participation in other taxpayers; a relationship between taxpayers through ownership of at least 25% of capital participation; or a relationship between two or more taxpayers concerned,
  • a taxpayer who controls another taxpayer or two or more taxpayers are directly or indirectly under the same control1 ; PMK 20 extends the definition of control to also include (i) a condition where two or more companies having the same party who can directly or indirectly involve or participates in the managerial decision of the companies, (ii) parties who are commercially or financially known or state that they are under the same group, or (iii) one-party states to have a special relationship with other parties, or
  • a family relationship (either through blood or marriage) within one degree of direct or indirect lineage.

b. Transfer Pricing Methods

The Indonesian tax laws and regulations recognizes the following transfer pricing methods in determining the arm’s length price:

  • Comparable Uncontrolled Price,
  • Resale Price,
  • Cost Plus,
  • Transactional Net Margin Method,
  • Profit Split,
  • Other methods – DGT 22 opens the opportunities for other methods to be used in determining the arm’s length principle; this is further elaborated in Law No. 7 of 2021 (“HPP Law”) and one of its implementing regulation, i.e., Government Regulation No. 55 of 2022 (“GR 55”) as a profit sharing method, comparable uncontrolled transaction method, tangible asset and intangible asset valuation method, and business valuation method.

In selecting the most appropriate method, the taxpayers must consider the following factors:

- the strengths and weaknesses of the methods;
- the appropriateness of the method given the nature of a controlled transaction, which is determined in particular through a functional analysis;
- the availability of reliable information for the selected method; and
- the degree of comparability between controlled transactions and uncontrolled transactions, including the accuracy level of the adjustments made to eliminate material differences that are identified.

c. TP Documents

TP documents regulations is issued in 2016 through the issuance of PMK 213. This regulation elaborates on the type of documents or additional information that must be maintained by taxpayers conducting transactions with an affiliated party. The TP documents consist of (i) a master document, (ii) a local document, and (iii) a country-by-country report (CbC).

Below is the elaboration on the criteria of taxpayers with affiliated transactions who must create certain TP documents:

Criteria TP Documents
Master document Local document CbC
Taxpayers who conduct an affiliated transaction with a gross revenue of more than IDR 50 billion (approx. USD3.3 million) in the previous fiscal year. This taxpayer should maintain (a) master document and (b) local document V V  

Taxpayers who conduct an affiliated transaction with a value of:

- more than IDR 20 billion (approx. USD1.3 million) for tangible goods transaction; or
- more than IDR 5 billion (approx. USD 335 thousand) for providing services, interest payment, utilisation of intangible assets, or other kind of affiliated transactions in the previous fiscal year

V V  
Taxpayers who conduct an affiliated transaction with an affiliated party who is located in a country with a lower income tax tariff than the income tax tariff imposed in Indonesia. This taxpayer should maintain the master document and the local document V V  
Taxpayers who are a parent entity of a group company that has a consolidated gross revenue of IDR 11 trillion (approx. USD 737,5 million) V V V

Taxpayers who are a subsidiary of a foreign group company where the country of origin of the parent company:

a) does not require a filing of a country-by-country report;
b) does not have an exchange of tax information agreement (EoI Agreement) with the Indonesian government; or
c) has an EoI Agreement with Indonesia, but the Indonesian government cannot obtain a country-by-country report from the jurisdiction


The documents must be prepared in Indonesian language unless the taxpayers have obtained approval from the Minister of Finance to prepare bookkeeping in foreign languages and in foreign currencies. The completed documentation for the master document and the local document should be available no later than four months after the end of the fiscal year based on the actual data and information available during the occurrence of the affiliated transaction. As for the CbC, it should be prepared based on the data and information available at the end of the fiscal year. The CbC should be available within 12 months of the end of the fiscal year and should be submitted as an appendix of the annual income tax return in the following fiscal year.

d. Advance Pricing Agreement (APA)

Indonesian tax regulations recognise APA. APA is defined as a written agreement between (a) the tax officials (the DGT) and the taxpayers (unilateral APA), or (b) tax officials (the DGT) with the tax authority of the treaty partner country (bilateral APA) to agree on the criteria or to determine the arm’s length price or the arm’s length profit in advance. By entering into APA, the taxpayers can avoid potential transfer pricing disputes with the tax authority as APA can conclude among others the criteria for determining the transfer price, the transfer pricing method being used and how to apply the method, and critical assumptions. The taxpayers can also request rollback during the APA negotiation. If the rollback is requested and approved, the APA can also be implemented for the agreed previous fiscal years. However, it is worth noting that a rollback request may also trigger a tax audit for the fiscal year requested in the rollback period.

The APA process involves five steps:

  1. Filing a formal request to the DGT
  2. The DGT will carry out a material examination
  3. Negotiation
  4. Issuance of APA letter (for unilateral APA) or mutual agreement (for bilateral APA)
  5. The implementation and evaluation of the APA

The taxpayers who want to request for APA must submit the request to the DGT within six to twelve months before the start of the fiscal year covered in the APA. To be eligible to submit this request, the taxpayers must fulfil the following criteria:

- the taxpayer has satisfied the obligation to submit the annual corporate income tax return according to the legislative tax provisions for the last three tax years before the submission request;
- the taxpayer has prepared and maintained transfer pricing documentation in the form of Master File and Local File according to the tax provisions for the three tax years before the submission of the request;
- the taxpayer is not under a criminal act investigation n or is not currently guilty of any tax crime;
- the transaction and the related parties proposed in the APA request have been reported in the annual corporate income tax return of the taxpayers for three tax years before the tax year for which the application for an APA is submitted; and
- the transfer pricing policy proposed in the APA request is based on the arm’s length principle and does not result in an operating profit lower than the lowest profit level in the annual corporate income tax return of the preceding three tax years for which the application for an APA is submitted.

e. Mutual Agreement Procedure (MAP)

In addition to APA which is a dispute preventive measurement, the Indonesian tax regulations also recognise MAP. MAP is a dispute resolution procedure to solve double taxation issues arising from correction made by a Tax Authority. One of the causes of the correction that is eligible for MAP procedure is transfer pricing adjustment. In Indonesia, the competent authority to handle the MAP requests is the DGT, i.e., the Director of International Taxation.
According to Government Regulation No. 50 of 2022, the parties eligible to request for MAP are (i) Indonesian taxpayers, (ii) the DGT, (iii) competent authority from the treaty country partner, or (iv) Indonesian citizen who becomes tax resident in the tax treaty partner country concerning the non-discrimination clause granted under the tax treaty.

The MAP process are:

  1. submission of application by the requesting party (with a specific format as regulated under the regulations),
  2. notification of approval/rejection from DGT and the counterparty’s tax authority,
  3. submission of the required documentation,
  4. negotiation between the tax authorities,
  5. formulation of the mutual agreement between the parties,
  6. issuance of the MAP decree.

One of the updates concerning MAP as regulated under the HPP Law is that the MAP request can be made simultaneously with objection or appeal as long as the substance is not the same. This is different from the previous regulation under the MOF regulation which regulates that MAP procedures will stop if there is a tax court or supreme court decision even though the substance is not the same.

f. Tax Avoidance

GR 55 grants authority to the Minister of Finance to combat tax avoidance in transactions between parties having special relationships. To do so, the Minister of Finance (including the DGT) can take the following measures in transactions of parties having special relationships:

  • determine the time when the dividends are received by domestic taxpayers against its offshore equity participation in non-listed entities and the basis of its calculation,
  • recalculate the amount of income, the deduction, and determine debt as capital to calculate the amount of taxable income deducted by the tax authorities by applying the arm’s length principle,
  • determine the party buying shares or the company’s asset via other parties that are established for such purposes, as long as there is an irregularity in the pricing,
  • determine the party carrying out the sale or transfer of special purposes vehicle’s shares that are established or domiciled in tax haven countries,
  • recalculate the income of domestic individual taxpayers received from the employers who transfer all or part of such taxpayers’ income in the form of costs or other expenses paid to offshore companies,
  • recalculate the outstanding tax amount of taxpayers that (i) report smaller income compared to other similar entities, or (ii) report unreasonable losses for three consecutive years even though it has operated commercially for five years by benchmarking (comparing them with taxpayers with similar business).

The HPP Law and GR 55 further regulates that if transactions between parties having special relationship fail to comply with the arm's length principle, the difference in value would be treated as dividends and be subject to income tax.

Freddy Karyadi
Lawyer and Member of Indonesia Fintech Association’s Board of Ethics
Tel: +62 818 103 949

Anastasia Irawati
Lawyer and Alumni of New York University

1Government Regulation No. 55 of 2022 also adds that the form of control can be either through the management of the companies or the use of technologies