Country Note: Implementation of BEPS Recommendations in Indonesia’s New APA and Transfer Pricing Rules

Abstract

Indonesia has recently updated its Advance Pricing Agreement and transfer pricing regulations in order to capture the development in the business and transfer pricing. It is also aimed to align with the Base Erosion and Profit Shifting (BEPS) recommendations. The new regulation has made substantial changes to the old advance pricing agreements (APAs) and transfer pricing regulations. With regards to transfer pricing, the new regulation has made some changes pursuant to the related parties’ definition, transfer pricing methods, comparability analysis procedures, special transactions, and intangibles. The transfer pricing guidance also provides guidance on the financial transactions and introduces the value creation concept. The new definition of related party is broader by providing more example on the ownership based on control. The regulation also allows the use of other transfer pricing methods other than the five OECD methods. Moreover, the intangible provisions have been modified to reflect the changes in the OECD Transfer Pricing Guideline 2017, to cover development, enhancement, maintenance, protection, and exploitation (DEMPE) activities and the economic owner. The guidance on financial transaction could also be useful for taxpayers and tax administration. Meanwhile, in terms of APA, the new regulation has provided a longer period of APA implementation, included a roll-back provision and modified the requirements regarding the submission of APA. Based on the new APA regulation, to submit an APA, a taxpayer cannot propose a lower profit than profit reported in the tax return. In general, the new regulation is in line with the BEPS 8-10 recommendations, albeit some differences are found, those are considered minor. The new regulations are expected to provide more certainty and simplicity for the taxpayers. Transfer pricing, APAs, Indonesia, advance pricing agreement, transfer pricing guidance, roll-back, related party, affiliated, transfer pricing methods, comparables