New Era of Transfer Pricing Documentation , the development of the transfer pricing regulation has been one of the DGT’s focus lately. As we already noticed at the end of 2016, Indonesia has enacted the MoF 213/2016 regarding the Transfer Pricing Documentation which basically adopts BEPS Action Plan 13 concerning “Transfer Pricing Documentation & Country-by-Country Reporting”. Additionally, the DGT also announced publicly the latest regulation on transfer pricing namely PER 29/2017 on 16 January 2018, regarding the procedures of the preparation of the CbCR. Such regulations have significantly changed the transfer pricing approach taken to assess the arm’s length transaction including:
- Three-tiered documentation including Local File, Master File, and Country-by-Country Report are introduced. The documentation encourages taxpayers to provide more-detailed information regarding the value creation created in the group and the pricing policy set out through the members of the group.
- The regulations require taxpayers to perform the ex-ante approach, instead of the ex-post approach, in assessing the arm’s length nature of the transaction. Under the ex-ante approach, one should test the related party transaction by assessing the condition and circumstance before and at the time the transactions are taken. Such approach focuses the assessment on the pricing policy of the transaction rather than the outcome of the actual transactions (ex-post approach). The Ex-Ante approach implicitly recommends the application of the arms-length analysis on each of the pricing policies of the transaction. It means that transfer pricing analysis should follow how the pricing policy of the controlled transactions pricing policy is set.
- Generally, specific pricing policy of each of the transactions can be found which enables transfer pricing analysis for each transaction can be performed separately. Needless to say, the Ex-Ante approach more represents that the segregation as the most suitable/ recommended approach based on MoF-213, which is also in line with OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TPG) Paragraph 3.9.
- Another salient point for Local File document preparation, MoF-213 has a special requirement especially for the ones which include the transactions of Commodities to conduct Comparable Uncontrolled Price (CUP) testing method, either Internal CUP or External CUP, so that makes the Aggregation Method is probably not the most suitable method to be applied on such transaction based on MoF-213 and OECD TPG paragraph 2.14-2.22.
At TaxPrime, we have developed the transfer pricing documentation which consistently complies with the regulations and serves as a reliable tool to represent the arm’s length nature of the related party transaction.